<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 March 31, 2000 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 March 31, 2000: 40,367,350
<PAGE>
PART I. FINANCIAL INFORMATION
POGO PRODUCING COMPANY AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
Three Months Ended
March 31,
------------------
2000 1999
------ ------
(Expensed in thousands,
except per share amounts)
REVENUES:
Oil and gas $102,477 $37,735
Pipeline sales and other 3,027 967
Gains (losses) on sales (5) 37,344
-------- -------
Total 105,499 76,046
-------- -------
OPERATING COSTS AND EXPENSES:
Lease operating 21,697 15,342
Pipeline operating and natural gas purchases 3,390 862
General and administrative 10,517 7,106
Exploration 3,673 1,765
Dry hole and impairment 5,072 239
Depreciation, depletion and amortization 32,964 23,851
-------- -------
Total 77,313 49,165
-------- -------
OPERATING INCOME 28,186 26,881
-------- -------
INTEREST:
Charges (8,746) (9,875)
Income 293 72
Capitalized 5,010 3,750
MINORITY INTEREST-Dividends and costs associated
with preferred securities of a subsidiary trust (2,558) --
FOREIGN CURRENCY TRANSACTION LOSS (327) (51)
-------- -------
INCOME BEFORE INCOME TAXES 21,858 20,777
INCOME TAX EXPENSE (9,902) (6,464)
-------- -------
NET INCOME $ 11,956 $14,313
======== =======
EARNINGS PER COMMON SHARE
Basic $ 0.30 $ 0.36
======== =======
Diluted $ 0.29 $ 0.36
======== =======
DIVIDENDS PER COMMON SHARE $ 0.03 $ 0.03
======== =======
WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND
POTENTIAL COMMON SHARES OUTSTANDING:
Basic 40,291 40,122
Diluted 47,200 40,252
See accompanying notes to consolidated financial statements.
1
<PAGE>
POGO PRODUCING COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, December 31,
2000 1999
--------- ------------
(Unaudited)
(Expressed in thousands
except share amounts)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 21,354 $ 6,267
Accounts receivable 44,753 37,321
Other receivables 29,219 35,870
Inventory-Product 11,790 7,209
Inventories-Tubulars 11,074 10,352
Other 1,096 2,370
----------- -----------
Total current assets 119,286 99,389
----------- -----------
PROPERTY AND EQUIPMENT:
Oil and gas, on the basis of successful efforts
accounting
Proved properties being amortized 1,599,651 1,638,321
Unevaluated properties and properties under
development, not being amortized 206,735 144,357
Pipelines, at cost 7,083 6,984
Other, at cost 13,332 13,103
----------- -----------
1,826,801 1,802,765
----------- -----------
Accumulated depreciation, depletion and amortization
Oil and gas (1,040,184) (1,006,542)
Pipelines (1,593) (1,534)
Other (7,646) (7,329)
----------- -----------
(1,049,423) (1,015,405)
----------- -----------
Property and equipment, net 777,378 787,360
----------- -----------
OTHER ASSETS:
Foreign tax net operating losses 9,331 16,237
Foreign value added taxes receivable 13,228 12,025
Debt issue expenses 12,182 12,686
Other 20,625 20,496
----------- -----------
55,366 61,444
----------- -----------
$ 952,030 $ 948,193
=========== ===========
See accompanying notes to consolidated financial statements.
