<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 1998 OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERION FROM ______ TO _____
Commission file number 1-7792
Pogo Producing Company
(Exact name of registrant as specified in its charter)
Delaware 74-1659398
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5 Greenway Plaza, Suite 2700
Houston, Texas 77046-0504
(Address of principal executive offices) (Zip Code)
(713) 297-5000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirement for the past 90 days: Yes X No
Registrant's number of common shares outstanding
as of March 31, 1998: 37,559,370
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
Pogo Producing Company and Subsidiaries
Consolidated Statements of Income (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
--------------- ---------------
(Expressed in thousands, except per share amounts)
<S> <C> <C>
Revenues:
Oil and gas $ 60,661 $ 61,314
Gain on sale 69 --
_____________ _______________
Total 60,730 61,314
------------- ---------------
Operating Costs and Expenses:
Lease operating 16,509 12,297
General and administrative 5,485 5,836
Exploration 3,832 1,900
Dry hole and impairment 1,308 921
Depreciation, depletion and amortization 30,460 18,420
------------- ---------------
Total 57,594 39,374
------------- ---------------
Operating Income 3,136 21,940
Interest:
Charges (6,068) (4,295)
Income 148 56
Capitalized 1,845 1,870
Foreign Currency Transaction Gain 997 --
------------- ---------------
Income Before Income Taxes 58 19,571
Income Tax Benefit (Expense) 126 (6,753)
------------- ---------------
Net Income $ 184 $ 12,818
============= ===============
Earnings Per Common Share (restated for
1997 period)
Basic $ 0.01 $ 0.38
============= ===============
Diluted $ 0.01 $ 0.36
============= ===============
Dividends Per Common Share $ 0.03 $ 0.03
============= ===============
Weighted Average Number of
Common Stock and Potential
Common Shares Outstanding
Basic 35,122 33,348
Diluted 35,565 40,789
</TABLE>
See accompanying notes to consolidated financial statements.
- 1 -
<PAGE>
Pogo Producing Company and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------- -------------
(Unaudited)
(Expressed in thousands, except share amounts)
<S> <C> <C>
Assets
Current Assets:
Cash and cash investments $ 14,430 $ 19,646
Accounts receivable 30,166 39,540
Other receivables 41,738 46,951
Inventories - Product 2,682 713
Inventories - Tubulars 6,528 8,334
Other 4,376 4,087
------------- -------------
Total current assets 99,920 119,271
------------- _____________
Property and Equipment:
Oil and gas, on the basis of successful efforts accounting
Proved properties being amortized 1,335,531 1,321,817
Unevaluated properties and properties
under development, not being amortized 116,965 110,231
Other, at cost 13,027 12,619
-------------- -------------
1,465,523 1,444,667
Less--accumulated depreciation, depletion and
amortization, including $6,323 and $6,004,
respectively, applicable to other property 936,469 917,363
-------------- -------------
529,054 527,304
-------------- -------------
Other 32,193 30,042
-------------- -------------
$ 661,167 $ 676,617
============== =============
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable - operating activities $ 11,593 $ 13,639
Accounts payable - investing activities 62,063 90,833
Accrued interest payable 5,553 3,130
Accrued payroll and related benefits 2,065 1,938
Other -- 632
-------------- -------------
Total current liabilities 81,274 110,172
Long-Term Debt 275,000 348,179
Deferred Federal Income Tax 56,250 57,502
Deferred Credits 16,458 14,658
-------------- -------------
Total liabilities 428,982 530,511
-------------- -------------
Shareholders' Equity:
Preferred stock, $1 par; 2,000,000 shares authorized - -
Common stock, $1 par; 100,000,000 shares authorized,
37,574,945 and 33,552,702 shares issued, respectively 37,575 33,553
Additional capital 227,793 144,848
Retained earnings (deficit) (32,859) (31,971)
Treasury stock, at cost (324) (324)
-------------- -------------
Total shareholders' equity 232,185 146,106
-------------- -------------
$ 661,167 $ 676,617
============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
- 2 -
<PAGE>
Pogo Producing Company and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------------
1998 1997
------------- --------------
(Expressed in thousands)
<S> <C> <C>
Cash Flows from Operating Activities:
Cash received from customers $ 68,538 $ 59,834
Operating, exploration, and general
and administrative expenses paid (27,872) (16,740)
Interest paid (3,645) (3,690)
Federal income taxes received -- 7,037
Other (2,206) (542)
------------- --------------
Net cash provided by operating activities 34,815 45,899
------------- --------------
Cash Flows from Investing Activities:
Capital expenditures (53,880) (70,388)
Purchase of proved reserves -- (28,617)
Proceeds from the sale of properties 525 --
------------- --------------
Net cash used in investing activities (53,355) (99,005)
------------- --------------
