<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1999 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, 1999: 40,142,061
<PAGE> 2
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,
------------------------ ------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
(Expressed in thousands, except per share amounts)
<S> <C> <C> <C> <C>
REVENUES:
Oil and gas $ 43,159 $ 53,117 $ 80,894 $ 113,549
Pipeline sales and other 1,263 (442) 2,230 (213)
Gains (losses) on sales 406 (12) 37,750 57
--------- --------- --------- ---------
Total 44,828 52,663 120,874 113,393
--------- --------- --------- ---------
OPERATING COSTS AND EXPENSES:
Lease operating 12,817 16,075 28,159 32,584
Pipeline operating and natural gas purchases 1,336 -- 2,198 --
General and administrative 6,881 5,802 13,987 11,287
Exploration 1,374 2,002 3,139 5,834
Dry hole and impairment 791 1,470 1,030 2,778
Depreciation, depletion and amortization 23,394 28,358 47,245 58,818
--------- --------- --------- ---------
Total 46,593 53,707 95,758 111,301
--------- --------- --------- ---------
OPERATING INCOME (LOSS) (1,765) (1,044) 25,116 2,092
--------- --------- --------- ---------
INTEREST:
Charges (9,234) (5,209) (19,109) (11,277)
Income 238 102 310 250
Capitalized 5,017 2,219 8,767 4,064
MINORITY INTEREST - Dividends and costs associated
with preferred securities of a subsidiary trust (799) -- (799) --
FOREIGN CURRENCY TRANSACTION GAIN (LOSS) 460 (804) 409 193
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (6,083) (4,736) 14,694 (4,678)
INCOME TAX BENEFIT (EXPENSE) 3,077 2,068 (3,387) 2,194
--------- --------- --------- ---------
NET INCOME (LOSS) $ (3,006) $ (2,668) $ 11,307 $ (2,484)
--------- --------- --------- ---------
EARNINGS (LOSS) PER COMMON SHARE
Basic $ (0.07) $ (0.07) $ 0.28 $ (0.07)
========= ========= ========= =========
Diluted $ (0.07) $ (0.07) $ 0.28 $ (0.07)
========= ========= ========= =========
DIVIDENDS PER COMMON SHARE $ 0.03 $ 0.03 $ 0.06 $ 0.06
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
AND POTENTIAL COMMON SHARES OUTSTANDING:
Basic 40,141 37,560 40,138 36,353
Diluted 40,141 37,560 40,315 36,353
</TABLE>
See accompanying notes to consolidated financial statements.
- 1 -
<PAGE> 3
POGO PRODUCING COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- -----------
(Unaudited)
(Expressed in thousands
except share amounts)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash investments $ 43,069 $ 7,959
Accounts receivable 25,806 24,054
Other receivables 25,520 38,977
Inventory - Product 1,656 969
Inventories - Tubulars 13,242 10,594
Other 2,378 2,814
----------- -----------
Total current assets 111,671 85,367
----------- -----------
PROPERTY AND EQUIPMENT:
Oil and gas, on the basis of successful efforts accounting
Proved properties being amortized 1,401,119 1,485,125
Unevaluated properties and properties
under development, not being amortized 268,883 215,244
Pipelines, at cost 6,750 6,205
Other, at cost 12,411 11,710
----------- -----------
1,689,163 1,718,284
----------- -----------
Accumulated depreciation, depletion and amortization
Oil and gas (957,702) (985,897)
Pipelines (1,415) (1,213)
Other (6,557) (5,649)
----------- -----------
(965,674) (992,759)
----------- -----------
Property and equipment, net 723,489 725,525
----------- -----------
OTHER ASSETS:
Foreign taxes receivable 32,743 23,482
Debt issue expenses 13,143 7,727
Other 20,065 20,295
----------- -----------
65,951 51,504
----------- -----------
$ 901,111 $ 862,396
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
- 2 -
<PAGE> 4
POGO PRODUCING COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---------- -----------
(Unaudited)
(Expressed in thousands
except share amounts)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - operating activities $ 15,613 $ 12,197
Accounts payable - investing activities 31,819 90,102
Accrued interest payable 8,623 3,226
Accrued dividends associated with
preferred securities of a subsidiary trust 785 --
Accrued payroll and related benefits 2,165 1,952
Other 164 2
--------- ---------
Total current liabilities 59,169 107,479
LONG-TERM DEBT 365,000 434,947
DEFERRED FEDERAL INCOME TAX 59,988 53,869
DEFERRED CREDITS 13,145 16,441
--------- ---------
Total liabilities 497,302 612,736
--------- ---------
MINORITY INTEREST:
Company-obligated mandatorily redeemable
convertible preferred securities of a subsidiary trust,
net of unamortized issue expenses 145,044 --
--------- ---------
SHAREHOLDERS' EQUITY:
Preferred stock, $1 par; 2,000,000 shares authorized -- --
Common stock, $1 par; 100,000,000 shares authorized,
40,157,636 and 40,136,254 shares issued, respectively 40,157 40,136
Additional capital 290,713 290,655
Retained earnings (deficit) (70,700) (79,600)
Treasury stock (15,575 shares) and other, at cost (1,405) (1,531)
--------- ---------
Total shareholders' equity 258,765 249,660
--------- ---------
$ 901,111 $ 862,396
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
- 3 -
<PAGE> 5
POGO PRODUCING COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------
1999 1998
--------- ---------
(Expressed in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 80,740 $ 125,842
Operating, exploration, and general
and administrative expenses paid (47,254) (50,313)
Interest paid (12,645) (12,544)
Federal income taxes received 6,446 --
Federal income taxes paid (8,000) --
Value added taxes paid (3,956) (3,376)
Other 1,000 213
--------- ---------
Net cash provided by operating activities 16,331 59,822
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (129,179) (105,669)
Purchase of proved reserves -- (2,961)
Proceeds from the sale of properties 81,983 513
--------- ---------
Net cash used in investing activities (47,196) (108,117)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of new financing 300,000 --
Borrowings under senior debt agreements 250,053 196,954
Payments under senior debt agreements (470,000) (157,000)
Payments of cash dividends on common stock (2,407) (2,200)
Payment of financing issue expenses (11,425) --
Proceeds from exercise of stock options and other 59 880
--------- ---------
Net cash provided by financing activities 66,280 38,634
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (305) 388
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH INVESTMENTS 35,110 (9,273)
CASH AND CASH INVESTMENTS AT THE BEGINNING OF THE YEAR 7,959 19,646
--------- ---------
CASH AND CASH INVESTMENTS AT THE END OF THE PERIOD $ 43,069 $ 10,373
========= =========
RECONCILIATION OF NET INCOME (LOSS) TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Net income (loss) $ 11,307 $ (2,484)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities -
Foreign currency transaction gains (409) (193)
Gains from the sales of properties (37,750) (57)
Depreciation, depletion and amortization 47,245 58,818
Dry hole and impairment 1,030 2,778
Interest capitalized (8,767) (4,064)
Deferred federal income taxes 6,139 (746)
Change in operating assets and liabilities (2,464) 5,770
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 16,331 $ 59,822
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
- 4 -
<PAGE> 6
POGO PRODUCING COMPANY AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------------------------------------------
1999 1998
------------------------------ ------------------------------
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 40,136,254 $ 40,136 33,552,702 $ 33,553
Conversion of 2004 Notes -- -- 3,879,726 3,880
Adjustment for fractional shares and other 13,132 13 -- --
Stock options exercised 8,250 8 143,517 143
------------ ------------ ------------ ------------
Issued at end of period 40,157,636 40,157 37,575,945 37,576
------------ ------------ ------------ ------------
ADDITIONAL CAPITAL:
Balance at beginning of year 290,655 144,848
Conversion of 2004 Notes -- 80,712
Adjustment for fractional shares and other (13) --
Stock options exercised 71 1,782
------------ ------------
Balance at end of period 290,713 227,342
------------ ------------
RETAINED EARNINGS (DEFICIT):
Balance at beginning of year (79,600) (31,971)
Net income (loss) 11,307 (2,484)
Dividends ($0.06 per common share) (2,407) (2,200)
------------ ------------
Balance at end of period (70,700) (36,655)
------------ ------------
TREASURY STOCK AND OTHER:
Balance at beginning of year (15,575) (1,531) (15,575) (324)
Activity during the period -- 126 -- --
------------ ------------ ------------ ------------
Balance at end of period (15,575) (1,405) (15,575) (324)
------------ ------------ ------------ ------------
COMMON STOCK OUTSTANDING,
AT THE END OF THE PERIOD 40,142,061 37,560,370
============ ============
TOTAL SHAREHOLDERS' EQUITY $ 258,765 $ 227,939
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
- 5 -
<PAGE> 7
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, 1998.