2
<PAGE>
POGO PRODUCING COMPANIES AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, December 31,
2000 1999
--------- ------------
(Unaudited)
(Expressed in thousands
except share amounts)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable-operating activities $ 28,354 $ 21,724
Accounts payable-investing activities 44,397 62,878
Accrued interest payable 7,196 7,457
Accrued dividends associated with preferred
securities of a subsidiary trust 813 813
Accrued payroll and related benefits 3,030 2,149
Other 324 208
-------- --------
Total current liabilities 84,114 95,229
LONG-TERM DEBT 375,000 375,000
DEFERRED FEDERAL INCOME TAX 53,044 51,177
DEFERRED CREDITS 13,845 13,524
-------- --------
Total liabilities 526,003 534,930
-------- --------
MINORITY INTEREST:
Company-obligated mandatorily redeemable convertible
preferred securities of a subsidiary trust, net of
unamortized issue expenses 144,793 144,751
-------- --------
SHAREHOLDERS' EQUITY:
Preferred stock, $1 par; 2,000,000 shares authorized -- --
Common stock, $1 par; 100,000,000 shares authorized,
40,382,925 and 40,279,661 shares issued,
respectively 40,382 40,279
Additional capital 293,802 291,909
Retained earnings (deficit) (51,544) (62,291)
Treasury stock (15,575 shares) and other, at cost (1,406) (1,385)
-------- --------
Total shareholders' equity 281,234 268,512
-------- --------
$952,030 $948,193
======== ========
See accompanying notes to consolidated financial statements.
3
<PAGE>
POGO PRODUCING COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended
March 31,
----------------------
2000 1999
-------- ---------
(Expressed in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 93,158 $ 39,177
Operating, exploration, and general
and administrative expenses paid (32,647) (22,999)
Interest paid (8,665) (3,937)
Value added taxes paid (131) (1,551)
Other 1,106 1,196
-------- ---------
Net cash provided by operating activities 52,821 11,886
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (35,596) (70,308)
Proceeds from the sale of properties (5) 67,573
-------- ---------
Net cash used in investing activities (35,601) (2,735)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of new debt 0 150,000
Borrowings under senior debt agreements 51,000 110,020
Payments under senior debt agreements (51,000) (260,000)
Payments of cash dividends on common stock (1,209) (1,204)
Payments of preferred dividends of a subsidiary trust (2,513) -
Payment of financing issue expenses (12) (6,379)
Proceeds from exercise of stock options and other 1,616 42
-------- ---------
Net cash used by financing activities (2,118) (7,521)
-------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (15) (170)
-------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 15,087 1,460
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 6,267 7,959
-------- ---------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 21,354 $ 9,419
RECONCILIATION OF NET INCOME TO NET ======== =========
CASH PROVIDED BY OPERATING ACTIVITIES:
Net income $ 11,956 $ 14,313
Adjustments to reconcile net income to
net cash provided by operating activities-
Minority interest 2,558 -
Foreign currency transaction losses 327 51
(Gains) losses from the sales of properties 5 (37,344)
Depreciation, depletion and amortization 32,964 23,851
Dry hole and impairment 5,072 239
Interest capitalized (5,010) (3,750)
Deferred federal income taxes 2,247 15,597
Change in operating assets and liabilities 2,702 (1,071)
-------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 52,821 $ 11,886
======== =========
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
POGO PRODUCING COMPANY AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------------------------------
2000 1999
------------------------- -------------------------
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 40,279,661 $ 40,279 40,136,254 $ 40,136
Stock options exercised 103,264 103 7,250 7
Adjustment for fractional shares and other - - 13,132 13
---------- -------- ---------- --------
Issued at end of period 40,382,925 40,382 40,156,636 40,156
---------- -------- ---------- --------
ADDITIONAL CAPITAL:
Balance at beginning of year 291,909 290,655
Stock options exercised 1,893 55
Adjustment for fractional shares and other - (13)
-------- --------
Balance at end of period 293,802 290,697
-------- --------
RETAINED EARNINGS (DEFICIT):
Balance at beginning of year (62,291) (79,600)
Net income 11,956 14,313
Dividends ($0.03 per common share) (1,209) (1,204)
-------- --------
Balance at end of period (51,544) (66,491)
-------- --------
TREASURY STOCK AND OTHER:
Balance at beginning of year (15,575) (1,385) (15,575) (1,531)
Activity during the period - (21) - 114
---------- -------- ---------- --------
Balance at end of period (15,575) (1,406) (15,575) (1,417)
---------- -------- ---------- --------
COMMON STOCK OUTSTANDING,
AT THE END OF THE PERIOD 40,367,350 40,141,061
========== ==========
TOTAL SHAREHOLDERS' EQUITY $281,234 $262,945
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<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, 1999.
