<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
( X ) Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED June 30, 1998
OR
( ) Transition report pursuant to section 13 or 15[d] of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 1-7792
Pogo Producing Company
(Exact name of registrant as specified in its charter)
Delaware 74-1659398
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5 Greenway Plaza, Suite 2700
Houston, Texas 77046-0504
(Address of principal executive offices) (Zip Code)
(713) 297-5000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirement for the past 90 days: Yes X No
Registrant's number of common shares outstanding
as of June 30, 1998: 37,560,370
<PAGE>
Part I. Financial Information
Pogo Producing Company and Subsidiaries
Consolidated Statements of Income (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------- -------------------------------
1998 1997 1998 1997
------------- --------------- ----------- --------------
(Expressed in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenues:
Oil and gas $ 52,675 $ 75,281 $ 113,336 $ 136,595
Gains (losses) on sales (12) 1,459 57 1,459
------------- --------------- ----------- --------------
Total 52,663 76,740 113,393 138,054
------------- --------------- ----------- --------------
Operating Costs and Expenses:
Lease operating 16,075 16,191 32,584 28,488
General and administrative 5,802 5,121 11,287 10,957
Exploration 2,002 4,053 5,834 5,953
Dry hole and impairment 1,470 4,086 2,778 5,007
Depreciation, depletion and amortization 28,358 28,457 58,818 46,877
------------- --------------- ----------- --------------
Total 53,707 57,908 111,301 97,282
------------- --------------- ----------- --------------
Operating Income (Loss) (1,044) 18,832 2,092 40,772
------------- --------------- ----------- --------------
Interest:
Charges (5,209) (5,536) (11,277) (9,831)
Income 102 73 250 129
Capitalized 2,219 760 4,064 2,630
Foreign Currency Transaction Gain (Loss) (804) -- 193 --
------------- --------------- ----------- --------------
Income (Loss) Before Income Taxes (4,736) 14,129 (4,678) 33,700
Income Tax Benefit (Expense) 2,068 (4,955) 2,194 (11,708)
------------- --------------- ----------- --------------
Net Income (Loss) $ (2,668) $ 9,174 $ (2,484) $ 21,992
============= =============== =========== ==============
Earnings (Loss) Per Common Share
(restated for 1997 periods)
Basic $ (0.07) $ 0.27 $ (0.07) $ 0.66
============= =============== =========== ==============
Diluted $ (0.07) $ 0.26 $ (0.07) $ 0.62
============= =============== =========== ==============
Dividends Per Common Share $ 0.03 $ 0.03 $ 0.06 $ 0.06
============= =============== =========== ==============
Weighted Average Number of Common Shares
and Potential Common Shares Outstanding:
Basic 37,560 33,369 36,353 33,359
Diluted 37,560 38,039 36,353 38,051
</TABLE>
See accompanying notes to consolidated financial statements.
- 1 -
<PAGE>
Pogo Producing Company and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------------- -------------
(Unaudited)
(Expressed in thousands,
except share amounts)
<S> <C> <C>
Assets
Current Assets:
Cash and cash investments $ 10,373 $ 19,646
Accounts receivable 25,029 39,540
Other receivables 41,725 46,951
Inventory - Product 2,523 713
Inventories - Tubulars 7,060 8,334
Other 4,862 4,087
------------- -------------
Total current assets 91,572 119,271
------------- -------------
Property and Equipment:
Oil and gas, on the basis of successful efforts accounting
Proved properties being amortized 1,333,725 1,321,817
Unevaluated properties and properties
under development, not being amortized 132,044 110,231
Other, at cost 12,475 12,619
-------------- -------------
1,478,244 1,444,667
Less--accumulated depreciation, depletion and
amortization, including $5,986 and $6,004,
respectively, applicable to other property 938,257 917,363
-------------- -------------
539,987 527,304
-------------- -------------
Other 34,617 30,042
-------------- -------------
$ 666,176 $ 676,617
============== =============
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable - operating activities $ 13,031 $ 13,639
Accounts payable - investing activities 46,374 90,833
Accrued interest payable 1,863 3,130
Accrued payroll and related benefits 2,611 1,938
Other -- 632
-------------- -------------
Total current liabilities 63,879 110,172
Long-Term Debt 301,954 348,179
Deferred Federal Income Tax 55,808 57,502
Deferred Credits 16,596 14,658
-------------- -------------
Total liabilities 438,237 530,511
-------------- -------------
Shareholders' Equity:
Preferred stock, $1 par; 2,000,000 shares authorized -- --
Common stock, $1 par; 100,000,000 shares
authorized, 37,575,942 and
33,552,702 shares issued, respectively 37,576 33,553
Additional capital 227,342 144,848
Retained earnings (deficit) (36,655) (31,971)
Treasury stock, at cost (324) (324)
-------------- -------------
Total shareholders' equity 227,939 146,106
-------------- -------------
$ 666,176 $ 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>
Six Months Ended
June 30,
-----------------------------------
1998 1997
-------------- --------------
(Expressed in thousands)