Cash Flows from Financing Activities:
Borrowings under senior debt agreements 91,000 162,000
Payuments under senior debt agreements (78,000) (102,000)
Payment of cash dividend on common stock (1,072) (1,001)
Purchase of 2004 Notes (99) --
Proceeds from exercise of stock options 970 717
------------- --------------
Net cash provided by financing activities 12,799 59,716
------------- --------------
Effect of exchange rate changes on cash 525 (78)
------------- --------------
Net Increase (Decrease) in Cash and Cash Investments (5,216) 6,532
Cash and Cash Investments at the Beginning of the Year 19,646 3,054
------------- --------------
Cash and Cash Investments at the End of the Period $ 14,430 $ 9,586
============= ==============
Reconciliation of Net Income to Net
Cash Provided by Operating Activities:
Net income $ 184 $ 12,818
Adjustments to reconcile net income to
net cash provided by operating activities -
Foreign currency transaction gain (997) --
Gain from the sale of properties (69) --
Depreciation, depletion and amortization 30,460 18,420
Dry hole and impairment 1,308 921
Interest capitalized (1,845) (1,870)
Deferred federal income taxes 155 14,052
Change in operating assets and liabilities 5,619 1,558
------------- --------------
Net Cash Provided by Operating Activities $ 34,815 $ 45,899
============= ==============
</TABLE>
See accompanying notes to consolidated financial statements.
- 3 -
<PAGE>
Pogo Producing Company and Subsidiaries
Consolidated Statements of Shareholders' Equity (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------------------------------------
1998 1997
-------------------------- -----------------------------
Shares Amount Shares Amount
---------- ------------ ---------- -------------
(Expressed in thousands, except share amounts)
<S> <C> <C> <C> <C>
Common Stock:
$1.00 par - 100,000,000 shares authorized
Balance at beginning of year 33,552,702 $ 33,553 33,321,381 $ 33,321
Shares issued upon conversion
of the 2004 Notes 3,879,726 3,880 -- --
Stock options exercised 142,517 142 57,283 58
---------- ------------ ---------- -------------
Issued at end of period 37,574,945 37,575 33,378,664 33,379
---------- ------------ ---------- -------------
Additional Capital:
Balance at beginning of year 144,848 139,337
Shares issued upon conversion
of the 2004 Notes 81,233 --
Stock options exercised 1,712 1,159
------------ -------------
Balance at end of period 227,793 140,496
------------ -------------
Retained Earnings (Deficit):
Balance at beginning of year (31,971) (65,075)
Net income 184 12,818
Dividends ($0.03 per common share) (1,072) (1,001)
------------ -------------
Balance at end of period (32,859) (53,258)
------------ -------------
Treasury Stock and Other:
Balance at beginning of year (15,575) (324) (15,575) (301)
Activity during the period -- -- -- (78)
---------- ------------ ---------- -------------
Balance at end of period (15,575) (324) (15,575) (379)
---------- ------------ ---------- -------------
Common Stock Outstanding,
at the End of the Period 37,559,370 33,363,089
========== ==========
Total Shareholders' Equity $ 232,185 $ 120,238
============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
- 4 -
<PAGE>
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. 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, 1997.
(2) Long-Term Debt -
Long-term debt and the amount due within one year at March 31,
1998 and December 31, 1997, consists of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------------- -------------
(Expressed in thousands)
<S> <C> <C>
Senior debt --
Bank revolving credit agreement
LIBO Rate based loans, borrowings at March 31, 1998 and
December 31, 1997 at average interest rates of 6.29%
and 6.52%, respectively $ 60,000 $ 47,000
Uncommitted credit lines with banks -- --
-------------- -------------
Total senior debt 60,000 47,000
-------------- -------------
Subordinated debt --
8 3/4% Senior subordinated notes due 2007 ("2007 Notes") 100,000 100,000
5 1/2% Convertible subordinated notes due 2006 ("2006 Notes") 115,000 115,000
5 1/2% Convertible subordinated notes due 2004 ("2004 Notes") -- 86,179
-------------- -------------
Total subordinated debt 215,000 301,179
-------------- -------------
Total debt 275,000 348,179
Amount due within one year -- --
-------------- -------------
Long-term debt $ 275,000 $ 348,179
============== =============
</TABLE>
Refer to Note 3 of the Notes to Consolidated Financial Statements
included in the Company's annual report on Form 10-K for the year ended
December 31, 1997, for a further discussion of the bank revolving
credit agreement, the Company's uncommitted credit lines, the 2007
Notes and the 2006 Notes. On February 12, 1998, the Company announced its
intent to redeem the 2004 Notes on March 16, 1998 at 103.3% of thier
principal amount plus accrued interest. Holders of $86,084,000 principal
amount of the 2004 Notes elected to convert their notes into 3,879,726
common shares at $22.188 per share plus $640 in cash for fractional shares.