(2) LONG-TERM DEBT--
Long-term debt and the amount due within one year at March 31, 2000 and
December 31, 1999, consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
(Expressed in thousands)
<S> <C> <C>
Senior debt--
Bank revolving credit agreement
LIBO Rate based loans, borrowings at average interest rates of
7.4% and 7.8%, respectively $ 10,000 $ 5,000
Uncommitted credit lines with banks, borrowing at an average
interest rate of 5.9% -- 5,000
-------- --------
Total senior debt 10,000 10,000
-------- --------
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") 150,000 150,000
5 1/2% Convertible subordinated notes due 2006 ("2006 Notes") 115,000 115,000
-------- --------
Total subordinated debt 365,000 365,000
-------- --------
Long-term debt, none due within one year $375,000 $375,000
======== ========
</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, 1999,
for a further discussion of the Company's debt agreements. As of March 31, 2000
$25,445,000 was available to the Company for common stock dividends under the
most restrictive covenants included in the indentures governing the Company's
various debt agreements.
(3) COMPREHENSIVE INCOME--
During 1998, the Company adopted the Financial Accounting Standards Board's
(FASB) 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.
(4) IMPACT OF SFAS 133--
In June 1998, the FASB issued SFAS 133, Accounting for Derivative
Investments and Hedging Activities. 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. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting.
In June 1999, the FASB issued SFAS 137 which deferred the effective date of
SFAS 133 to fiscal years beginning after June 15, 2000. A company may implement
SFAS 133 as of the beginning of any fiscal quarter after issuance, however, the
statement cannot be applied retroactively. The Company does not plan to early
adopt SFAS 133. The Company has not yet quantified the impact of the adoption of
SFAS 133.
6
<PAGE>
POGO PRODUCING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(5) BUSINESS SEGMENT INFORMATION--
Financial information by operating segment is presented below:
<TABLE>
<CAPTION>
COMPANY OIL AND GAS PIPELINES OTHER
------- ----------- --------- -----
(Expressed in thousands)
<S> <C> <C> <C> <C>
LONG-LIVED ASSETS:
As of March 31, 2000:
United States $431,967 $422,590 $5,490 $ 3,887
Kingdom of Thailand 338,467 336,411 -- 2,056
Canada 6,944 6,639 -- 305
-------- -------- ------ -------
Total $777,378 $765,640 $5,490 $ 6,248
======== ======== ====== =======
As of December 31, 1999:
United States $440,914 $432,034 $5,450 $ 3,430
Kingdom of Thailand 340,204 338,084 -- 2,120
Canada 6,242 6,018 -- 224
-------- -------- ------ -------
Total $787,360 $776,136 $5,450 $ 5,774
======== ======== ====== =======
REVENUES:
For the three months ended March 31, 2000
United States $ 66,423 $ 63,436 $3,382 $ (395)
Kingdom of Thailand 38,219 38,218 -- 1
Canada 857 823 -- 34
-------- -------- ------ -------
Total $105,499 $102,477 $3,382 $ (360)
======== ======== ====== =======
For the three months ended March 31, 1999
United States $ 69,887 $ 31,571 $ 990 $ 37,326
Kingdom of Thailand 5,155 5,145 -- 10
Canada 1,004 1,019 -- (15)
-------- -------- ------ -------
Total $ 76,046 $ 37,735 $ 990 $37,321
======== ======== ====== =======
OPERATING INCOME (LOSS):
For the three months ended March 31, 2000
United States $ 13,016 $ 13,633 $ (222) $ (395)
Kingdom of Thailand 15,363 15,362 -- 1
Canada (193) (227) -- 34
-------- -------- ------ -------
Total $ 28,186 $ 28,768 $ (222) $ (360)
======== ======== ====== =======
For the three months ended March 31, 1999
United States $ 31,866 $ (5,554) $ 94 $ 37,326
Kingdom of Thailand (4,157) (4,167) -- 10
Canada (828) (813) -- (15)
-------- -------- ------ -------
Total $ 26,881 $(10,534) $ 94 $37,321
======== ======== ====== =======
</TABLE>
7
<PAGE>
POGO PRODUCING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(6) 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 Three Months Ended
March 31, 2000 March 31, 1999
------------------------------- -------------------------------
Income Shares Per Share Income Shares Per Share
------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE-- $11,956 40,291 $ 0.30 $14,313 40,122 $ 0.36
====== ======
Effect of dilutive securities:
Options to purchase common shares -- 593 130
Trust Preferred Securities (a) 1,584 6,316 -- --
------- ------ ------- ------
DILUTED EARNINGS PER SHARE $13,540 47,200 $ 0.29 $14,313 40,252 $ 0.36
======= ====== ====== ======= ====== ======
Antidilutive securities--
Options to purchase common shares -- 271 $32.84 -- 2,152 $21.19
2006 Notes 1,028 2,726 $ 0.38 1,028 2,726 $ 0.38
</TABLE>
- -----------
(a) The Trust Preferred Securities were issued on June 2, 1999.