<S> <C> <C>
Cash Flows from Operating Activities:
Cash received from customers $ 125,842 $ 124,958
Operating, exploration, and general
and administrative expenses paid (50,313) (41,202)
Interest paid (12,544) (8,938)
Federal income taxes received (paid) -- 2,537
Other (3,163) (3,548)
-------------- --------------
Net cash provided by operating activities 59,822 73,807
-------------- --------------
Cash Flows from Investing Activities:
Capital expenditures (105,669) (112,617)
Purchase of proved reserves (2,961) (28,617)
Proceeds from the sales of properties 513 100
-------------- --------------
Net cash used in investing activities (108,117) (141,134)
-------------- --------------
Cash flows from Financing Activities:
Proceeds from issuance of new debt -- 100,000
Borrowings under senior debt agreements 196,954 345,000
Payments under senior debt agreements (157,000) (353,000)
Payments of cash dividends on common stock (2,200) (2,002)
Purchase of 2004 Notes (97) --
Payment of debt issue expenses -- (2,975)
Proceeds from exercise of stock options 977 958
-------------- --------------
Net cash provided by financing activities 38,634 87,981
-------------- --------------
Effect of Exchange Rate Changes on Cash 388 (203)
-------------- --------------
Net Increase (Decrease)in Cash and Cash Investments (9,273) 20,451
Cash and Cash Investments at the Beginning of the Year 19,646 3,054
-------------- --------------
Cash and Cash Investments at the End of the Period $ 10,373 $ 23,505
============== ==============
Reconciliation of Net Income (Loss) to Net
Cash Provided by Operating Activities:
Net income (loss) $ (2,484) $ 21,992
Adjustments to reconcile net income to
net cash provided by operating activities -
Foreign currency transaction gain (193) --
Gains from the sales of properties (57) (1,459)
Depreciation, depletion and amortization 58,818 46,877
Dry hole and impairment 2,778 5,007
Interest capitalized (4,064) (2,630)
Deferred federal income taxes (746) 14,414
Change in operating assets and liabilities 5,770 (10,394)
-------------- --------------
Net Cash Provided by Operating Activities $ 59,822 $ 73,807
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
- 3 -
<PAGE>
Pogo Producing Company and Subsidiaries
Consolidated Statements of Shareholders' Equity (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------------------------------------------
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
Conversion of 2004 Notes 3,879,726 3,880 1,126 1
Stock options exercised 143,517 143 73,394 74
---------- ------------ ---------- -------------
Issued at end of period 37,575,945 37,576 33,395,901 33,396
---------- ------------ ---------- -------------
Additional Capital:
Balance at beginning of year 144,848 139,337
Conversion of 2004 Notes 80,712 24
Stock options exercised 1,782 1,445
-------------- -------------
Balance at end of period 227,342 140,806
-------------- -------------
Retained Earnings (Deficit):
Balance at beginning of year (31,971) (65,075)
Net income (loss) (2,484) 21,992
Dividends ($0.06 per common share) (2,200) (2,002)
------------ -------------
Balance at end of period (36,655) (45,085)
------------ -------------
Treasury Stock and Other:
Balance at beginning of year (15,575) (324) (15,575) (301)
Activity during period -- -- -- (203)
---------- ------------ ---------- -------------
Balance at end of period (15,575) (324) (15,575) (504)
---------- ------------ ---------- -------------
Common Stock Outstanding,
at the End of the Period 37,560,370 33,380,326
========== ==========
Total Shareholders' Equity $ 227,939 $ 128,613
============ =============
</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 June 30,
1998 and December 31, 1997, consists of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------------- -------------
(Expressed in thousands)
<S> <C> <C>
Senior debt --
Bank revolving credit agreement
LIBO Rate based loans, borrowings at average
interest rates of 6.3% and 6.5%, respectively 75,000 47,000
Uncommitted credit lines with banks, borrowings at
an average interest rate of 6.6% 7,000 --
-------------- -------------
Total bank revolving credit agreement senior debt 82,000 47,000
Banker's acceptance loans, borrowings at an interest
rate of 6.1% 4,954 --
-------------- -------------
Total senior debt 86,954 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 2006 ("2004 Notes") -- 86,179
-------------- -------------
Total subordinated debt 215,000 301,179
-------------- -------------
Total debt
Amount due within one year 301,954 348,179
-- --
-------------- -------------
Long-term debt $ 301,954 $ 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.
In June 1998, the Company entered into a master banker's acceptance agreement
under which it may request banker's drafts for up to $20,000,000. The
banker's drafts are available on an uncommitted basis and the bank does not
have an obligation to accept the Company's requests for drafts. Drafts drawn
under this agreement are for a maximum maturity of 182 days; however, they
are reflected as long-term debt as the Company has the ability and intent
to reborrow such amounts under its revolving credit agreement.