The value of the shares issued was credited to common stock and additional
capital less the unamortized debt issue expenses applicable to the 2004 Notes.
The remaining $95,000 principal amount of the 2004 Notes were redeemed for
$98,135, representing 103.3% of the principal amount of such 2004 Notes.
(4) Geographic Segment Reporting -
The Company's long-lived assets and revenues by geographic area are as
follows:
<TABLE>
<CAPTION>
Long-Lived
Assets Revenues
-------------- -------------
(Expressed in thousands)
<S> <C> <C>
As of and for the Three Months Ended March 31, 1998
United States $ 361,373 $ 50,922
Kingdom of Thailand 167,681 9,808
______________ _____________
$ 529,054 $ 60,730
============== =============
As of December 31, and for the Three Months Ended March 31, 1997
United States $ 366,638 $ 56,239
Kingdom of Thailand 160,666 5,075
______________ _____________
$ 527,304 $ 61,314
============== =============
</TABLE>
- 5 -
<PAGE>
Pogo Producing Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(3) Earnings per Share -
In 1997, the Company adopted the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 128, Earnings Per
Share ("SFAS 128"). Prior periods have been restated in conformity with the
provisions of SFAS 128. 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:
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1998
--------------------------------------------
Income Shares Per Share
-------------- ------------- -----------
<S> <C> <C> <C>
Basic earnings per share -- $ 184 35,122 $ 0.01
Effect of dilutive securities: ==========
Options to purchase common shares -- 443
2004 Notes -- --
2006 Notes -- --
_____________ ____________
Diluted earnings per share $ 184 35,565 $ 0.01
============= ============ ==========
Antidilutive securities --
Options to purchase common shares -- 876 $ 37.82
2004 Notes 478 2,410 $ 0.20
2006 Notes 1,028 2,726 $ 0.38
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1997
(Restated)
--------------------------------------------
Income Shares Per Share
-------------- ------------- -----------
<S> <C> <C> <C>
Basic earnings per share -- $ 12,818 33,348 $ 0.38
Effect of dilutive securities: ==========
Options to purchase common shares -- 828
2004 Notes 771 3,887
2006 Notes 1,028 2,726
_____________ ____________
Diluted earnings per share $ 14,617 40,789 $ 0.36
============= ============ ==========
Antidilutive securities --
Options to purchase common shares -- 11 $ 44.27
</TABLE>
(5) Comprehensive Income --
During 1998, the Company adopted the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 130, 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. As such, total comprehensive income and net income are the
same for the three months ended March 31, 1998 and 1997, respectively.
- 6 -
<PAGE>
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, 1997. 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, 1997, 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 --
INCOME AND REVENUE DATA
Net Income
The Company reported net income for the first quarter of 1998
of $184,000 or $0.01 per share (on both a basic and a diluted basis)
compared to net income for the first quarter of 1997 of $12,818,000
or $0.38 per share ($14,617,000 or $0.36 per share on a diluted
basis).
Earnings per common share are based on the weighted
average number of common shares
outstanding for the first quarter of 1998 of 35,122,000 (35,565,000 on
a diluted basis), compared to 33,348,000 (40,789,000 on a diluted
basis) for the first quarter of 1997. The increase in the weighted
average number of common shares outstanding for the first quarter
of 1998, compared to the first quarter of 1997, resulted primarily
from the issuance of 3,882,023 shares of its common stock upon the
conversion of the Company's 5-1/2% Convertible Subordinated Notes
due 2004 (the "2004 Notes") prior to their being redeemed on March
16, 1998 and, to a lesser extent, the exercise of stock options
pursuant to the Company's stock option plans. Earnings per
common share computations on a diluted basis for the first quarter of
1997 primarily reflect additional common shares issuable upon the
assumed conversion of the Company's 2004 Notes and its 5-1/2%
Convertible Subordinated Notes, due 2006 (the "2006 Notes") and the
elimination of related interest requirements, as adjusted for
applicable
federal income taxes. The 2006 Notes were antidilutive during the
first quarter of 1998. In addition, the number of common shares
outstanding in the diluted computation for both quarters is also
adjusted to include dilutive shares that are assumed to have been
issued by the Company in connection with options exercised during
the year, less treasury shares that are assumed to have been
purchased by the Company from the option proceeds. During 1997,
the Company also adopted the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 128,
Earnings per Share, resulting in a restatement of the earnings per
share calculations for the first quarter of 1997.