(7) PRICE HEDGE TRANSACTIONS--
During the first quarter of 2000, approximately 38% of the Company's
equivalent production was subject to hedge positions. No significant amounts of
hedge positions were held by the Company in the first quarter of 1999 and
approximately 7% of the Company's equivalent production was subject to hedge
positions in all of 1999.
As of March 31, 2000, the Company had entered into commodity price hedging
contracts with respect to its natural gas production for 2000 as follows:
<TABLE>
<CAPTION>
NYMEX Contract Price
per MMBtu (a)
----------------------------
Collars
Volume in ------------------- Fair Market
Period MMBtu (a) Swaps Floors Ceilings Value (b)
- ------ --------- ----- ------ -------- -----------
<S> <C> <C> <C> <C> <C>
Price Swap Contracts
April 2000-May 2000 305 $ 2.70 -- -- $ (72,000)
April 2000-August 2000 2,295 $ 2.87 -- -- $ (187,000)
April 2000-August 2000 3,060 $ 2.53 -- -- $(1,313,000)
Collar Contracts
April 2000-September 2000 7,320 -- $2.25 $2.80 $(1,156,000)
</TABLE>
As of March 31, 2000, the Company had entered into commodity price hedging
contracts with respect to its crude oil and condensate production for 2000 as
follows:
<TABLE>
<CAPTION>
NYMEX Contract Price
per Bbl
----------------------------
Collars
Volume in ------------------- Fair Market
Period Bbls Swaps Floors Ceilings Value (b)
- ------ --------- ----- ------ -------- -----------
<S> <C> <C> <C> <C> <C>
Price Swap Contracts
April 2000-December 2000 550,000 $ 21.15 -- -- $(2,333,000)
Collar Contracts
April 2000-September 2000 183,000 -- $21.00 25.00 $ (315,000)
July 2000-December 2000 184,000 -- $21.00 25.03 $ (33,000)
</TABLE>
- -----------
(a) MMBtu means million British Thermal Units
(b) Fair market value is calculated using prices derived from NYMEX futures
contract prices existing at March 31, 2000.
8
<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, 1999.
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, 1999, 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 net income for the first quarter of 2000 of $11,956,000
or $0.30 per share ($13,540,000 or $0.29 per share on a diluted basis), compared
to net income for the first quarter of 1999 of $14,313,000 or $0.36 per share
(on both a basic and a diluted basis). The decrease in net income during the
first quarter of 2000, compared to the first quarter of 1999, was primarily
related to the fact that net income reported for the first quarter of 1999
resulted from a net gain of $37,344,000 recognized by the Company from the sale
of certain non-strategic properties. If the gain relating to the sale of such
properties was excluded, the Company would have reported a net loss for the
first quarter of 1999 of $9,961,000, or $0.25 per share (on both a basic and a
diluted basis). Net income for the first quarter of 2000 was related to
increased oil and gas sales revenue resulting from higher production volumes
and, to a lesser extent, increased prices that the Company received for its oil
and natural gas production volumes.