(2) LONG-TERM DEBT -
Long-term debt and the amount due within one year at June 30, 1999 and
December 31, 1998, consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------- --------
(Expressed in thousands)
<S> <C> <C>
Senior debt -
Bank revolving credit agreement
LIBO Rate based loans, borrowings at an average interest rate of 7.4% $ -- $205,000
Uncommitted credit lines with banks, borrowings at an average interest rate of 6.1% -- 4,000
Banker's acceptance loans, borrowings at an average interest rate of 5.9% -- 10,947
-------- --------
Total senior debt -- 219,947
-------- --------
Subordinated debt -
8 3/4% Senior subordinated notes due 2007 ("2007 Notes") 100,000 100,000
10 3/8% Senior subordinated notes due 2009 ("2009 Notes") 150,000 --
5 1/2% Convertible subordinated notes due 2006 ("2006 Notes") 115,000 115,000
-------- --------
Total subordinated debt 365,000 215,000
-------- --------
Long-term debt, none due within one year $365,000 $434,947
======== ========
</TABLE>
Refer to Note 3 of Notes to Consolidated Financial Statements included in
the Company's annual report on Form 10-K for the year ended December 31, 1998,
for a further discussion of the Company's uncommitted credit lines, the banker's
acceptance loans, the 2007 Notes, the 2006 Notes, and the bank revolving credit
agreement. On July 16, 1999, the Company and its lenders entered into an
amendment to its amended and restated credit agreement which, in addition to
other minor matters, extended the maturity date of the lenders' revolving loan
commitments to July 1, 2001, and if applicable, their term loan commitments to
July 2, 2003.
On January 15, 1999, the Company issued $150,000,000 of 10 3/8% Senior
Subordinated Notes, due 2009 (the "2009 Notes"). The proceeds from the issuance
of the 2009 Notes were used to repay amounts outstanding under the Company's
credit agreement. The 2009 Notes bear interest at a rate of 10 3/8%, and are
payable semiannually in arrears on February 15 and August 15 of each year,
commencing August 15, 1999. The 2009 Notes are general unsecured senior
subordinated obligations of the Company, are subordinated in right of payment to
the Company's senior indebtedness, which currently includes the Company's
obligations under the credit agreement, its unsecured credit lines, and bankers
acceptances, are equal in right of payment to the 2007 Notes, but are senior in
right of payment to its subordinated indebtedness, which currently includes the
2006 Notes. The Company, at its option, may redeem the 2009 Notes in whole or in
part, at any time on or after February 15, 2004, at a redemption price of
105.188% of their principal value and decreasing percentages thereafter. No
sinking fund payments are required on the 2009 Notes. The 2009 Notes are
redeemable at the option of any holder, upon the occurrence of a change in
control (as defined in the indenture governing the 2009 Notes), at 101% of their
principal amount. The indenture governing the 2009 Notes also imposes certain
covenants on the Company that are similar to the covenants contained in the
indenture governing the 2007 Notes, including covenants limiting: incurrence of
indebtedness including senior indebtedness; restricted payments; the issuance
and sales of restricted subsidiary capital stock; transactions with affiliates;
liens; disposition of proceeds of asset sales; non-guarantor restricted
subsidiaries; dividends and other payment restrictions affecting restricted
subsidiaries; and mergers, consolidations and the sale of assets. As of June 30,
1999, $5,688,000 was available to the Company for common stock dividends under
the covenant that restricts certain types of payments and distributions by the
Company.
- 6 -
<PAGE> 8
POGO PRODUCING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(3) Minority Interest -
Pogo Trust I, a business trust in which the Company owns all of the issued
common securities (the "Trust"), issued $150,000,000 (3,000,000 securities
having a liquidation preference of $50 each) of 6 1/2% Cumulative Quarterly
Income Convertible Securities, Series A (the "Trust Preferred Securities") on
June 2, 1999. The proceeds of the issuance of the Trust Preferred Securities
were used to purchase $150,000,000 of the Company's 6 1/2% Junior Subordinated
Convertible Debentures, due 2029 (the "Debentures"). The financial terms of the
Debentures are generally the same as those of the Trust Preferred Securities.
The Trust Preferred Securities accrue and pay distributions quarterly in arrears
at a rate of 6 1/2% per annum on the stated liquidation amount of $50 per Trust
Preferred Security on March 1, June 1, September 1, and December 1 of each year
to security holders of record on the business day immediately preceding the
distribution payment date. The Company has guaranteed, on a subordinated basis,
distributions and other payments due on the Trust Preferred Securities to the
extent that there are funds available in the Trust. The Company may cause the
Trust to defer the payment of distributions for successive periods up to 20
consecutive periods unless an event of default on the Debentures has occurred
and is continuing. During such periods, accrued distributions on the Trust
Preferred Securities will compound quarterly and the Company will generally not
be permitted to declare or pay distributions on its common stock or debt
securities that rank equal or junior to the Debentures.
The Trust Preferred Securities are convertible at the option of the holder
at any time into common stock of the Company at the rate of 2.1053 shares of
Company common stock per Trust Preferred Security. This conversion rate will be
subject to adjustment to prevent dilution and is currently equivalent to a
conversion price of $23.75 per share of Company common stock. The Trust
Preferred Securities are mandatorily redeemable upon maturity of the Debentures
on June 1, 2029, or to the extent of any earlier redemption of any Debenture by
the Company and are callable by the Trust at any time after June 1, 2002. In
addition, if the tax laws change so that the Trust becomes subject to federal
income taxes or if interest payments made by the Company to the Trust or the
Debentures are no longer deductible for federal income tax purposes, the Trust
may liquidate and distribute Debentures to holders of the Trust Preferred
Securities and, in certain circumstances, the Company may shorten the stated
maturity of the Debentures to as early as June 2, 2014.
The amounts recorded for the second quarter and first six months of 1999
under Minority Interests - Dividends and Costs Associated with Preferred
Securities of a Subsidiary Trust principally reflect cumulative unpaid dividends
and, to a lesser extent, the amortization of issuance expenses related to the
offering and sale of the Trust Preferred Securities.
- 7 -
<PAGE> 9
POGO PRODUCING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(4) GEOGRAPHIC SEGMENT REPORTING -
The Company's long-lived assets, revenues and operating income (loss) by
segment and geographic area are as follows:
<TABLE>
<CAPTION>
COMPANY OIL AND GAS PIPELINES OTHER
--------- ----------- --------- ---------
(Expressed in thousands)
<S> <C> <C> <C> <C>
LONG-LIVED ASSETS:
As of June 30, 1999:
United States $ 482,378 $ 473,271 $ 5,335 $ 3,772
Kingdom of Thailand 236,258 234,223 -- 2,035
Canada 4,853 4,806 -- 47
--------- --------- --------- ---------
Total $ 723,489 $ 712,300 $ 5,335 $ 5,854
========= ========= ========= =========
As of December 31, 1998:
United States $ 502,787 $ 493,633 $ 4,992 $ 4,162
Kingdom of Thailand 209,552 207,756 -- 1,796
Canada 13,186 13,083 -- 103
--------- --------- --------- ---------
Total $ 725,525 $ 714,472 $ 4,992 $ 6,061
========= ========= ========= =========
REVENUES:
For the three months ended June 30, 1999
United States $ 38,969 $ 37,218 $ 1,482 $ 269
Kingdom of Thailand 4,959 5,042 -- (83)
Canada 900 899 -- 1
--------- --------- --------- ---------
Total $ 44,828 $ 43,159 $ 1,482 $ 187
========= ========= ========= =========
For the three months ended June 30, 1998
United States $ 42,408 $ 42,884 $ -- $ (476)
Kingdom of Thailand 10,255 10,233 -- 22
--------- --------- --------- ---------
Total $ 52,663 $ 53,117 $ -- $ (454)
========= ========= ========= =========
For the Six months ended June 30, 1999
United States $ 108,856 $ 68,789 $ 2,472 $ 37,595
Kingdom of Thailand 10,114 10,187 -- (73)
Canada 1,904 1,918 -- (14)
--------- --------- --------- ---------
Total $ 120,874 $ 80,894 $ 2,472 $ 37,508
========= ========= ========= =========
For the Six months ended June 30, 1998
United States $ 93,331 $ 93,508 $ -- $ (177)
Kingdom of Thailand 20,062 20,041 -- 21
--------- --------- --------- ---------
Total $ 113,393 $ 113,549 $ -- $ (156)
========= ========= ========= =========
OPERATING INCOME (LOSS):
For the three months ended June 30, 1999
United States $ 1,259 $ 1,157 $ (167) $ 269
Kingdom of Thailand (2,234) (2,151) -- (83)
Canada (790) (791) -- 1
--------- --------- --------- ---------
Total $ (1,765) $ (1,785) $ (167) $ 187
========= ========= ========= =========
For the three months ended June 30, 1998
United States $ 805 $ 1,280 $ -- $ (475)
Kingdom of Thailand (1,849) (1,870) -- 21
--------- --------- --------- ---------
Total $ (1,044) $ (590) $ -- $ (454)
========= ========= ========= =========
For the six months ended June 30, 1999
United States $ 33,125 $ (4,397) $ (73) $ 37,595
Kingdom of Thailand (6,391) (6,318) -- (73)
Canada (1,618) (1,604) -- (14)
--------- --------- --------- ---------
Total $ 25,116 $ (12,319) $ (73) $ 37,508
========= ========= ========= =========
For the six months ended June 30, 1998
United States $ 4,836 $ 5,013 $ -- $ (177)
Kingdom of Thailand (2,744) (2,765) -- 21
--------- --------- --------- ---------
Total $ 2,092 $ 2,248 $ -- $ (156)
========= ========= ========= =========
</TABLE>
-8-
<PAGE> 10
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 (FASB'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. The
Company did report foreign currency translation gains of $12,000 and $126,000,
respective for the three and six months ended June 30, 1999, which is reflected
in shareholders' equity and represents less than 1% of the Company's reported
pretax results for the three and six months ended June 30, 1999. As such, total
comprehensive income (loss) and reported net income (loss) are materially the
same for the three and six months periods ended June 30, 1999 and 1998.