- 7 -
<PAGE>
POGO PRODUCING COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Revenues
Total Revenues
The Company's total revenues for the first quarter of 1998
were $60,730,000, a decrease of approximately 1% compared to total
revenues of $61,314,000 for the first quarter of 1997. The decrease
in the Company's total revenues for the first quarter of 1998,
compared to the first quarter of 1997, resulted primarily from
decreases in the average price that the Company received for its
liquid hydrocarbon (including crude oil, condensate and natural gas
liquid ("NGL")) and natural gas production volumes, that were only
partially offset by increases in its natural gas and liquid
hydrocarbon production volumes.
Oil And Gas Revenues
The following table reflects an analysis of differences in the
Company's oil and gas revenues (expressed in thousands of dollars)
between the first quarter of 1998 and the same periods in the
preceding year.
1st Qtr '98
Compared to
1st Qtr '97
-----------
Increase (decrease) in oil and gas
revenues resulting from differences in:
Natural gas --
Price . . . . . . . . . . . . . . . $ (6,828)
Production. . . . . . . . . . . . . 10,916
--------
4,088
--------
Crude oil and condensate
Price . . . . . . . . . . . . . . . (10,049)
Production. . . . . . . . . . . . . 2,821
--------
( 7,228)
--------
NGL and other, net. . . . . . . . . . 2,487
--------
Decrease in oil and gas revenues. . . $ (653)
========
Natural Gas Prices. Prices per thousand cubic feet ("Mcf")
that the Company received for its natural gas production during the
first quarter of 1998 averaged $2.08 per Mcf, a decrease of
approximately 22% from an average price of $2.67 per Mcf that the
Company received for its production during the first quarter of 1997.
- 8 -
<PAGE>
POGO PRODUCING COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Domestic Prices. Prices that the Company received for its
domestic natural gas production during the first quarter of 1998
averaged $2.19 per Mcf, a decrease of approximately 22% from an
average price of $2.82 per Mcf that the Company received for its
domestic natural gas production during the first quarter of 1997.
Thailand Prices. The Company's Tantawan Field located in
the Kingdom of Thailand commenced production of natural gas and
liquid hydrocarbons in February 1997. All of the Company's gas
production from the Tantawan Field is sold under a long-term gas
sales agreement with the Petroleum Authority of Thailand ("PTT").
The gas sales agreement provided that PTT paid a discounted price
during field startup, which continued throughout the majority of the
first quarter of 1997. Consequently, the Company does not consider
a comparison of prices that the Company received for its natural gas
production in the Kingdom of Thailand for first quarter 1998,
compared to the first quarter of 1997 to be meaningful. During the
first quarter of 1998, the price that the Company received under its
long term gas sales contract for natural gas production from the
Tantawan Field averaged approximately 83 Thai Baht per Mcf.
Based on the Thai Baht to U.S. dollar exchange rates in effect at the
time that such production was recorded on the Company's financial
statements, the Company recorded an average price of $1.74 per Mcf
for its natural gas production from the Kingdom of Thailand during the
first quarter of 1998. The price that the Company receives under the
gas sales agreement normally adjusts on a semi-annual basis.
However, the gas sales agreement provides for adjustment on a
more frequent basis in the event that certain indices and factors on
which the price is based fluctuate outside a given range. Due to the
volatility of the Thai Baht and the current economic difficulties in
the Kingdom of Thailand and throughout Southeast Asia, the price that
the Company received under the gas sales agreement was adjusted
on a monthly basis during the first quarter of 1998. However, the
adjustments that the Company has received in the Thai Baht price for
its natural gas production from the Tantawan Field have not been
sufficient to completely ameliorate, in U.S. dollar terms, the decline
of the Thai Baht against the U.S. dollar since July 1997.
Natural Gas Production. The Company's total natural gas
production during the first quarter of 1998 averaged 187.9 million
cubic feet ("MMcf") per day, an increase of approximately 45% from
an average of 129.7 MMcf per day that the Company produced during
the first quarter of 1997.