Earnings per common share are based on the weighted average number of common
shares outstanding for the first quarter of 2000 of 40,291,000 (47,200,000 on a
diluted basis), compared to 40,122,000 (40,252,000 on a diluted basis) for the
first quarter of 1999. The increase in the weighted average number of common
shares outstanding for the first quarter of 2000, compared to the first quarter
of 1999, resulted primarily from the issuance of common stock upon the exercise
of stock options pursuant to the Company's incentive plans. Earnings per share
computations on a diluted basis for the first quarter of 2000 primarily reflect
additional shares of common stock issuable upon the assumed conversion of Pogo
Trust I's 6 1/2% Cumulative Quarterly Income Convertible Preferred Securities
due 2029 (the "Trust Preferred Securities"). The earnings per share computation
on a diluted basis in both periods presented also reflect 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 first quarter of 2000 were $105,499,000,
an increase of approximately 39% from total revenues of $76,046,000 for the
first quarter of 1999. The increase in the Company's total revenues for 2000,
compared to 1999, resulted primarily from increased oil and gas revenues and, to
a lesser extent, an increase in pipeline sales revenue. Total revenues in 1999
were substantially affected by the previously discussed gains on sales of
properties from which no comparable income was recognized in the first quarter
of 2000.
Oil and Gas Revenues
The Company's oil and gas revenues for the first quarter of 2000 were
$102,477,000, an increase of approximately 172% from oil and gas revenues of
$37,735,000 for the first quarter of 1999. The following table reflects an
analysis of variances in the Company's oil and gas revenues (expressed in
thousands) between 2000 and 1999:
9
<PAGE>
1ST QTR 2000
COMPARED
TO 1ST QTR
1999
------------
Increase (decrease) in oil and gas revenues
resulting from variances in:
NATURAL GAS --
Price.............................................. $ 9,382
Production......................................... 10,241
-------
19,623
-------
CRUDE OIL AND CONDENSATE --
Price.............................................. 19,062
Production......................................... 24,136
-------
43,198
-------
NATURAL GAS LIQUIDS ("NGL")........................... 1,921
-------
Increase (decrease) in oil and gas revenues........ $64,742
=======
The increase in the Company's oil and gas revenues in the first quarter of
2000, compared to the first quarter of 1999, was related to increases in the
Company's oil, condensate and NGL ("liquid hydrocarbons") production volumes and
the average prices that the Company received for its liquid hydrocarbon
production volumes and, to a lesser extent, increases in its natural gas
production volumes and the average prices it received for its natural gas
production volumes.
<TABLE>
<S> <C> <C> <C>
Comparison of Increases (Decreases) in: 1ST QTR 1ST QTR % CHANGE
NATURAL GAS -- 2000 1999 2000 TO 1999
Average prices ------- ------- ------------
North America (a)........................................... $ 2.76 $ 1.76 57%
Kingdom of Thailand(b)...................................... $ 1.97 $ 1.51 30%
Company-wide average price............................. $ 2.50 $ 1.71 46%
Average daily production volumes (MMcf per day)
North America (a)........................................... 117.6 107.1 10%
Kingdom of Thailand......................................... 58.5 25.4 130%
------- -------
Company-wide average daily production.................. 176.1 132.5 33%
======= =======
CRUDE OIL AND CONDENSATE --
Average prices
North America(a)............................................ $ 25.72 $ 11.67 120%
Kingdom of Thailand......................................... $ 26.85 $ 14.28 88%
Company-wide average price............................. $ 26.24 $ 11.90 121%
Average daily production volumes (Bbls per day)
North America(a)............................................ 13,352 13,439 --%
Kingdom of Thailand......................................... 11,363 1,328 756%
------- -------
Company-wide average daily production.................. 24,715 14,767 67%
======= =======
TOTAL LIQUID HYDROCARBONS --
Company-wide average daily production (Bbls per day).......... 26,645 16,938 57%
======= =======
</TABLE>
____________________________
(a) North American average prices and production reflect production from
the United States and Canada. "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 U.S.