- 5 -
<PAGE>
Pogo Producing Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(3) Geographic Segment Reporting -
The Company's long-lived assets and revenues by geographic area are as
follows:
<TABLE>
<CAPTION>
Total United Kingdom of
Company States Thailand
-------------- ------------- ------------
(Expressed in thousands)
<S> <C> <C> <C>
Long-Lived Assets:
As of June 30, 1998 $ 539,987 $ 372,379 $ 167,608
As of December 30, 1997 $ 527,304 $ 366,638 $ 160,666
Oil and Gas Revenues:
For the three months ended June 30, 1998 $ 53,177 $ 42,884 $ 10,233
For the three months ended June 30, 1997 $ 74,718 $ 63,462 $ 11,256
For the six months ended June 30, 1998 $ 113,549 $ 93,508 $ 20,041
For the six months ended June 30, 1997 $ 135,622 $ 119,680 $ 15,942
</TABLE>
(4) 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 Six Months Ended
June 30, 1998 June 30, 1998
------------------------------- ---------------------------
Income Shares Per Share Income Shares Per Share
---------- ---------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share $ (2,668) 37,560 $ (0.07) $(2,484) 36,353 $ (0.07)
======== =======
Effect of dilutive securities-
Options to purchase common
shares -- -- -- --
2004 Notes -- -- -- --
2006 Notes -- -- -- --
_________ _________ _______ ______
Diluted earnings per share $ (2,668) 37,560 $ (0.07) $(2,484) 36,353 $ (0.07)
========= ========= ======= ======= ====== =======
Antidilutive securities:
Options to purchase common
shares -- 1,870 $ 26.55 -- 1,870 $ 26.55
2004 Notes (a) -- -- -- 476 1,200 0.40
2006 Notes 1,028 2,726 $ 0.38 2,056 2,726 $ 0.75
</TABLE>
(a) The 2004 Notes were called or converted to common stock in the first
quarter of 1998.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1997 June 30, 1997
------------------------------- ---------------------------
Income Shares Per Share Income Shares Per Share
---------- ---------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share $ 9,174 33,369 $ 0.27 $ 21,992 33,359 $ 0.66
======= =======
Effect of dilutive securities-
Options to purchase common
shares -- 784 -- 806
2004 Notes 771 3,886 1,541 3,886
2006 Notes -- -- -- --
_________ _________ ________ _______
Diluted earnings per share $ 9,945 38,039 $ 0.26 $ 23,533 38,051 $ 0.62
========= ========= ======= ======== ======= =======
Antidilutive securities:
Options to purchase common
shares -- 80 $ 41.84 -- 80 $ 41.84
2006 Notes 1,028 2,726 $ 0.38 2,056 2,726 $ 0.75
</TABLE>
- 6 -
<PAGE>
Pogo Producing Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(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
(loss) are the same for the three and six months periods ended
June 30, 1998 and 1997, respectively.
(6) Proposed Merger --
On May 29, 1998, the Company announced a plan of
merger with Arch Petroleum Inc. ("Arch") that will provide for a
tax-free, stock for stock transaction through which Arch would
become a wholly owned subsidiary of the Company. The merger
agreement provides for a fixed exchange ratio of one share of the
Company's common stock for each 10.4 shares of Arch common
stock. In addition, holders of Arch preferred stock will receive
one share of the Company's common stock for each 1.04 shares
of Arch preferred stock they hold. The merger will be accounted
for as a pooling of interests.
The following table presents the unaudited actual results of
operations of the Company and the pro forma results of operations
of the Company and Arch for the periods indicated, as though the
merger had occurred on January 1, 1997. The unaudited pro forma
infirmation presented does not purport to be indicative of actual
results if the combination had been in effect on the date date or
for the period indicated, or of future results.
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1998 June 30, 1997
-------------------------- ----------------------------
Actual Pro Forma Actual Pro Forma
------------- ------------ ------------- -------------
(In thousands, expect per share amounts)
<S> <C> <C> <C> <C>
Revenues $ 113,393 $ 125,406 $ 138,054 $ 197,943
Net income (loss) $ (2,484) $ (4,911) $ 21,992 $ 22,948
Preferred dividends $ -- $ (800) $ -- $ (800)
Earnings (loss) to common stock $ (2,484) $ (5,711) $ 21,992 $ 22,148
Earnings per share:
Basic $ (0.07) $ (0.15) $ 0.66 $ 0.63
Diluted $ (0.07) $ (0.15) $ 0.62 $ 0.51
</TABLE>
The following table presents the unaudited actual consolidated
total assets and capitalization of the Company and the pro forma
consolidated total assets and pro forma capitalization of the Company and
Arch as of June 30, 1998 as though the merger occurred on June 30, 1998.
<TABLE>
<CAPTION>
June 30, 1998
--------------------------
Actual Pro Forma
------------- ------------
(In thousands)
<S> <C> <C>
Total assets $ 666,176 $ 762,799
Long-term debt $ 301,954 $ 306,954
Current maturities
of long-term debt $ -- $ 36,500
Production payment obligation $ -- $ 15,824
Shareholders' equity $ 227,939 $ 234,668
--------- -----------
Total capitalization $ 529,893 $ 593,946
</TABLE> ========= ===========
(7) Impact of SFAS 133 --
In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities
("SFAS 133"). SFAS 133 establishes accounting and reporting
standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability
measured at its fair market value and that changes in the
derivative's fair market value be recognized currently in earnings
unless specific hedge accounting criteria are met. SFAS 133 is
effective for the Company in 2000 but early adoption is allowed.
The Company has not yet quantified the impacts of adopting
SFAS 133 or determined the timing or method of adoption.
However, SFAS 133 could increase volatility in earnings and
other comprehensive income should the Company enter into
transactions covered by this pronouncement.
- 7 -
<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, such
forward-looking statements are subject to risks, uncertainties
and other factors which 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 (Loss)
The Company reported a net loss for the second quarter
of 1998 of $2,668,000 or $0.07 per share (on both a basic and
a diluted basis) compared to net income for the second quarter
of 1997 of $9,174,000 or $0.27 per share ($9,945,000 or $0.26
on a diluted basis). For the first six months of 1998, the
Company reported a net loss of $2,484,000 or $0.07 per share
(on both a basic and a diluted basis) compared to net income
for the first six months of 1997 of $21,992,000 or $0.66 per
share ($23,533,000 or $0.62 per share on a diluted basis).
Earnings per share are based on the weighted average
number of common shares outstanding for the second quarter
and first six months of 1998 of 37,560,000 and 36,353,000,
respectively, compared to 33,369,000 and 33,359,000,
respectively, for the second quarter and first six months of 1997.