Domestic Production. The Company's domestic natural gas
production during the first quarter of 1998 averaged 145.5 MMcf per
day, an increase of approximately 30% from an average of 112.1
MMcf per day that the Company produced during the first quarter of
1997. The increase in the Company's natural gas production during
the first quarter of 1998, compared to the first quarter of 1997,
was related in large measure to production from the Company's East
Cameron Block 334 "E" platform, which commenced production in
April 1997, and, to a lesser extent, the results of successful
drilling in
the Company's Lopeno Field in South Texas, that was only partially
offset by the anticipated decline from certain of the Company's
properties. As of May 1, 1998, the Company was not a party to any
future natural gas sales contracts.
Thailand Production. During the first quarter of 1998, the
Company's share of natural gas production from the Tantawan Field
averaged approximately 42.4 MMcf per day, an increase of
- 9 -
<PAGE>
POGO PRODUCING COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
approximately 141% from an average of approximately 17.6 MMcf per
day for the first quarter of 1997. The Company commenced
production from its Tantawan Field early in February 1997. Following
a field startup phase which ended on March 15, 1997, production
from the Tantawan Field stabilized. Consequently, the Company
believes that the increase in natural gas production between the first
quarter of 1998 and the first quarter of 1997, although useful for
comparative purposes, should not be construed as indicative of future
production trends in the Tantawan Field.
Crude Oil And Condensate Prices. Prices received by the
Company for its crude oil and condensate production during the first
quarter of 1998 averaged $14.26 per barrel, a decrease of
approximately 36% from the average price of $22.29 per barrel that
the Company received during the first quarter of 1997.
Domestic Prices. Prices received by the Company for its
domestic crude oil and condensate production during the first quarter
of 1998 averaged $14.74 per barrel, a decrease of approximately
34% from the average price of $22.48 per barrel that the Company
received during the first quarter of 1997.
Thailand Prices. Since the inception of production from the
Tantawan Field, crude oil and condensate has been stored in a
Floating Production, Storage and Offloading System (the "FPSO")
until an economic quantity was accumulated for offloading and sale.
The first such sale of crude oil and condensate from the Tantawan
Field occurred in July 1997. The average price that the Company
recorded for its crude oil and condensate production stored on the
FPSO for the first quarter of 1998 was $12.04, a decrease of
approximately 40% from the average price of $20.06 that the
Company recorded for the first quarter of 1997. Prices that the
Company receives for such production are based on world
benchmark prices, which are denominated in U.S. dollars, and are
currently expected on future crude oil sales to be paid in U.S.
dollars.
Crude Oil and Condensate Production. The Company's
total crude oil and condensate production during the first quarter of
1998 averaged 16,101 barrels per day, an increase of approximately
16% from an average of 13,903 barrels per day during the first
quarter of 1997.
Domestic Production. The Company's domestic crude oil and
condensate production during the first quarter of 1998 averaged
13,167 barrels per day, an increase of approximately 3% from an
average of 12,811 barrels per day during the first quarter of 1997.
The increase in the Company's domestic crude oil and condensate
production during the first quarter of 1998, compared to the first
quarter of 1997, resulted primarily from increased condensate
production from wells located in the Gulf of Mexico and, to a lesser
extent, increased condensate production from its onshore properties,
that was only partially offset by the anticipated decline from certain
of the Company's more mature properties. As of May 1, 1998, the
Company was not a party to any crude oil swap agreements.
Thailand Production. During the first quarter of 1998, the
Company's share of crude oil and condensate production from the
Tantawan Field averaged approximately 2,944 barrels per day, an
increase of approximately 170% from an average of approximately
1,089 barrels per day for the first quarter of 1997. The Company
commenced production from its Tantawan Field early in February
- 10 -
<PAGE>
POGO PRODUCING COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
1997. Following a field startup phase which ended on March 15,
1997, production from the Tantawan Field stabilized. Consequently,
the Company believes that the increase in crude oil and condensate
production between the first quarter of 1998 and the first quarter of
1997, although useful for comparative purposes, should not be
construed as indicative of future production trends in the Tantawan
Field.
NGL Production And "Other" Net Revenue Items. The
Company's oil and gas revenues, and its total liquid hydrocarbon
production volumes, reflect the production and sale of NGL by the
Company. In addition, the Company's oil and gas revenues for the
first quarter of 1998 and 1997 also reflect adjustments for various
miscellaneous items. The Company's NGL and "other" net revenues
for the first quarter of 1998 increased $2,487,000 from the first
quarter of 1997. The increase in the Company's NGL and "other" net
revenues for the first quarter of 1998, compared to the first quarter
of 1997, was primarily related to an increase in the Company's NGL
production from the Company's East Cameron 334 "E" platform, that
was only partially offset by a decrease in the average price that the
Company received for its NGL production.