(6) IMPACT OF SFAS 133 -
In June 1998, the FASB 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 on 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 2001 but
early adoption is allowed. The Company has not yet quantified the impact 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 the pronouncement.
(7) EARNINGS PER SHARE -
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, 1999 June 30, 1999
----------------------------------- -----------------------------------
Income Shares Per Share Income Shares Per Share
-------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE - $ (3,006) 40,141 $ (0.07) $ 11,307 40,121 $ 0.28
========= =========
Effect of dilutive securities:
Options to purchase common shares -- -- -- 17
-------- -------- -------- --------
DILUTED EARNINGS PER SHARE $ (3,006) 40,141 $ (0.07) $ 11,307 40,138 $ 0.28
======== ======== ========= ======== ======== =========
Antidilutive securities -
Options to purchase common shares -- 2,521 $ 19.35 -- 2,195 $ 21.14
2006 Notes 1,028 2,726 $ 0.38 2,056 2,726 $ 0.75
Trust Preferred Securities (a) 488 1,943 $ 0.25 490 977 $ 0.50
</TABLE>
<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 -- -- -- --
-------- -------- -------- --------
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 (b) -- -- -- 476 1,200 $ 0.40
2006 Notes 1,028 2,726 $ 0.38 2,056 2,726 $ 0.75
</TABLE>
(a) The Trust Preferred Securities were issued on June 2, 1999.
(b) The 2004 Notes were converted to common stock or called in the first quarter
of 1998.
-9-
<PAGE> 11
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, 1998. 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, 1998, 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
Net income
The Company reported a net loss for the second quarter of 1999 of
$3,006,000 or $0.07 per share (on both a basic and a diluted basis), compared to
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). For the first six months of 1999, the Company
reported net income of $11,307,000 or $0.28 per share (on both a basic and a
diluted basis) compared to a net loss for the first six months of 1998 of
$2,484,000 or $0.07 per share (on both a basic and a diluted basis). The
increase in net income during the first six months of 1999, compared to the
first six months of 1998, was primarily related to a net gain recognized by the
Company from the sale of certain properties, including the previously announced
sale of the Lopeno Field in South Texas, most of which occurred in the first
quarter of 1999. These property sales were part of an effort by the Company to
sell its non-strategic and/or underperforming properties to generate cash and
maximize its focus on properties with greater exploration potential. If the gain
of $37,750,000 related to the sale of such properties is excluded, the Company
would have reported a net loss for the first six months of $13,231,000 or $0.33
per share (on both a basic and a diluted basis).
Earnings per common share are based on the weighted average number of
common shares outstanding for the respective periods. The increase in the
weighted average number of common shares outstanding for the second quarter of
1999, compared to the second quarter of 1998, resulted primarily from the
issuance as of August 17, 1998 of approximately 2,500,000 shares of common stock
to former holders of Arch capital stock and convertible debt securities in
connection with the Company's acquisition of Arch Petroleum Inc. ("Arch") and,
to a lesser extent, the issuance of common stock upon the exercise of stock
options pursuant to the Company's incentive plans. The increase in the weighted
average number of common shares outstanding for the first six months of 1999,
compared to the first six months of 1998, also reflects the issuance of
approximately 3,900,000 shares of the Company's 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. The earnings per share
computation on a diluted basis in the periods presented also reflects additional
shares of common stock issuable upon the assumed exercise of options to purchase
common shares under the Company's incentive plans, less treasury shares that are
assumed to have been purchased by the Company from the option proceeds.
Total Revenues
The Company's total revenues for the second quarter of 1999 were
$44,828,000, a decrease of approximately 15% from total revenues of $52,663,000
for the second quarter of 1998. The decrease in the Company's total revenues for
the second quarter of 1999, compared to the second quarter of 1998, resulted
primarily from a substantial decrease in oil and gas revenues that was only
partially offset by pipeline sales related to the Saginaw pipeline, which was
acquired as part of the Arch acquisition. The Company's total revenues for the
first six months of 1999 were $120,874,000, an increase of approximately 7%
compared to total revenues of $113,393,000 for the first six months of 1998. The
increase in the Company's total revenues for the first six months of 1999,
compared to the first six months of 1998, resulted primarily from the gains
related to the previously discussed sale of oil and gas properties and, to a
lesser extent, pipeline sales revenues resulting from the acquisition of the
Saginaw pipeline.
-10-
<PAGE> 12
POGO PRODUCING COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Oil and Gas Revenues
The Company's oil and gas revenues for the second quarter of 1999 were
$43,159,000, a decrease of approximately 19% from oil and gas revenues of
$53,117,000 for the second quarter of 1998. The Company's oil and gas revenues
for the first six months of 1999 were $80,894,000, a decrease of approximately
29% from oil and gas revenues of $113,549,000 for the first six months of 1998.
The following table reflects an analysis of variances in the Company's oil and
gas revenues (expressed in thousands) between 1999 and 1998:
<TABLE>
<CAPTION>
Increase (decrease) in oil and gas revenues 2ND QTR 1999 1ST HALF 1999
resulting from variances in: COMPARED TO COMPARED TO
2ND QTR 1998 1ST HALF 1998
------------ -------------
<S> <C> <C>
NATURAL GAS --
Price ............................................ $ (798) $ (7,033)
Production ....................................... (8,460) (17,070)
-------- --------
(9,258) (24,103)
-------- --------
CRUDE OIL AND CONDENSATE --
Price ............................................ 4,276 442
Production ....................................... (4,771) (5,777)
-------- --------
(495) (5,335)
-------- --------
NATURAL GAS LIQUIDS ("NGL") ......................... (205) (3,217)
-------- --------
Increase (decrease) in oil and gas revenues ...... $ (9,958) $(32,655)
======== ========
</TABLE>
The decrease in the Company's oil and gas revenues for the second
quarter and first six months of 1999, compared to the second quarter and first
six months of 1998, is primarily related to declines in the Company's natural
gas and oil, condensate and NGL ("liquid hydrocarbons") production volumes and,
to a lesser extent, a decrease in the price that it received for its natural gas
production volumes, which was only partially offset by increases in the average
price that the Company received for its crude oil and condensate production
volumes.
<TABLE>
<CAPTION>
Comparison of Increases (Decreases) in: 2ND QUARTER 1ST SIX MONTHS
NATURAL GAS -- ------------------- % ------------------ %
1999 1998 CHANGE 1999 1998 CHANGE
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Average prices
North America (a)........................................ $ 2.18 $ 2.18 -- $ 1.96 $ 2.18 (10%)
Kingdom of Thailand(b)................................... $ 1.34 $ 1.73 (23%) $ 1.43 $ 1.73 (17%)
Company-wide average price.......................... $ 2.02 $ 2.07 (2%) $ 1.86 $ 2.08 (11%)
Average daily production volumes (MMcf per day)
North America (a)........................................ 96.5 126.4 (24%) 101.7 135.9 (25%)
Kingdom of Thailand...................................... 23.0 39.1 (41%) 24.2 40.7 (41%)
------- ------- ------- -------
Company-wide average daily production............... 119.5 165.5 (28%) 125.9 176.6 (29%)
======= ======= ======= =======
</TABLE>
- ----------------------------
(a) North American average prices and production reflect production from
the United States and Canada for the second quarter and first six
months of 1999, but only production from the United States for the
second quarter and first six months of 1998. The Company acquired its
interests in Canada as part of the Arch acquisition which closed
during the third quarter of 1998. "MMcf" and "Bbls" stand for million
cubic feet and barrels, respectively.