The increases in the weighted average number of common
shares outstanding for the 1998 periods, compared to the 1997
periods, 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 issuance of common shares upon
the exercise of stock options pursuant to the Company's stock
option plans. Earnings per share computations on a diluted
basis in the 1998 periods are identical to basic earnings per
share computations because there were no securities of the
Company that were dilutive during the periods. Earnings per
share computations on a diluted basis in the 1997 periods
primarily reflect additional shares of common stock issuable
upon the assumed conversion of the Company's 2004 Notes
and the elimination of related interest requirements, as adjusted
for applicable federal income taxes and, to a lesser extent, the
assumed exercise of options to purchase common shares. The
weighted average number of common shares outstanding on a
diluted basis for the second quarter and first six months of 1997
were 38,039,000 and 38,051,000, respectively.
- 8 -
<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 second quarter of
1998 were $52,663,000, a decrease of approximately 31%
compared to total revenues of $76,740,000 for the second
quarter of 1997. The decrease in the Company's total revenues
for the second quarter of 1998, compared to the second quarter
of 1997, resulted primarily from decreases in the Company's
natural gas and natural gas liquid ("NGL") production volumes
and, to a lesser extent, the prices that the Company received for
its liquid hydrocarbon (including crude oil, condensate and NGL)
and natural gas production. The Company's total revenues for
the first six months of 1998 were $113,393,000, a decrease of
approximately 18% compared to total revenues of $138,054,000
for the first six months of 1997. The decrease in the Company's
total revenues for the first six months of 1998, compared to the
first six months of 1997, resulted primarily from decreases in the
prices that the Company received for its liquid hydrocarbon and
natural gas production volumes, that were only partially offset by
increased liquid hydrocarbon and natural gas production. In
addition, the total revenues for the second quarter and first six
months of 1997 were positively affected by a $1,600,000
non-recurring gain recorded in connection with the sale of
certain excess equipment.
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 second quarter and first six months of
1998 and the same periods in the preceding year.
2nd Qtr '98 6 mos. '98
Compared to Compared to
2nd Qtr '97 6 mos. '97
---------- -----------
Increase (decrease) in total
revenues resulting from
differences in :
Natural gas --
Price . . . . . . . . . . $ (1,322) $ (8,102)
Production . . . . . . . . (9,684) 1,184
--------- --------
(11,006) (6,918)
--------- --------
Crude oil and condensate --
Price . . . . . . . . . . (7,439) (17,184)
Production . . . . . . . . (6) 2,511
--------- --------
(7,445) (14,673)
--------- --------
NGL and other, net . . . . . (4,155) (1,668)
--------- --------
Decrease in oil and gas
revenues . . . . . . . . $ (22,606) $(23,259)
========= ========
- 9 -
<PAGE>
Pogo Producing Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Natural Gas Prices. Prices per thousand cubic feet
("Mcf") that the Company received for its natural gas production
during the second quarter of 1998 averaged $2.07 per Mcf, a
decrease of approximately 3% from an average price of $2.14
per Mcf that the Company received for its natural gas production
during the second quarter of 1997. Prices that the Company
received for its natural gas production during the first six months
of 1998 averaged $2.08 per Mcf, a decrease of approximately
11% from an average price of $2.34 per Mcf that the Company
received for its natural gas production during the first six months
of 1997.
Domestic Prices. Prices that the Company received for
its domestic natural gas production during the second quarter of
1998 averaged $2.18 per Mcf, an increase of approximately 1%
from an average price of $2.15 per Mcf that the Company
received for its domestic natural gas production during the
second quarter of 1997. Prices that the Company received for
its domestic natural gas production during the first six months of
1998 averaged $2.18 per Mcf, a decrease of approximately 10%
from an average price of $2.41 per Mcf that the Company
received for its domestic natural gas production during the first
six months 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. During the
second quarter of 1998, the prices that the Company received
under its long term gas sales contract for natural gas production
from the Tantawan Field averaged approximately 67.5 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 average price in U.S.
dollars that the Company recorded during the second quarter of
1998 for such production was approximately $1.73 per Mcf, a
decrease of approximately 18% from an average price of $2.11
per Mcf that the Company recorded in the second quarter of
1997. Prices that the Company recorded during the first six
months of 1998 also averaged $1.73 per Mcf, a decrease of
approximately 13% from an average price of $1.99 per Mcf that
the Company recorded during the first six months of 1997. The
price that the Company receives under its 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
adjusted several times during the first six months of 1998. The
Company cannot predict what the Baht to dollar exchange rate
may be in the future. Moreover, it is anticipated that this
exchange rate will remain volatile.
Natural Gas Production. The Company's total natural
gas production during the second quarter of 1998 averaged
165.5 million cubic feet ("MMcf") per day, a decrease of
approximately 24% from an average of 216.8 MMcf per day that
the Company produced during the second quarter of 1997. The
Company's total natural gas production during the first six
months of 1998 averaged 176.6 MMcf per day, an increase of
approximately 2% from an average of 173.5 MMcf per day that
the Company produced during the first six months of 1997.