Total Liquid Hydrocarbon Production. The Company's total
average liquid hydrocarbon production during the first quarter of 1998
was 20,393 barrels per day, an increase of approximately 34% from
an average liquid hydrocarbon production of 15,215 barrels per day
during the first quarter of 1997.
Operating Costs and Expenses
Lease Operating Expenses
Company-wide lease operating expenses for the first quarter
of 1998 were $16,509,000, an increase of approximately 34% from
lease operating expenses of $12,297,000 for the first quarter of 1997.
Domestic Lease Operating Expenses. The Company's
domestic lease operating expenses for the first quarter of 1998 were
$12,247,000, an increase of approximately 18% from domestic lease
operating expenses of $10,402,000 for the first quarter of 1997. The
increase in domestic lease operating expenses for first quarter of
1998, compared to the first quarter of 1997, resulted primarily from a
non-recurring maintenance project on the Company's East Cameron
334 "E" platform and 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,
and increased expenses related to the leasing of certain equipment
in the Gulf of Mexico.
Thailand Lease Operating Expenses. The Company's lease
operating expenses in the Kingdom of Thailand for the first quarter of
1998 were $4,262,000, an increase of approximately 125% from
lease operating expenses of $1,895,000 for the first quarter of 1997.
Prior to the commencement of production in the Tantawan Field on
February 1, 1997, there were no lease operating expenses incurred
by the Company in Thailand as defined by generally accepted
- 11 -
<PAGE>
POGO PRODUCING COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
accounting principles. Consequently, the Company does not believe
that a comparison of lease operating expenses in the Kingdom of
Thailand between the first quarter of 1998 and the first quarter of
1997 are meaningful. A substantial portion of the Company's lease
operating expenses in the Kingdom of Thailand relate to lease
payments made by a subsidiary of the Company in connection with
its bareboat charter of the FPSO, which amounted to $2,742,000
during the first quarter of 1998.
General and Administrative Expenses
General and administrative expenses for the first quarter of
1998 were $5,485,000, a decrease of approximately 6% from general
and administrative expenses of $5,836,000 for the first quarter of
1997. The decrease in general and administrative expenses for the
first quarter of 1998, compared with the first quarter of 1997, was
primarily related to decreased insurance expense and the delay of
certain expenses which were incurred in the first quarter during 1997,
but which were not incurred until the second quarter during 1998.
Exploration Expenses
Exploration expenses consist primarily of delay rentals and
geological and geophysical costs which are expensed as incurred.
Exploration expenses for the first quarter of 1998 were $3,832,000,
an increase of approximately 102% from exploration expenses of
$1,900,000 for the first quarter of 1997. The increase in
exploration
expenses for the first quarter of 1998, compared to the first quarter
of 1997, resulted primarily from costs of purchasing licenses for 3-D
seismic surveys in the Gulf of Mexico together with the costs
associated with conducting a 3-D seismic survey by the Company on
its leases in South Louisiana and East Texas in the first quarter of
1998, for which no similar costs were incurred during the 1997
comparative periods.
Dry Hole and Impairment Expenses
Dry hole and impairment expenses relate to costs of
unsuccessful wells drilled, along with impairments due to decreases
in expected reserves from producing wells. The Company's dry hole
and impairment expenses for the first quarter of 1998 were
$1,308,000, an increase of approximately 42% from dry hole and
impairment expenses of $921,000 for the first quarter of 1997.
Depreciation, Depletion and Amortization Expenses
The Company accounts for its oil and gas activities using the
successful efforts method of accounting. Under the successful
efforts method, lease acquisition costs and all development costs are
capitalized. Proved properties are reviewed whenever events or
changes in circumstances indicate that the value of such property on
the Company's books may not be recoverable. 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.
- 12 -
<PAGE>
POGO PRODUCING COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The provision for depreciation, depletion and amortization
("DD&A") is based on the capitalized costs, as determined in the
preceding paragraph, plus future costs to abandon offshore wells and
platforms, and is determined on a cost center by cost center basis
using the units of production method. The Company generally
creates cost centers on a field by field basis for oil and gas
activities
in the Gulf of Mexico and Gulf of Thailand. Generally, the Company
establishes cost centers on the basis of an oil or gas trend or play
for its oil and gas activities onshore in the United States. The
Company's DD&A expense for the first quarter of 1998 was
$30,460,000, an increase of approximately 65% from DD&A expense
of $18,420,000 for the first quarter of 1997. The increases in DD&A
expense for the first quarter of 1998, compared to the first quarter
of 1997, resulted primarily from increased production of oil and gas
from the Company's properties and, to a much lesser extent, an
increase in the Company's composite DD&A rate.