(b) The Company is paid for its natural gas production in the Kingdom of
Thailand in Thai Baht. The average prices are presented in dollars
based on the revenue recorded in the Company's financial records. The
average price that the Company received for its natural gas production
in the Kingdom of Thailand during the second quarter and first six
months of 1999 reflects the impact of the penalty provisions of the
Company's gas sales agreement with the Petroleum Authority of Thailand
due to the Company's failure to meet its minimum contractual delivery
obligations.
-11-
<PAGE> 13
POGO PRODUCING COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
<TABLE>
<CAPTION>
Comparison of Increases (Decreases) in: 2ND QUARTER 1ST SIX MONTHS
CRUDE OIL AND CONDENSATE -- ------------------- % ------------------ %
1999 1998 CHANGE 1999 1998 CHANGE
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Average prices
North America(a)....................................... $ 15.99 $ 12.84 25% $ 13.71 $ 13.77 --
Kingdom of Thailand.................................... $ 18.45 $ 16.05 15% $ 16.38 $ 14.00 17%
Company-wide average price............................ $ 16.24 $ 13.38 21% $ 13.96 $ 13.81 1%
Average daily production volumes (Bbls per day)
North America(a)....................................... 11,893 13,665 (13%) 12,662 13,413 (6%)
Kingdom of Thailand ................................... 1,331 2,786 (52%) 1,329 2,864 (54%)
------- ------- ------- -------
Company-wide average daily production................. 13,224 16,451 (20%) 13,991 16,277 (14%)
======= ======= ======= =======
TOTAL LIQUID HYDROCARBONS --
Company-wide average daily production (Bbls per day) 14,824 18,369 (19%) 15,875 19,375 (18%)
======= =======
</TABLE>
- --------------------------
(a) North American average prices and production reflect production from
the United States and Canada for the second quarter and first six
months of 1999, but only production from the United States for the
second quarter and first six months of 1998. The Company acquired its
interests in Canada as part of the Arch acquisition which closed
during the third quarter of 1998. "MMcf" and "Bbls" stand for million
cubic feet and barrels, respectively.
Natural Gas
Thailand Prices. The price that the Company receives under the Gas Sales
Agreement with the Petroleum Authority of Thailand ("PTT") is subject to a
penalty provision if the Company does not meet the minimum delivery requirements
set forth in the agreement. Commencing on October 1, 1998, and continuing
throughout the first six months of 1999, the Company and its joint venture
partners have not met the contractual minimum delivery requirements under the
Gas Sales Agreement. This has permitted PTT to reduce the price it pays on a
portion of the natural gas which the Company has sold to PTT by 25% from the
then current contract price. If these penalty provisions had not been in effect,
the average price that the Company would have received for its production in the
Kingdom of Thailand for the second quarter and first six months of 1999 would
have been approximately $1.71 and $1.73, respectively. Since production
commenced from new facilities installed in the Tantawan and Benchamas Fields,
the Company has generally been able to meet its contractual delivery obligations
to PTT and is not experiencing a penalty under the Gas Sales Agreement.
Production. The decrease in the Company's natural gas production during the
second quarter and first six months of 1999, compared to the second quarter and
first six months of 1998, was related in large measure to decreased production
from the Company's East Cameron Block 334 "E" platform, the sale of the Lopeno
Field and decreased production from the Tantawan Field in the Kingdom of
Thailand that was partially attributable to extended periods during which the
Tantawan Field platforms were shut-in during an in-fill drilling program. The
decline in the Company's natural gas production was partially offset by
successful development of the Company's Garden Banks Block 367 and Main Pass
Block 226 field, its continued successful offshore and onshore drilling and
workover program, and production from properties that the Company acquired in
its acquisition of Arch, including its Canadian properties. The Company
currently anticipates that with the recent completion of an in-fill drilling
program in the Tantawan Field and the commencement of production from the
Benchamas Field and a new platform in the Tantawan Field, the Company's natural
gas production from the Kingdom of Thailand should increase significantly during
the third quarter of 1999, as compared with the second quarter of 1999. As of
August 1, 1999, the Company was not a party to any future natural gas sales
contracts.
-12-
<PAGE> 14
POGO PRODUCING COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Crude Oil and Condensate
Thailand Prices. Since the inception of production from the Tantawan Field,
crude oil and condensate has been stored on a Floating Production, Storage and
Offloading system until an economic quantity was accumulated for offloading and
sale. 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.
Production. The decrease in the Company's North American crude oil and
condensate production during the second quarter and first six months of 1999,
compared to the second quarter and first six months of 1998, resulted from the
anticipated natural decline in oil and condensate production from certain of the
Company's offshore properties, that was partially offset by increased production
from the Company's Permian basin properties due to an active workover and
recompletion program that commenced in late 1998 and additional production from
properties acquired in the Arch acquisition.. The decrease in the Company's
crude oil and condensate production from the Tantawan Field declined, in part,
due to disappointing reservoir performance and, in part, due to the need to
shut-in production from platforms during the in-fill drilling program that
commenced during the first quarter of 1999 and was recently completed. The
Company currently anticipates that with the recent completion of the in-fill
drilling program in the Tantawan Field and the commencement of production from
the Benchamas Field and a new platform in the Tantawan Field, the Company's
crude oil and condensate production from the Kingdom of Thailand should increase
significantly during the third quarter of 1999, as compared with the second
quarter of 1999. As of August 1, 1999, the Company was not a party to any crude
oil swaps or futures contracts.
NGL Production. The Company's oil and gas revenues, and its total liquid
hydrocarbon production, reflect the production and sale by the Company of NGL,
which are liquid products extracted from natural gas production. The decrease in
NGL revenues for the second quarter of 1999, compared with the second quarter of
1998, related to a decrease in the Company's NGL production volumes, that was
only partially offset by an increase in the average price that the Company
received for its NGL production. The decrease in NGL revenues for the first six
months of 1999, compared with the first six months of 1998, related to a
decrease in the Company's NGL production volumes and, to a lesser extent to a
decrease in the average price that the Company received for its NGL production.
Costs and Expenses
<TABLE>
<CAPTION>
2ND QUARTER 1ST SIX MONTHS
Comparison of Increases (Decreases) in: --------------------------- % --------------------------- %
1999 1998 CHANGE 1999 1998 CHANGE
----------- ----------- ------ ----------- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
LEASE OPERATING EXPENSES
North America.......................... $11,353,000 $10,479,000 8% $22,586,000 $22,726,000 (1%)
Kingdom of Thailand.................... $ 1,464,000 $ 5,596,000 (74%) $ 5,573,000 $ 9,858,000 (43%)
Total Lease Operating Expenses... $12,817,000 $16,075,000 (20%) $28,159,000 $32,584,000 (14%)
Pipeline Operating and Natural
Gas Purchases .......................... $ 1,336,000 -- N/A $ 2,198,000 -- N/A
GENERAL AND ADMINISTRATIVE EXPENSES....... $ 6,881,000 $ 5,802,000 19% $13,987,000 $11,287,000 24%
EXPLORATION EXPENSES...................... $ 1,374,000 $ 2,002,000 (31%) $ 3,139,000 $ 5,834,000 (46%)
DRY HOLE AND IMPAIRMENT EXPENSES.......... $ 791,000 $ 1,470,000 (46%) $ 1,030,000 $ 2,778,000 (63%)
DEPRECIATION, DEPLETION AND
AMORTIZATION (DD&A) EXPENSES........... $23,394,000 $28,358,000 (18%) $47,245,000 $58,818,000 (20%)
DD&A rate ............................. $ 1.20 $ 1.12 8% $ 1.11 $ 1.10 --
Mcfe produced (a)...................... 18,965,000 25,087,000 (24%) 40,033,000 53,009,000 (24%)
</TABLE>
- -----------------------------
(a) "Mcfe" stands for thousands of cubic feet equivalent.
-13-
<PAGE> 15
POGO PRODUCING COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
<TABLE>
<CAPTION>
2ND QUARTER 1ST SIX MONTHS
Comparison of Increases (Decreases) in: --------------------------- % --------------------------- %
1999 1998 CHANGE 1999 1998 CHANGE
----------- ----------- ------ ----------- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
INTEREST--
Charges.................................... $ 9,234,000 $ 5,209,000 77% $19,109,000 $11,277,000 69%
Interest Income............................ $ 238,000 $ 102,000 133% $ 310,000 $ 250,000 24%
Capitalized Interest Expense............... $ 5,017,000 $ 2,219,000 126% $ 8,767,000 $ 4,064,000 116%
MINORITY INTEREST - Dividends and costs
Associated with Preferred Securities of
a Subsidiary Trust ........................ $ (799) -- N/A $ (799) -- N/A
FOREIGN CURRENCY TRANSACTION
GAIN (LOSS)................................. $ 460,000 $ (804,000) N/A $ 409,000 $ 193,000 112%
INCOME TAX BENEFIT (EXPENSE).................. $ 3,077,000 $ 2,068,000 49% $(3,387,000) $ 2,194,000 N/A
</TABLE>
Lease Operating Expenses.