- 10 -
<PAGE>
Pogo Producing Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Domestic Production. The Company's domestic natural
gas production during the second quarter of 1998 averaged
126.3 MMcf per day, a decrease of approximately 29% from an
average of 177.8 MMcf per day that the Company produced
during the second quarter of 1997. The Company's domestic
natural gas production during the first six months of 1998
averaged 135.9 MMcf per day, a decrease of approximately 6%
from an average of 145.1 MMcf per day that the Company
produced during the first six months of 1997. The decrease in
the Company's natural gas production during the second quarter
and first six months of 1998, compared to the second quarter
and first six months of 1997, was related in large measure to
decreased production from the Company's East Cameron Block
334 "E" platform and its Eugene Island Block 261 field. As of
August 1, 1998, the Company was not a party to any future
natural gas sales contracts.
Thailand Production. During the second quarter of 1998,
the Company's share of natural gas production from the
Tantawan Field averaged approximately 39 MMcf per day,
approximately equal to an average of 39 MMcf per day that the
Company produced during the second quarter of 1997. The
Company's share of natural gas production from the Tantawan
Field during the first six months of 1998 averaged 40.7 MMcf
per day, an increase of approximately 43% from an average of
28.4 MMcf per day that the Company produced during the first
six months of 1997. The increase in the Company's average
daily natural gas production from the Tantawan Field during the
first six months of 1998, compared to the first six months of
1997, reflects the fact that production from the Tantawan Field
did not commence until early in February 1997 and did not
achieve sustained commercial production rates until March 15,
1997.
Crude Oil and Condensate Prices. Prices received by
the Company for its crude oil and condensate production during
the second quarter of 1998 averaged $13.38 per barrel, a
decrease of approximately 27% from an average price of
$18.35 per barrel that the Company received during the second
quarter of 1997. Prices that the Company received for its crude
oil and condensate production during the first six months of
1998 averaged $13.81 per barrel, a decrease of approximately
31% from an average price of $20.14 per barrel that the
Company received during the first six months of 1997.
Domestic Prices. Prices received by the Company for its
domestic crude oil and condensate production during the
second quarter of 1998 averaged $12.84 per barrel, a decrease
of approximately 31% from an average price of $18.52 per
barrel that the Company received during the second quarter of
1997. Prices that the Company received for its domestic crude
oil and condensate production during the first six months of
1998 averaged $13.77 per barrel, a decrease of approximately
33% from an average price of $20.40 per barrel that the
Company received during the first six months 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 price that the Company recorded for its crude oil and
condensate production stored on the FPSO for the second
quarter of 1998 was $16.05 per barrel, a decrease of
approximately 7% from the price of $17.26 per barrel that was
recorded for the second quarter of 1997. The price that the
- 11 -
<PAGE>
Pogo Producing Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Company recorded for its crude oil and condensate production
stored on the FPSO for the first six months of 1998 was $14.00
per barrel, a decrease of approximately 23% from the price of
$18.15 per barrel that was recorded for the first six months of
1997. Prices that the Company receives for its crude oil and
condensate production from Thailand are based on world
benchmark prices, which are denominated in dollars. In
addition, the Company is generally paid for its crude oil and
condensate production from Thailand in U.S. dollars.
Crude Oil and Condensate Production. The
Company's total crude oil and condensate production during the
second quarter of 1998 averaged 16,451 barrels per day,
approximately equal to its average of 16,457 barrels per day
during the second quarter of 1997. The Company's total crude
oil and condensate production during the first six months of
1998 averaged 16,277 barrels per day, an increase of
approximately 7% from an average of 15,187 barrels per day
during the first six months of 1997.
Domestic Production. The Company's domestic crude
oil and condensate production during the second quarter of
1998 averaged 13,665 barrels per day, a decrease of
approximately 3% from an average of 14,065 barrels per day
during the second quarter of 1997. The Company's domestic
crude oil and condensate production during the first six months
of 1998 averaged 13,413 barrels per day, a decrease of
approximately 1% from an average of 13,531 barrels per day
during the first six months of 1997. The decrease in the
Company's domestic crude oil and condensate production
during the second quarter and first six months of 1998,
compared to the second quarter and first six months of 1997,
resulted primarily from a decrease in condensate production
from the Company's East Cameron Block 334 "E" platform,
which was in part due to damage sustained in a marine accident
at the crude oil and condensate pipeline from the platform, that
was only partially offset by increased production from the
Company's ongoing development drilling and workover program
in the offshore and onshore Gulf of Mexico regions.
Thailand Production. During the second quarter of
1998, the Company's share of crude oil and condensate
production from the Tantawan Field averaged 2,786 barrels per
day, an increase of approximately 17% from an average of
2,385 barrels per day during the second quarter of 1997. The
increase in the Company's crude oil and condensate production
from the Tantawan Field during the second quarter of 1998,
compared to the second quarter of 1997, resulted primarily from
the Company's efforts to emphasize oil production from the
field. The Company's share of crude oil and condensate
production from the Tantawan Field during the first six months
of 1998 averaged 2,864 barrels per day, an increase of
approximately 65% from an average of 1,740 barrels per day
during the first six months of 1997. The increase in the
Company's average daily crude oil and condensate production
from the Tantawan Field during the first six months of 1998,
compared to the first six months of 1997, reflects the fact that
- 12 -
<PAGE>
Pogo Producing Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
production from the Tantawan Field did not commence until
early in February 1997 and did not achieve sustained
commercial production rates until March 15, 1997.