The composite DD&A rate for all of the Company's producing
fields for the first quarter of 1998 was $1.08 per equivalent Mcf
($6.47 per equivalent barrel), an increase of approximately 19% from
a composite DD&A rate of $0.91 per equivalent Mcf ($5.47 per
equivalent barrel) for the first quarter of 1997. The increase in the
composite DD&A rate for all of the Company's producing fields for the
first quarter of 1998, compared to the first quarter of 1997, resulted
primarily from an increased percentage of the Company's production
coming from certain of the Company's fields that have DD&A rates
that are higher than the Company's recent historical composite rate
and a corresponding decrease in the percentage of the Company's
production coming from fields that have DD&A rates that are lower
than the Company's recent historical composite DD&A rate. The
Company produced 27,922,000 equivalent Mcf (4,654,000 equivalent
barrels) during the first quarter of 1998, an increase of
approximately 40% from the 19,888,000 equivalent Mcf (3,315,000
equivalent barrels) produced by the Company during the first
quarter of 1997.
Interest
Interest Charges
The Company incurred interest charges for the first quarter of
1998 of $6,068,000, an increase of approximately 41% from interest
charges of $4,295,000 for the first quarter of 1997. The increases in
interest charges for the first quarter of 1998, compared to the first
quarter of 1997, were primarily attributable to an increase in the
average interest rate on the debt outstanding (resulting primarily
from the issuance of the 2007 Notes on May 22, 1997, which bear
interest
at an 8-3/4% annual interest rate) and an increase in the average
amount of the Company's outstanding debt. As of May 1, 1998, the
Company was not a party to any interest rate swap agreement.
Capitalized Interest
Capitalized interest for the first quarter of 1998 was
$1,845,000, a decrease of approximately 1% from capitalized interest
of $1,870,000 for the first quarter of 1997. The decrease in
capitalized interest for the first quarter of 1998, compared to the
first quarter of 1997, resulted primarily from a decrease in the
amount of capital expenditures subject to interestcapitalization
during the first quarter
of 1998 ($104,439,000), compared to the first quarter of 1997
($128,761,000), which was largely offset by an increase in the
computed rate that the Company uses to apply on such capital
expenditures
- 13 -
<PAGE>
POGO PRODUCING COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
to arrive at the total amount of capitalized interest. A
substantial percentage of the Company's capitalized interest during
the first quarter of 1997 resulted from capitalization of interest
related
to capital expenditures for the development of the Tantawan Field
(which commenced production in early February 1997) and the East
Cameron Block 334 "E" platform field (which commenced production
in early April 1997). A substantial percentage of the Company's
capitalized interest during the first quarter of 1998 results from
capitalization of interest related to capital expenditures for the
development of the Benchamas Field in the Kingdom of Thailand.
The Company expects its capitalized interest costs to increase in the
future as a result of the requirement to capitalize interest
attributable
to additional capital expenditures incurred in connection with its
development of the Benchamas Field in the Gulf of Thailand and
several projects in Gulf in Mexico.
Foreign Currency Transaction Gain
The Company incurred a foreign currency transaction gain of
$997,000 during the first quarter of 1998. No comparable gain, or
loss, was incurred in the first quarter of 1997. The foreign currency
transaction gain resulted from the appreciation against the U.S.
dollar
of cash and other monetary assets and liabilities denominated in Thai
Baht that were on the Company's subsidiary's financial statements
during the first quarter of 1998. Although in recent weeks the value
of the Thai Baht has shown some signs of stabilizing against the U.S.
dollar, the Company cannot predict what the Thai Baht to dollar
exchange rate may be in the future. Moreover, it is anticipated that
this exchange rate will remain volatile.
Income Tax Benefit (Expense)
The Company received an income tax benefit of $126,000 for
the first quarter of 1998, as opposed to an income tax expense of
$6,753,000 for the first quarter of 1997. The income tax benefit for
the first quarter of 1998, compared to the income tax expense
recorded in the first quarter of 1997, resulted primarily from
substantially lower taxable income in the United States and the tax
benefit of accrued foreign losses from the Company's operations in
the Kingdom of Thailand.