The increase in North American lease operating expenses for the second
quarter of 1999, compared to the second quarter of 1998, was primarily related
to increased operating expenses related to properties acquired in the Arch
acquisition for which no similar expenses were incurred during the second
quarter of 1998, that was not entirely offset by the results of a company-wide
cost reduction program. The decrease in North American lease operating expenses
for the first six months of 1999, compared to the first six months of 1998, was
primarily related to a non-recurring maintenance project on the Company's East
Cameron 334 "E" platform that occurred during the first six months of 1998 for
which no similar expenses were incurred during the first six months of 1999 and,
to a lesser extent, the results of a company-wide cost reduction program and
decreased severance taxes. The decrease in Thailand lease operating expenses for
the second quarter and first six months of 1999, compared to the second quarter
and first six months of 1998, related to recognition of previously deferred
billings to third parties and, to a lesser extent, to an ongoing cost reduction
program.
Pipeline Operating and Natural Gas Purchases
The Company acquired the Saginaw pipeline as part of its acquisition of
Arch in August 1998. Consequently, prior to that time the Company did not
separately report its pipeline operating expenses, nor did it purchase any
natural gas for resale to customers of its pipelines.
General and Administrative Expenses
The increase in general and administrative expenses for the second
quarter and first six months of 1999, compared with the second quarter and first
six months of 1998, was primarily related to an increase in the size of the
Company's work force due to the Arch acquisition and, to a lesser extent
increased legal fees and expenses.
Exploration Expenses
Exploration expenses consist primarily of rental payments required under
oil and gas leases to hold non-producing properties ("delay rentals") and
exploratory geological and geophysical costs which are expensed as incurred. The
decrease in exploration expense for the second quarter and first six months of
1999, compared to the second quarter of and first six months of 1998, resulted
primarily from generally decreased geophysical activity by the Company in most
of its operational areas. except Canada, where the Company participated in a
significant 3-D survey during the first quarter of 1999.
-14-
<PAGE> 16
POGO PRODUCING COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Depreciation, Depletion and Amortization Expenses
The decrease in the Company's depreciation, depletion and amortization
("DD&A") expense for the second quarter and first six months of 1999, compared
to the second quarter and first six months of 1998, resulted primarily from a
decrease in the Company's natural gas and liquid hydrocarbon production, that
was only partially offset by an increase in the Company's composite DD&A rate.
The increase in the composite DD&A rate for all of the Company's
producing fields for the second quarter and first six months of 1999, compared
to the second quarter and first six months of 1998, 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. Management currently
anticipates that this trend will continue for the foreseeable future, resulting
in generally increasing DD&A rates.
Interest
Interest Charges. The increase in the Company's interest charges for the
second quarter and first six months of 1999, compared to the second quarter and
first six months of 1998, resulted primarily from an increase in the average
amount of the Company's outstanding debt and, to a lesser extent, increased
average interest rates on the debt outstanding (resulting primarily from the
issuance of the 10 3/8% Senior Subordinated Notes due 2009 (the "2009 Notes") on
January 15, 1999). As of August 1,1999, the Company was not a party to any
interest rate swap agreements.
Capitalized Interest. The increase in capitalized interest for the
second quarter and first six months of 1999, compared to the second quarter and
first six months of 1998, resulted primarily from an increase in the amount of
capital expenditures subject to interest capitalization during the second
quarter and first six months of 1999 ($248,340,000 and $218,044,000 ,
respectively), compared to the second quarter and first six months of 1998
($129,098,000 and $118,084,000, respectively), and from an increase in the
computed rate that the Company uses to apply to such capital expenditures to
arrive at the total amount of capitalized interest. A substantial percentage of
the Company's capitalized interest expense 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. With the completion of the Benchamas Field in
the third quarter of 1999, and the completion of the Company's construction
project at Garden Banks Block 367 in the Gulf of Mexico in second quarter of
1999, management currently expects that capitalized interest expense should
decrease significantly in the next several quarters.
Minority Interest -- Dividends and Costs Associated
with Preferred Securities of a Subsidiary Trust
Pogo Trust I, a business trust in which the Company owns all of the
issued common securities, issued $150,000,000 of 6 1/2% Cumulative Quarterly
Income Convertible Preferred Securities, Series A (the "Trust Preferred
Securities") on June 2, 1999. The amounts recorded for the second quarter and
first six months of 1999 under Minority Interest -- Dividends and Costs
Associated with Preferred Securities of a Subsidiary Trust principally reflect
cumulative unpaid dividends and, to a lesser extent, the amortization of
issuance expenses related to the offering and sale of the Trust Preferred
Securities.
Foreign Currency Transaction Gain (Loss)
The foreign currency transaction gain and loss each resulted primarily
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
-15-
<PAGE> 17
POGO PRODUCING COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
subsidiary's financial statements during the respective periods. In early July
1997, the government of the Kingdom of Thailand announced that the value of the
Baht would be set against the dollar and other currencies under a "managed
float" program arrangement. The Company cannot predict what the Thai Baht to U.
S. dollar exchange rate may be in the future. Moreover, it is anticipated that
this exchange rate will remain volatile. As of August 1, 1999, 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 increase in the Company's income tax benefit for the second quarter
of 1999, compared to the second quarter of 1998, resulted primarily from
decreased income and the tax benefit of accrued foreign losses from the
Company's operations in the Kingdom of Thailand. The Company's income tax
expense for the first six months of 1999, compared to its income tax benefit for
the first six months of 1998, resulted primarily from a pre-tax gain on the sale
of the Lopeno Field, that was only partially offset by substantially lower
revenues 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
first six months of 1999 reflects net cash provided by operating activities of
$16,331,000. In addition to net cash provided by operating activities, the
Company received $81,983,000 from the sale of certain non-strategic and/or
underperforming properties, proceeds of $300,000,000 from the sale of Trust
Preferred Securities and 2009 Notes and net proceeds of $59,000 from the
exercise of stock options.
During the second quarter of 1999, the Company invested $129,179,000 of
such cash flow in capital projects, repaid a net $219,947,000 under its senior
debt arrangements, paid $11,425,000 in financing issuance expenses and paid
$2,407,000 (two quarterly dividends of $0.03 per share) in cash dividends to
holders of the Company's common stock. As of June 30, 1999, the Company's cash
and cash investments were $43,069,000, its long-term debt stood at $365,000,000
and its net obligations on mandatorily redeemable convertible preferred
securities of its subsidiary Pogo Trust I, were $145,044,000.
Future Capital Requirements
The Company's capital and exploration budget for 1999, 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
recently increased by the Company's Board of Directors to $195,000,000. The
Company currently anticipates that its available cash and cash investments, cash
provided by operating activities, funds available under its credit agreement,
uncommitted credit lines and banker's acceptance facilities will be sufficient
to fund the Company's ongoing operating, interest and general and administrative
expenses, any currently anticipated costs associated with the Company's projects
during 1999, and future dividend payments at current levels (including a
dividend payment of $0.03 per share to be paid on August 27, 1999 to
shareholders of record on August 13, 1999). The declaration of future dividends
on the Company's common stock will depend upon, among other things, the
Company's future earnings and financial condition, liquidity and capital
requirements, its ability to pay dividends under certain covenants contained in
its debt instruments, the general economic and regulatory climate and other
factors deemed relevant by the Company's Board of Directors.
-16-
<PAGE> 18
POGO PRODUCING COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Capital Structure
Credit Agreement. On July 16, 1999, the Company and its lenders entered
into an amendment to its amended and restated credit agreement which, among
other things, extended the maturity date of the lenders' revolving loan
commitments to July 1, 2001, and, if applicable, their term loan commitments to
July 2, 2003.
Trust Preferred Securities. Pogo Trust I, a business trust in which the
Company owns all of the issued common securities (the "Trust"), issued 3,000,000
Trust Preferred Securities having a liquidation preference of $50 per Trust
Preferred Security, on June 2, 1999. The proceeds from the issuance of the Trust
Preferred Securities were used to purchase $150,000,000 of the Company's 6 1/2%
Junior Subordinated Convertible Debentures, due 2029 (the "Debentures"). The
financial terms of the Debentures are generally the same as those of the Trust
Preferred Securities. The Trust Preferred Securities accrue and pay
distributions quarterly in arrears at a rate of 6 1/2% per annum on the stated
liquidation amount of $50 per Trust Preferred Security on March 1, June 1,
September 1, and December 1 of each year to securities holders of record on the
business day immediately preceding the distribution payment date. The Company
has guaranteed, on a subordinated basis, distributions and other payments due on
the Trust Preferred Securities to the extent that there are funds available in
the Trust. The Company may cause the Trust to defer the payment of distributions
for successive periods up to 20 consecutive quarterly periods unless an event of
default on the Debentures has occurred and is continuing. During such periods,
accrued distributions on the Trust Preferred Securities will compound quarterly
and the Company will generally not be permitted to declare or pay distributions
on its common stock or debt securities that rank equal or junior to the
Debentures.