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 second quarter and first six months of 1998
and 1997 also reflect adjustments for various miscellaneous
items. The Company's NGL and "other" net revenues for the
second quarter and first six months of 1998 decreased
$4,155,000 and $1,668,000, from the second quarter and first
six months of 1997, respectively. The decrease in the
Company's NGL and "other" net revenues for the second
quarter of 1998, compared to the second quarter of 1997,
primarily resulted from a decrease in the Company's NGL
production from its offshore properties due, in part, to the
Company's recent decision not to remove NGL from a portion of
its natural gas production because it has not been economically
advantageous to do so. This decision is reviewed by the
Company on an ongoing basis and is largely dependent on the
relationship between current natural gas and NGL prices and
the cost of processing natural gas to separate NGL. The
decrease in the Company's NGL and "other" net revenues for
the first six months of 1998, compared to the first six months of
1997, was primarily related to a decrease in the price that the
Company received for its NGL production volumes that was only
partially offset by an increase in NGL production from its
offshore properties.
Total Liquid Hydrocarbon Production. The
Company's average liquid hydrocarbon production during the
second quarter of 1998 was 18,369 barrels per day, a decrease
of approximately 13% from an average liquid hydrocarbon
production of 20,997 barrels per day during the second quarter
of 1997. The Company's average liquid hydrocarbon production
during the first six months of 1998 was 19,375 barrels per day,
an increase of approximately 7% from an average liquid
hydrocarbon production of 18,122 barrels per day during the
first six months of 1997.
Operating Costs and Expenses
Lease Operating Expenses
Company-wide lease operating expenses for the second
quarter of 1998 were $16,075,000, a decrease of approximately
1% from lease operating expenses of $16,191,000 for the
second quarter of 1997. Company-wide lease operating
expenses for the first six months of 1998 were $32,584,000, an
increase of approximately 14% from lease operating expenses
of $28,488,000 for the first six months of 1997.
Domestic Lease Operating Expenses. The Company's
domestic lease operating expenses for the second quarter of
1998 were $10,479,000, a decrease of approximately 3% from
domestic lease operating expenses of $10,797,000 for the
second quarter of 1997. The decrease
- 13 -
<PAGE>
Pogo Producing Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
in domestic lease
operating expenses for second quarter of 1998, compared to
the second quarter of 1997, resulted primarily from cost savings
programs instituted by the Company, including the sale of
certain non-strategic properties with high operating costs and
cost sharing agreements with its industry partners in the
offshore Gulf of Mexico and, to a lesser extent, the recent
decline in the service rates of offshore service contractors,
which are related to the industry's slow-down in response to
lower oil and natural gas prices. The Company's domestic lease
operating expenses for the first six months of 1998 were
$22,726,000, an increase of approximately 7% from domestic
lease operating expenses of $21,199,000 for the first six months
of 1997. The increase in domestic lease operating expenses for
first six months of 1998, compared to the first six months of
1997, resulted primarily from a non-recurring maintenance
project on the Company's East Cameron 334 "E" platform during
the first quarter of 1998, which was only partially offset by cost
savings programs instituted by the Company, including the sale
of certain non-strategic properties with high operating costs and
cost sharing agreements with its industry partners in the
offshore Gulf of Mexico and, to a lesser extent, the recent
decline in the service rates of offshore service contractors,
which are related to the industry's slow-down in response to
lower oil and natural gas prices.
Thailand Lease Operating Expenses. The Company's
lease operating expenses in the Kingdom of Thailand for the
second quarter of 1998 were $5,596,000, an increase of
approximately 4% from lease operating expenses of $5,394,000
for the second quarter of 1997. The increase in lease operating
expenses in the Kingdom of Thailand for the second quarter of
1998, compared to the second quarter of 1997, was primarily
related to increased production related activity, including the
addition of two production platforms, which was only partially
offset by cost savings resulting from recently instituted cost
control efforts. The Company's lease operating expenses in the
Kingdom of Thailand for the first six months of 1998 were
$9,858,000, an increase of approximately 35% from lease
operating expenses of $7,289,000 for the first six months of
1997. The increase in lease operating expenses in the
Kingdom of Thailand for the first six months of 1998, compared
to the first six months of 1997, was primarily related to the fact
that prior to the commencement of production in the Tantawan
Field on February 1, 1997, no lease operating expenses were
incurred by the Company in Thailand. Consequently, the
Company does not believe that a comparison of lease operating
expenses in the Kingdom of Thailand between the first six
months of 1998 and the first six months of 1997 is 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 $2,773,000
(net to the Company's interest) during each of the second
quarter of 1998 and 1997, and $5,515,000 and $4,601,000 (net
to the Company's interest) for the first six months of 1998 and
1997, respectively.
General and Administrative Expenses
General and administrative expenses for the second
quarter of 1998 were $5,802,000, an increase of approximately
13% from general and administrative expenses of $5,121,000
for the
- 14 -
<PAGE>
Pogo Producing Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
second quarter of 1997. General and administrative
expenses for the first six months of 1998 were $11,287,000, an
increase of approximately 3% from general and administrative
expenses of $10,957,000 for the first six months of 1997. The
increases in general and administrative expenses for the
second quarter and first six months of 1998, compared with the
second quarter and first six months of 1997, were related to,
among other things, an increase in the size of the Company's
work force and normal salary and concomitant benefit expense
adjustments that were partially offset by decreases in insurance
expense and other miscellaneous general and administrative
expense items.