LIQUIDITY AND CAPITAL RESOURCES --
Cash Flows
The Company's Condensed Consolidated Statement of Cash
Flows for the three months ended March 31, 1998, reflects net cash
provided by operating activities of $34,815,000. In addition to net
cash provided by operating activities, the Company received net
proceeds of $970,000 from the exercise of stock options and
$525,000 from the sale of certain non-strategic properties and had
net borrowings of $13,000,000 under its revolving credit agreement
and uncommitted money market credit lines with certain banks.
- 14 -
<PAGE>
POGO PRODUCING COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
During the first three months of 1998, the Company invested
$53,880,000 of such cash flow in capital projects, paid $1,072,000
($0.03 per share) in cash dividends to holders of the Company's
common stock and expended $99,000 in connection with the
redemption of its 2004 Notes on March 16, 1998. All of the
$53,880,000 invested in capital projects was attributable to projects
that were committed to in 1997 and therefore constituted a portion of
the 1997 capital budget. As of March 31, 1998, the Company's cash
and cash investments were $14,430,000 and its long-term debt stood
at $275,000,000.
Future Capital Requirements
The Company's capital and exploration budget for 1998, 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, was established by the Company's Board
of Directors at $230,000,000. In addition to anticipated capital and
exploration expenses, other material 1998 cash requirements that the
Company currently anticipates include ongoing operating, general and
administrative, income tax, interest expense and the payment of
dividends on its common stock, including a $.03 per share dividend
on its common stock to be paid on May 29, 1998 to stockholders of
record as of May 15, 1998. The Company currently anticipates that
its available cash and cash investments, 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 1998 capital and exploration
budget, any currently anticipated costs associated with the
Company's Thailand projects during 1998 and anticipated future
dividend payments. 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.
- 15 -
<PAGE>
Pogo Producing Company and Subsidiaries
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
27 - Financial Data Schedule
(B) Reports on Form 8-K
A report on Form 8-K was filed on January 28, 1998 setting
forth under Item 5 thereof, certain information regarding the
time and location of the registrant's annual meeting of
stockholders.
- 16 -
<PAGE>
Pogo Producing Company and Subsidiaries
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Pogo Producing Company
(Registrant)
/s/ THOMAS E. HART
Thomas E. Hart
Vice President and Controller
/s/ JOHN W. ELSENHANS
John W. Elsenhans
Vice President and
Chief Financial Officer
Date: May 4, 1998
- 17 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Financial Data Schedule contains summary financial information extracted
from the Consolidated Financial Statements (Unaudited) of Pogo Producing
Company, including the Consolidated Balance Sheets as of March 31, 1998
and the Consolidated Statements of Income for the three months
ended March 31, 1998, and is qualified in its entirety by reference
to such Consolidated Financial Statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<CASH> 14,430
<SECURITIES> 0
<RECEIVABLES> 71,904
<ALLOWANCES> 0<F1>
<INVENTORY> 9,210
<CURRENT-ASSETS> 99,920
<PP&E> 1,465,523
<DEPRECIATION> 936,469
<TOTAL-ASSETS> 661,167
<CURRENT-LIABILITIES> 81,274
<BONDS> 275,000
<COMMON> 37,575
0
0
<OTHER-SE> 194,610
<TOTAL-LIABILITY-AND-EQUITY> 661,167
<SALES> 60,661<F2>
<TOTAL-REVENUES> 60,730
<CGS> 16,509<F3>
<TOTAL-COSTS> 16,509<F3>
<OTHER-EXPENSES> 41,085<F4>
<LOSS-PROVISION> 0<F5>
<INTEREST-EXPENSE> 6,068
<INCOME-PRETAX> 58
<INCOME-TAX> (126)
<INCOME-CONTINUING> 184
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 184
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
<FN>
<F1>This amount is not disclosed on the face of the Consolidated
Financial Statements due to lack of materiality, but is included as
a contra-asset in Accounts Receivable.
<F2>Does not include Gains (Losses) on Property Sales.
<F3>Includes Lease Operating Expense, but excludes General and
Administrative, Exploration, Dry Hole and Impairment and Depreciation,
Depletion and Amortization Expenses.
<F4>Includes General and Administrative, Exploration, Dry Hole and
Impairment and Depreciation, Depletion and Amortization Expenses.
<F5>This amount is not disclosed on the face of the Consolidated Financial
Statements due to lack of materiality, but is included in Oil and Gas
Revenues.
</FN>
</TABLE>