The Trust Preferred Securities are convertible at the option of the
holder at any time into common stock of the Company at the rate of 2.1053 shares
of Company common stock per Trust Preferred Security. This conversion rate will
be subject to adjustment to prevent dilution and is currently equivalent to a
conversion price of $23.75 per share of Company common stock. The Trust
Preferred Securities are mandatorily redeemable upon maturity of the Debentures
on June 1, 2029, or to the extent of any earlier redemption of any Debentures by
the Company and are callable by the Trust at any time after June 1, 2002. In
addition, if certain tax changes occur so that the Trust becomes subject to
federal income taxes or interest payments made by the Company to the Trust on
the Debentures are no longer deductible for federal income tax purposes, the
Trust may liquidate and distribute Debentures to holders of the Trust Preferred
Securities and, in certain circumstances, the Company may shorten the stated
maturity of the Debentures to as early as June 2, 2014.
Other Matters
Year 2000 Readiness Disclosure. Information regarding the Company's Year
2000 readiness is contained in the Company's annual report on Form 10-K for the
year ended December 31, 1998 and reference is made to the information contained
there. There has been no material change in the Company's Year 2000 readiness
since that information was disclosed.
-17-
<PAGE> 19
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 27, 1999. 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 1999, with 35,459,930 shares of stock
cast for the appointment, 25,805 against the appointment, and
27,650 abstentions and broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
4.1 -- Second Amendment dated July 16, 1999, to Amended and
Restated Credit Agreement dated as of August 1, 1997 among
Pogo Producing Company, certain commercial lending
institutions, Bank of Montreal as the Agent and Banque Paribas
as the Co-Agent.
27 -- Financial Data Schedule
(B) Reports on Form 8-K
Report filed on May 28, 1999, relating to the issuance of the
Trust Preferred Securities and filing the final form of
certain documents related therewith.
-18-
<PAGE> 20
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 Chief
Accounting Officer
/s/ John W. Elsenhans
-------------------------
John W. Elsenhans
Vice President and Chief
Financial Officer
Date: August 11, 1999
-19-
<PAGE> 21
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
4.1 -- Second Amendment dated July 16, 1999, to Amended and Restated
Credit Agreement dated as of August 1, 1997 among Pogo Producing
Company, certain commercial lending institutions, Bank of
Montreal as the Agent and Banque Paribas as the Co-Agent.
27 -- Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 4.1
================================================================================
POGO PRODUCING COMPANY
----------------------
Second Amendment
Dated as of July 16, 1999
to
Amended and Restated Credit Agreement
Dated as of August 1, 1997
================================================================================
<PAGE> 2
SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT, dated
as of July 16, 1999 (the "Amendment"), among POGO PRODUCING COMPANY, a Delaware
corporation (the "Borrower"), the various financial institutions which are or
may become parties to the Credit Agreement, as amended hereby (collectively, the
"Lenders"), BANK OF MONTREAL, acting through its Chicago, Illinois branch, (the
"Bank"), as administrative agent (the "Agent") for the Lenders, and PARIBAS,
formerly known as Banque Paribas, as documentation agent (either the
"Documentation Agent" or "Co-Agent", and together with the Agent, the "Agents"),
for the Lenders,
W I T N E S S E T H
WHEREAS the Borrower, the Lenders and the Agents are parties to a
certain Amended and Restated Credit Agreement, dated as of August 1, 1997, as
previously amended (the "Credit Agreement"); and
WHEREAS the Borrower desires to amend certain provisions of the Credit
Agreement;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. DEFINITIONS. Unless otherwise defined herein or the context
otherwise requires, or except as the definition may be amended by this
Amendment, terms used in this Amendment, including its preamble and recitals,
shall have the meanings provided in the Credit Agreement, as hereby amended.
2. AMENDMENTS TO CREDIT AGREEMENT.
(a) The definition of "Fixed Charges", "Guarantee", "Indebtedness",
"Non-Standard Determination", "Senior Debt" and "Stated Maturity Date" appearing
in Section 1.1 of the Credit Agreement is amended hereby in its entirety to the
following:
" "Fixed Charges" means, for any period, without duplication, the sum
of (i) the total interest charges (including the interest component of
capitalized leases) which, in accordance with GAAP, would be included
on the consolidated statements of income for the Borrower, its
Subsidiaries and Affiliates, for such period, net of interest income,
plus (ii) dividends paid by the Borrower on its preferred and
preference stock during such period plus (iii) the current portion of
Specified Debt (including Non-Recourse Indebtedness but excluding
current maturities of any Loan outstanding hereunder) and the current
portion of production payments to be paid by the Borrower, its
Subsidiaries and Affiliates, as of the end of such period, plus (iv)
the amount of mandatory redemptions of preferred stock to be made by
the Borrower in cash during the succeeding twelve-month period
(excluding redemptions of shares
<PAGE> 3
of such preferred stock held by Subsidiaries or Affiliates of the
Borrower), plus (v) distributions made in respect of any Hybrid
Preferred Securities issued by any Hybrid Preferred Securities
Subsidiary."
" "Guarantee" means any agreement, undertaking or arrangement by which
any Person guarantees, endorses or otherwise becomes or is contingently
liable upon (by direct or indirect agreement, contingent or otherwise,
to provide funds for payment, to supply funds to, or otherwise to
invest in, a debtor, or otherwise to assure a creditor against loss)
the debt or other obligation to pay money of or, in respect of, any
other Person (other than by endorsements of instruments in the course
of collection), or guarantees the payment of dividends or other
distributions upon the shares of any other Person, provided, however,
that any agreement, undertaking or arrangement by which the Borrower or
any Subsidiary guarantees any payments with respect to any Hybrid
Preferred Securities shall not constitute a Guarantee hereunder. The
amount of any Person's obligation under any Guarantee shall (subject to
any limitation set forth therein) be deemed to be the outstanding
principal amount (or maximum outstanding principal amount, if larger)
of the debt, obligation or other liability guaranteed thereby."
" "Indebtedness" of any Person means, without duplication:
(a) all obligations of such Person for borrowed money
and all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments;
(b) all obligations, contingent or otherwise,
relative to the face amount of all letters of credit (except
those which have as collateral cash or Cash Equivalent
Investments, whether or not drawn), and banker's acceptances
issued for the account of such Person;
(c) all obligations of such Person as lessee under
leases which have been or should be, in accordance with GAAP,
recorded as Capitalized Lease Liabilities except to the extent
such obligations are offset by the contractual obligations of
a third party to make payments to such Person to reimburse
such Person for a portion of such Capitalized Lease
Liabilities and such third party is current with respect to
such payments;
(d) all other items which, in accordance with GAAP,
would be included as liabilities on the liability side of the
balance sheet of such Person as of the date at which
Indebtedness is to be determined except that, in the case of
the Borrower, any preferred stock of the Borrower, now
existing or hereafter issued, which by its express terms is
not required to be redeemed in cash, property, notes or other
debt instruments by either
2
<PAGE> 4
the Borrower or the holder of such preferred stock prior to a
date seven years after the Effective Date, is excluded from
Indebtedness;
(e) net liabilities of such Person under all Hedging
Obligations;
(f) whether or not so included as liabilities in
accordance with GAAP, advance payment agreements on which
performance is incomplete and all obligations of such Person
to pay the deferred purchase price of property or services,
and indebtedness (excluding prepaid interest thereon) secured
by a Lien on property owned or being purchased by such Person
(including indebtedness arising under conditional sales or
other title retention agreements), whether or not such
indebtedness shall have been assumed by such Person or is
limited in recourse; and
(g) all Guarantees of such Person in respect of any
of the foregoing.
For all purposes of this Agreement, the Indebtedness of any Person
shall include the greater of that portion of the Indebtedness of any
partnership or joint venture for which such Person is (a) by operation
of law, or (b) contractually liable. Indebtedness of a Person shall not
include any Hybrid Preferred Securities issued by such Person, any
subordinated debt or other obligations of such Person initially issued
to any Hybrid Preferred Securities Subsidiary in connection with the
issuance of Hybrid Preferred Securities by such Hybrid Preferred
Securities Subsidiary or any guarantee by such Person of payments with
respect to any Hybrid Preferred Securities."