Exploration Expenses
Exploration expenses consist primarily of delay rentals
and geological and geophysical costs which are expensed as
incurred. Exploration expenses for the second quarter of 1998
were $2,002,000, a decrease of approximately 51% from
exploration expenses of $4,053,000 for the second quarter of
1997. The decrease in exploration expenses for the second
quarter of 1998, compared to the second quarter of 1997,
resulted primarily from decreased geophysical activity by the
Company in the Gulf of Mexico and in West Texas, that was
only partially offset by increased geophysical activity by the
Company in the East Texas, South Louisiana and in the Gulf of
Thailand. Exploration expenses for the first six months of 1998
were $5,834,000, a decrease of approximately 2% from
exploration expenses of $5,953,000 for the first six months of
1997. The decrease in exploration expenses for the first six
months of 1998, compared to the first six months of 1997,
resulted primarily from decreased geophysical activity in the
Gulf of Mexico and West Texas, and decreased delay rental
payments, that were almost completely offset by increased
geophysical activity by the Company in the East Texas, South
Louisiana and in the Gulf of Thailand.
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 second
quarter of 1998 were $1,470,000, a decrease of approximately
64% from dry hole and impairment expenses of $4,086,000 for
the second quarter of 1997. The Company's dry hole and
impairment expenses for the first six months of 1998 were
$2,778,000, a decrease of approximately 45% from dry hole
and impairment expenses of $5,007,000 for the first six months
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
- 15 -
<PAGE>
Pogo Producing Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
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.
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 second quarter of 1998 was
$28,358,000, a slight decline from DD&A expense of
$28,457,000 for the second quarter of 1997. The decrease in
DD&A expense for the second quarter of 1998, compared to the
second quarter of 1997, resulted primarily from decreased
production of oil and gas from the Company's properties that
was almost exactly offset by an increase in the Company's
composite DD&A rate. The Company's DD&A expense for the
first six months of 1998 was $58,815,000, an increase of
approximately 25% from DD&A expense of $46,877,000 for the
first six months of 1997. The increases in DD&A expense for
the first six months of 1998, compared to the first six months of
1997, resulted primarily from an increase in the Company's
composite DD&A rate and, to a much lesser extent, increased
production of oil and gas from the Company's properties.
The composite DD&A rate for all of the Company's
producing fields for the second quarter of 1998 was $1.12 per
equivalent Mcf ($6.70 per equivalent barrel), an increase of
approximately 24% from a composite DD&A rate of $0.90 per
equivalent Mcf ($5.38 per equivalent barrel) for the second
quarter of 1997. The composite DD&A rate for all of the
Company's producing fields for the first six months of 1998 was
$1.10 per equivalent Mcf ($6.58 per equivalent barrel), an
increase of approximately 22% from a composite DD&A rate of
$0.90 per equivalent Mcf ($5.41 per equivalent barrel) for the
first six months of 1997. The increase in the composite DD&A
rate for all of the Company's producing fields for the second
quarter and the first six months of 1998, compared to the
second quarter and first six months 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 25,087,000
equivalent Mcf (4,181,000 equivalent barrels) during the second
quarter of 1998, a decrease of approximately 20% from the
31,197,000 equivalent Mcf (5,200,000 equivalent barrels)
produced by the Company during the second quarter of 1997.
The Company produced 53,009,000 equivalent Mcf (8,835,000
equivalent barrels) during the first six months of 1998, an
increase of approximately 4% from the 51,178,000 equivalent
Mcf (8,530,000 equivalent barrels) produced by the Company
during the first six months of 1997.
- 16 -
<PAGE>
Pogo Producing Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Interest
Interest Charges
The Company incurred interest charges for the second
quarter of 1998 of $5,209,000, a decrease of approximately 6%
from interest charges of $5,536,000 for the second quarter of
1997. The decrease in interest charges for the second quarter
of 1998, compared to the second quarter of 1997, resulted
primarily from a decrease in the amount of debt outstanding
(principally as a result of the conversion and redemption of the
2004 Notes), that was partially offset by an increase in the
average interest rate the Company paid on such debt. Interest
charges incurred by the Company for the first six months of
1998 were $11,277,000, an increase of approximately 15% from
interest charges of $9,831,000 for the first six months of 1997.
The increases in interest charges for the first six months of
1998, compared to the first six months of 1997, resulted
primarily from increased average interest rate levels on the debt
that was outstanding and, to a lesser extent, an increase in the
average amount of the Company's outstanding debt. As of
August 1, 1998, the Company was not a party to any interest
rate swap agreements.
Capitalized Interest
Capitalized interest expense for the second quarter of
1998 was $2,219,000, an increase of approximately 192% from
capitalized interest expense of $760,000 for the second quarter
of 1997. The increase in capitalized interest for the second
quarter of 1998, compared to the second quarter of 1997,
resulted primarily from an increase in the amount of capital
expenditures subject to interest capitalization during the second
quarter of 1998 ($129,098,000), compared to the second
quarter of 1997 ($47,373,000), and from an increase in the
computed rate that the Company uses to apply on such capital
expenditures to arrive at the total amount of capitalized interest.
A substantial percentage of the Company's capitalized interest
expense during the latter half of 1997 and the first six months of
1998 resulted from capitalization of interest related to capital
expenditures for the development of the Benchamas Field in the
Gulf of Thailand and, to a lesser extent, several development
projects in the Gulf of Mexico. Capitalized interest expense for
the first six months of 1998 was $4,064,000, an increase of
approximately 55% from capitalized interest expense of
$2,630,000 for the first six months of 1997. The increase in
capitalized interest for the first six months of 1998, compared to
the first six months of 1997, resulted primarily from an increase
in the amount of capital expenditures subject to interest
capitalization during the first six months of 1998 ($118,084,000),
compared to the first six months of 1997 ($85,493,000), and
from an increase in the computed rate that the Company uses
to apply on such capital expenditures to arrive at the total
amount of capitalized interest. Capital projects on which interest
was capitalized during the first six months of 1997, which had
been completed and brought on production during the first
quarter of 1997, included the Tantawan Field and the East
Cameron Block 334 "E" platform.
- 17 -
<PAGE>
Pogo Producing Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
<PAGE>
Foreign Currency Transaction Gain (Loss)
The Company incurred a foreign currency transaction
loss of $804,000 during the second quarter of 1998 and a
foreign currency transaction gain of $193,000 during the first six
months of 1998. No comparable losses, or gains, were incurred
during either of the comparable 1997 periods. The foreign
currency transaction gain and loss each resulted from the
fluctuation against the U.S. dollar of cash and other monetary
assets and liabilities denominated in Thai Baht that were on the
Company's subsidiary's financial statements during the
respective 1998 periods. Although the value of the Thai Baht
has generally 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. As of August 1,
1998, the Company was not a party to any financial instrument
that was intended to constitute a foreign currency hedging
arrangement.
Income Tax Benefit (Expense)
The Company received an income tax benefit for the
second quarter of 1998 of $2,068,000, compared to income tax
expense of $4,955,000 for the second quarter of 1997. Income
tax benefit for the first six months of 1998 was $2,194,000,
compared to income tax expense of $11,708,000 for the first six
months of 1997. The income tax benefit for the second quarter
and first six months of 1998, compared to the income tax
expense for the second quarter and first six months of 1997,
resulted primarily from substantially lower pre-tax 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 six months ended June 30, 1998, reflects
net cash provided by operating activities of $59,822,000. In
addition to net cash provided by operating activities, the
Company received net proceeds of $977,000 from the exercise
of stock options and $513,000 from the sale of certain
non-strategic properties and had net borrowings of $39,954,000
under its revolving credit agreement and other senior debt
facilities.
During the first six months of 1998, the Company
invested $105,669,000 of such cash flow in capital projects,
spent $2,961,000 to purchase proved reserves, paid $2,200,000
($0.03 per share for each of the first two quarters of 1998) 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. Of the $105,669,000 invested in
capital projects, $90,833,000 was applicable
- 18 -
<PAGE>
Pogo Producing Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
to 1997 capital
projects and $14,836,000 was applicable to 1998 capital
projects. As of June 30, 1998, the Company's cash and cash
investments were $10,373,000 and its long-term debt stood at
$301,954,000.
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, 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 August 22, 1998 to stockholders of
record as of August 14, 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, its proposed merger with Arch Petroleum
Inc. 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.
New Debt Instruments
Banker's Acceptances
On June 3, 1998, the Company entered into a Master
Banker's Acceptance Agreement under which one of the
Company's lenders has offered to accept up to $20,000,000 in
bank drafts from the Company. The banker's drafts are
available on an uncommitted basis and the bank has no
obligation to accept the Company's request for drafts. Drafts
drawn under this agreement are for a maximum term of 182
days; however, they are reflected as long-term debt on the
Company's balance sheet because the Company currently has
the ability and intent to reborrow such amounts under its
revolving credit agreement. The agreement permits either party
to terminate such letter agreement at any time upon five
business days notice. As of June 30, 1998, bank drafts in the
principal amount of $4,954,000 bearing interest at a rate of
6.1% were outstanding under this agreement.
<PAGE>
Pogo Producing Company and Subsidiaries
- 19 -
<PAGE>
Pogo Producing Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security-Holders
The registrant held its annual meeting of stockholders in
Houston, Texas on April 28, 1998. The following sets
forth the items that were put to a vote of the
stockholders and the results thereof concerning:
(A) the election of three directors, each for a term of
three years. Proxies for the meeting were
solicited pursuant to Regulation 14A under the
Securities Exchange Act of 1934. There were no
solicitations in opposition to management's
nominees as listed in the proxy statement and all
such nominees were elected;
(B) the appointment of Arthur Andersen LLP,
independent public accountants, to audit the
financial statements of the registrant for the year
1998, with 30,552,722 shares of stock cast for
the appointment, 44,418 against the
appointment, and 18,343 abstentions and broker
non-votes.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
27 -- Financial Data Schedule
(B) Reports on Form 8-K
None
- 20 -
<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: August 13, 1998
- 21 -
<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 June 30, 1998
and the Consolidated Statements of Income for the three months
ended June 30, 1998, and is qualified in its entirety by reference
to such Consolidated Financial Statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1998
<CASH> 10,373
<SECURITIES> 0
<RECEIVABLES> 66,754
<ALLOWANCES> 0<F1>
<INVENTORY> 9,583
<CURRENT-ASSETS> 91,572
<PP&E> 1,478,244
<DEPRECIATION> 938,257
<TOTAL-ASSETS> 666,176
<CURRENT-LIABILITIES> 63,879
<BONDS> 301,954
<COMMON> 37,576
0
0
<OTHER-SE> 190,363
<TOTAL-LIABILITY-AND-EQUITY> 666,176
<SALES> 113,336<F2>
<TOTAL-REVENUES> 113,393
<CGS> 32,584<F3>
<TOTAL-COSTS> 32,584<F3>
<OTHER-EXPENSES> 78,717<F4>
<LOSS-PROVISION> 0<F5>
<INTEREST-EXPENSE> 11,277
<INCOME-PRETAX> (4,678)
<INCOME-TAX> (2,194)
<INCOME-CONTINUING> (2,484)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,484)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
<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 (or 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>