" "Non-Standard Determination" means a determination or redetermination
of the Borrowing Base that may be made either (i) in the event that
Borrower fails to comply with the delivery requirements for Reserve
Reports or Alternate Reserve Reports set forth in Section 7.2(e), (ii)
upon the occurrence of any event that permits redetermination of the
Borrowing Base under Section 8.8, (iii) at the discretion of the
Required Lenders, no more than once during any six month period ending
either October 31st, or April 30th, as applicable, or (iv) at the
request of the Borrower, no more than once during any six month period
ending either October 31st, or April 30th, as applicable, in any case
as provided in Section 2.6(b)."
" "Senior Debt" means all indebtedness for borrowed money (including
Loans outstanding under this Agreement) other than (a) Subordinated
Indebtedness, (b) Non-Recourse Indebtedness, (c) intercompany loans
from the Borrower, (d) any Hybrid Preferred Securities issued by such
Person, (e) any subordinated debt or other obligations of such Person
initially issued to any Hybrid Preferred Securities Subsidiary in
connection with the issuance of Hybrid Preferred
3
<PAGE> 5
Securities by such Hybrid Preferred Securities Subsidiary, and (f) any
guarantee by such Person of payments with respect to any Hybrid
Preferred Securities."
" "Stated Maturity Date" means
(a) with respect to Revolving Loans, July 1, 2001; and
(b) with respect to the Term Loans, July 2, 2003."
(b) Section 1.1 of the Credit Agreement is amended hereby by adding the
following definitions of "Hybrid Preferred Securities" and "Hybrid Preferred
Securities Subsidiary" in appropriate alphabetical order:
" "Hybrid Preferred Securities" means preferred or common equity
interests issued by any Hybrid Preferred Securities Subsidiary."
" "Hybrid Preferred Securities Subsidiary" means any business trust (or
similar entity) (i) all of the common equity interest of which is owned
(either directly or indirectly through one or more wholly-owned
Subsidiaries) by the Borrower, (ii) that has been formed for the
purpose of issuing Hybrid Preferred Securities, and (iii) substantially
all of the assets of which consist at all times of subordinated debt or
other obligations of the Borrower or a Subsidiary of the Borrower and
payments made from time to time on such subordinated debt or other
obligations."
(c) Section 2.6 of the Credit Agreement is amended hereby in its
entirety to the following:
SECTION 2.6 Determination of Borrowing Base.
(a) Upon delivery of a Reserve Report or Alternate Reserve
Report pursuant to Section 7.2 hereof and provided, that such delivery
shall be on or before the dates required therein, then with respect to
the annual or semi-annual, as the case may be, determination of the
Borrowing Base, the Agent will propose to the Lenders a Borrowing Base
for acceptance by the Required Borrowing Base Lenders. If such
Borrowing Base, as proposed by the Agent is accepted by the Required
Borrowing Base Lenders, then such agreed Borrowing Base shall be
communicated by the Agent to the Borrower on or before (i) the next
April 30th, in the case of a Reserve Report and (ii) the next October
31st, in the case of an Alternate Reserve Report, and shall remain in
effect until the next October 31st or April 30th; provided that if such
proposed Borrowing Base is not approved by the Required Borrowing Base
Lenders prior to the applicable date then, within thirty (30) days
following the applicable date, the Required Borrowing Base Lenders will
establish and agree to a Borrowing Base, and such amount will be
4
<PAGE> 6
promptly communicated to the Borrower; provided that the then current
Borrowing Base shall remain in effect until the Borrower is notified of
the new Borrowing Base. The new Borrowing Base shall become effective
as of the date that the Borrower receives notification from the Agent
of the new Borrowing Base. The Borrowing Base, as determined and
established pursuant to this Section 2.6(a) shall be subject, at all
times, to the redetermination of the then effective Borrowing Base as a
result of a Non-Standard Determination.
(b) With respect to a Non-Standard Determination of the
Borrowing Base, (i) the Agent or the Required Lenders shall have the
right, but not the obligation, at any time to notify the Borrower of
their intent to perform a Non-Standard Determination of the Borrowing
Base and (ii) the Borrower shall have the right to request a
Non-Standard Determination by sending a written request to the Agent
for the performance of a Non-Standard Determination of the Borrowing
Base. In connection with any Non-Standard Determination and
notwithstanding the delivery of any new Alternate Reserve Report, the
Agent shall propose, and the Required Borrowing Base Lenders shall
agree to and approve, a new Borrowing Base which shall become effective
upon receipt by the Borrower of notice of such new Borrowing Base until
such new Borrowing Base may be redetermined as a result of a scheduled
semi-annual determination of the Borrowing Base pursuant to Section
2.6(a). In connection with any Non-Standard Determination, the Borrower
shall deliver promptly upon the request of the Agent a new Alternate
Reserve Report to the Agent; provided that such Alternate Reserve
Report, whether or not delivered, shall in no way impact the
Non-Standard Determination of the Borrowing Base by the Agent or the
approval of such Borrowing Base by the Required Borrowing Base
Lenders."
(d) Subsection 8.3(k) of the Credit Agreement is amended hereby by
inserting the following prior to the semicolon at the end thereof:
"and deposit arrangements constituting Liens providing for payments
under the bareboat charter and operating agreement relating to the
"Tantawan Explorer".
(e) Subsection 8.4(a) of the Credit Agreement is amended hereby in its
entirety to the following:
" (a) the Indebtedness of the Borrower and its Subsidiaries, less
current liabilities (except for current maturities of long-term
Indebtedness), Non-Recourse Indebtedness, deferred taxes, deferred
credits and, to the extent the same constitutes Indebtedness, Thaipo
Limited's Guarantee and assumption of Tantawan Services, LLC's
obligations under the bareboat charter and operating agreement relating
to the FPSO "Tantawan Explorer", to exceed $500,000,000 on a
consolidated basis;".
5
<PAGE> 7
(f) Subsection 8.5(l) of the Credit Agreement is amended hereby in its
entirety to the following:
" (l) Guarantees constituting Indebtedness permitted by Section 8.4 and
Thaipo Limited's Guarantee and assumption of Tantawan Services, LLC's
obligations under the bareboat charter and operating agreement relating
to the FPSO "Tantawan Explorer";".
(g) Subsection 8.6(a) of the Credit Agreement is amended hereby by
inserting the following prior to the semicolon at the end thereof:
",and provided further that Hybrid Preferred Securities shall not be
treated as capital stock of the Borrower for purposes of this Section
8.6(a)".
(h) Subsection 8.6(b)(i) of the Credit Agreement is amended hereby by
replacing "July 1, 2000" with "July 2, 2001".
(i) Subsection 8.7(a) of the Credit Agreement is amended hereby in its
entirety to the following:
" (a) any such Subsidiary may liquidate or dissolve voluntarily into,
and may consolidate or merge with and into, the Borrower or any other
Subsidiary and Tantawan Services LLC may liquidate or dissolve
voluntarily and may transfer the bareboat charter and operating
agreement (and associated deposit arrangements) relating to the FPSO
"Tantawan Explorer" to the joint venturers in the Block B8/32
concession located in the Gulf of Thailand;".
(j) Section 8.8 of the Credit Agreement is amended hereby in its
entirety to the following:
" SECTION 8.8 Asset Dispositions. At the request of the Agent or the
Required Lenders, in their sole discretion, the Borrowing Base may be
redetermined at any time in the event that:
(a) the aggregate value of assets (including cash accounts,
accounts receivable, production payments, and capital stock of or
partnership interests in Subsidiaries, but excluding oil, gas, and
other liquid or gaseous hydrocarbons sold in the ordinary course of
business) sold, transferred, leased, contributed, or otherwise conveyed
by the Borrower and its Subsidiaries other than to the Borrower or its
Subsidiaries or as permitted by Section 8.7, or to which the Borrower
and its Subsidiaries may grant options, warrants, or other rights,
shall exceed, in any one transaction or in the aggregate since the last
redetermination of the Borrowing Base, $10,000,000. Notwithstanding the
foregoing, the Borrower and its Subsidiaries may grant, sell, or convey
production payments as
6
<PAGE> 8
permitted by this Agreement in connection with Non-Recourse
Indebtedness. For purposes of this Section 8.8(a), the value of any
asset is the greater of its book value or fair market value at the time
of any disposition; or
(b) the Discounted Present Value of Borrowing Base Properties
sold, transferred, leased, contributed or otherwise conveyed by the
Borrower to any Subsidiary shall exceed, in any one transaction or in
the aggregate since the last redetermination of the Borrowing Base, ten
percent (10%) of the Discounted Present Value of all Borrowing Base
Properties without first obtaining the consent of the Required Lenders,
which consent shall not be unreasonably withheld, and shall not require
the payment of a fee or other compensation by the Borrower.
Any redetermination of the Borrowing Base pursuant to this Section 8.8
shall be a Non-Standard Determination."
(k) Subsection 8.9(a) of the Credit Agreement is amended hereby by
replacing "July 2, 2002" with "July 2, 2003".
3. REPRESENTATIONS AND WARRANTIES.
In order to induce the Lenders and the Agents to enter into this
Amendment, the Borrower hereby reaffirms, as of the date hereof, its
representations and warranties contained in Article VI of the Credit Agreement
(except to the extent any such representation and warranty relates solely to an
earlier date) and additionally represents and warrants as follows:
3.1 Organization. The Borrower and each of its corporate Subsidiaries
is a corporation validly organized and existing and in good standing under the
laws of the state, or country, of its incorporation, and is duly qualified to do
business and is in good standing as a foreign corporation in each jurisdiction
where the nature of its business requires such qualification, except where
failure to qualify would not have a material adverse effect on the business or
financial condition of the Borrower and its Subsidiaries taken as a whole or the
Borrower's ability to perform the Loan Documents, as such may be amended hereby,
or this Amendment. Each of the Borrower's Subsidiaries which is organized as a
partnership is validly organized and existing and in good standing under the
laws of the state of its formation, and is duly qualified to do business and is
in good standing as a foreign partnership where the nature of its business
requires such qualification, except where failure to qualify would not have a
material adverse effect on the business or financial condition of the Borrower,
or the Borrower and its Subsidiaries taken as a whole or the Borrower's ability
to perform under the Loan Documents, as such may be amended hereby, or this
Amendment. The Borrower and each of its Subsidiaries has full power and
authority and holds all requisite governmental licenses, permits and other
approvals to enter into and perform its Obligations under the Credit Agreement,
as amended hereby, each other Loan Document and this Amendment and to own and
hold under lease its property and to conduct its business substantially as
currently conducted by it.
7
<PAGE> 9
3.2 Due Authorization, Non-Contravention. The execution, delivery and
performance by the Borrower of this Amendment and the consummation of the
transactions contemplated hereby and by the Credit Agreement as so amended, are
within the Borrower's corporate powers, have been duly authorized by all
necessary corporate action, and do not
(a) contravene the Borrower's Organic Documents;
(b) contravene any contractual restriction, law or
governmental regulation or court decree or order binding on or
affecting the Borrower or any Subsidiary; or
(c) result in, or require the creation or imposition
of, any Lien on any properties of the Borrower or its Subsidiaries
except as Liens will be imposed, created, or required upon execution
and delivery of the Security Documents pursuant to Section 7.11 of the
Credit Agreement.
3.3 Governmental Approval. No authorization or approval or other action
by, and no notice to or filing with, any governmental authority or regulatory
body is required for the due execution, delivery or performance by the Borrower
of this Amendment.
3.4 Validity, etc. This Amendment and the Credit Agreement as amended
hereby constitute the legal, valid and binding obligations of the Borrower,
enforceable in accordance with their respective terms except as such
enforceability is subject to the effect of (i) any applicable bankruptcy,
insolvency, reorganization or similar law relating to or affecting creditors'
rights generally and (ii) general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law),
including concepts of materiality, reasonableness, good faith and fair dealing.
4. COVENANT.
The Borrower agrees that, at the request of the Agent, Borrower will
enter into a restated Credit Agreement with the Agents and the Lenders in
substantially the form of the Credit Agreement as amended by this Amendment.
5. EFFECT OF AMENDMENT.
This Amendment shall be deemed to be an amendment to the Credit
Agreement, and the Credit Agreement, as amended hereby, is hereby ratified,
approved and confirmed in each and every respect. All references to the Credit
Agreement in any other document, instrument, agreement or writing shall
hereafter be deemed to refer to the Credit Agreement as amended hereby.
8
<PAGE> 10
6. GOVERNING LAW, SEVERABILITY, ETC.
THIS AMENDMENT SHALL BE A CONTRACT MADE UNDER AND GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF ILLINOIS. Whenever possible each provision of this
Amendment shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Amendment shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Amendment.
THIS WRITTEN AMENDMENT AND THE CREDIT AGREEMENT AS AMENDED BY THIS
AMENDMENT REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE
CONTRADICTED BY PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
7. MISCELLANEOUS.
7.1 Successors and Assigns. This Amendment shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns.
7.2 Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
7.3 Effectiveness. This Amendment shall become effective when (i)
counterparts hereof executed on behalf of the Borrower and each Lender (or
notice thereof satisfactory to the Agent) shall have been received by the Agent,
and (ii) notice thereof shall have been given by the Agent to the Borrower and
each Lender.
9
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the day
and year first written above.
POGO PRODUCING COMPANY
By: /s/ JOHN W. ELSENHANS
-----------------------------------
Name: John W. Elsenhans
Title: Vice President and Chief
Financial Officer
S - 1
<PAGE> 12
BANK OF MONTREAL, acting through its U.S.
branches and agencies, including initially
its Chicago Illinois branch, as Agent
By: /s/ SARA J. TEASDALE
---------------------------------------
Name: Sara J. Teasdale
Title: Director
S - 2
<PAGE> 13
PARIBAS, formerly known as Banque Paribas,
as Documentation Agent
By: /s/ DOUGLAS R. LIFTMAN
---------------------------------------
Name: Douglas R. Liftman
Title: Director
By: /s/ MARIAN LIVINGSTON
---------------------------------------
Name: MARIAN LIVINGSTON
Title: VICE PRESIDENT
S - 3
<PAGE> 14
BANK OF MONTREAL, as a Lender
By: /s/ MELISSA BAUMAN
---------------------------------------
Name: Melissa Bauman
Title: Director
S - 4
<PAGE> 15
PARIBAS, formerly known as Banque Paribas,
as a Lender
By: /s/ MARIAN LIVINGSTON
---------------------------------------
Name: MARIAN LIVINGSTON
Title: VICE PRESIDENT
By: /s/ BETSY JOCHER
---------------------------------------
Name: BETSY R. JOCHER
Title: ASSISTANT VICE PRESIDENT
S - 5
<PAGE> 16
BANKBOSTON, N.A., as a Lender
By: /s/ TERRENCE RONAN
---------------------------------------
Name: Terrence Ronan
Title: Director
S - 6
<PAGE> 17
BANK OF AMERICA, N.A., formerly
NationsBank, N.A., as a Lender
By: /s/ MARY LOUISE ALLEN
---------------------------------------
Name: Mary Louise Allen
Title: Vice President
S - 7
<PAGE> 18
ABN AMRO BANK N.V., as a Lender
By: /s/ ROBERT J. CUNNINGHAM
---------------------------------------
Name: Robert J. Cunningham
Title: Group Vice President
By: /s/ W. BRYAN CHAPMAN
---------------------------------------
Name: W. Bryan Chapman
Title: Group Vice President
S - 8
<PAGE> 19
SOCIETE GENERALE, as a Lender
By: /s/ RICHARD A. ERBERT
---------------------------------------
Name: RICHARD A. ERBERT
Title: VICE PRESIDENT
S - 9
<PAGE> 20
TORONTO DOMINION (TEXAS), INC., as a
Lender
By: /s/ CAROL BRANDT
---------------------------------------
Name: CAROL BRANDT
Title: VICE PRESIDENT
S - 10
<PAGE> 21
THE SANWA BANK LIMITED, NEW YORK
BRANCH, as a Lender
By: /s/ [ILLEGIBLE]
---------------------------------------
Name:
Title:
S - 11
<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, 1999 and the
Consolidated Statements of Income for the six months ended June 30, 1999, 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-31-1998
<PERIOD-END> JUN-30-1999
<CASH> 43,069
<SECURITIES> 0
<RECEIVABLES> 51,326
<ALLOWANCES> 0<F1>
<INVENTORY> 14,898
<CURRENT-ASSETS> 111,671
<PP&E> 1,689,163
<DEPRECIATION> 965,674
<TOTAL-ASSETS> 901,111
<CURRENT-LIABILITIES> 59,169
<BONDS> 365,000
0
0
<COMMON> 40,157
<OTHER-SE> 218,608
<TOTAL-LIABILITY-AND-EQUITY> 901,111
<SALES> 83,124<F2>
<TOTAL-REVENUES> 120,874
<CGS> 30,357<F3>
<TOTAL-COSTS> 30,357<F3>
<OTHER-EXPENSES> 65,401<F4>
<LOSS-PROVISION> 0<F5>
<INTEREST-EXPENSE> 19,109
<INCOME-PRETAX> 14,694
<INCOME-TAX> 3,387
<INCOME-CONTINUING> 11,307
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,307
<EPS-BASIC> 0.28
<EPS-DILUTED> 0.28
<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>