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 first quarter 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 during that period.
10
<PAGE>
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. Throughout the first quarter of 1999, the Company
and its joint venture partners did not meet the contractual minimum delivery
requirements under the gas sales agreement. During the first quarter of 2000,
the Company met its contractual delivery obligations to PTT and therefore
received the full contractual price for its natural gas production delivered
under the gas sales agreement. The increase in the average price that the
Company received for its natural gas production in the Kingdom of Thailand for
the first quarter of 2000, compared to the first quarter of 1999, also reflected
positive adjustments under the gas sales agreement.
Production. The increase in the Company's natural gas production during the
first quarter of 2000, compared to the first quarter of 1999, was primarily
related to new production from the Company's Benchamas field in Thailand and its
Garden Banks Block 367 deepwater project and, to a lesser extent, successful
development programs on the Company's East Cameron Block 270 field and East
Cameron Blocks 334/355 field. The increase in natural gas production was
partially offset by production declines resulting from the sale of certain non-
strategic producing properties in the first quarter of 1999 and the natural
decline at certain of the Company's other properties.
Crude Oil and Condensate
Thailand Prices. Since the inception of production from the Company's
properties located in the Gulf of Thailand, crude oil and condensate have been
stored on storage vessels (an FPSO in the Tantawan field and an FSO in the
Benchamas field) 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, typically as a
differential to Malaysian TAPIS crude and are denominated in dollars. In
addition, the Company is generally paid for its crude oil and condensate
production from Thailand in dollars.
Production. The increase in the Company's Thailand production is related to
production from the Benchamas field that commenced producing in the third
quarter of 1999 and, to a lesser extent, increased production from the Tantawan
field that resulted from completion of the Tantawan "E" Platform and a
successful infill drilling program in the field.
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 increase in
NGL revenues for the first quarter of 2000, compared with the first quarter of
1999, primarily related to an increase in the average price that the Company
received for its NGL that was only partially offset by a decrease in the
Company's NGL production volumes.
11
<PAGE>
Costs and Expenses
<TABLE>
1ST QTR 1ST QTR % CHANGE
2000 1999 2000 TO 1999
----------- ----------- ------------
<S> <C> <C> <C>
Comparison of Increases (Decreases) in:
Lease Operating Expenses
North America.......................................... $14,290,000 $11,233,000 27%
Kingdom of Thailand.................................... $ 7,407,000 $ 4,109,000 80%
Total Lease Operating Expenses................... $21,697,000 $15,342,000 41%
Pipeline Operating and Natural Gas Purchases.............. $ 3,390,000 $ 862,000 293%
General and Administrative Expenses....................... $10,517,000 $ 7,106,000 48%
Exploration Expenses...................................... $ 3,673,000 $ 1,765,000 108%
Dry Hole and Impairment Expenses.......................... $ 5,072,000 $ 239,000 N/A
Depreciation, Depletion and Amortization (DD&A)
Expenses............................................... $32,964,000 $23,851,000 38%
DD&A Rate.............................................. $1.07 $1.11 (4%)
Mcfe Produced (a)...................................... 30,568,000 21,068,000 45%
Interest--
Charges................................................ $(8,746,000) $(9,875,000) (11%)
Capitalized Interest Expense........................... $ 5,010,000 $ 3,750,000 34%
Minority Interest - Dividends and Costs................... $ 2,558,000 -- N/A
Foreign Currency Transaction Loss......................... $ (327,000) $ (51,000) 541%
Income Tax Expense........................................ $(9,902,000) $(6,464,000) 53%
</TABLE>
_____________________
(a) "Mcfe" stands for thousand of cubic feet equivalent.
Lease Operating Expenses
The increase in North American lease operating expenses for the first quarter
of 2000, compared to the first quarter of 1999, primarily related to
unanticipated equipment repairs in the Gulf of Mexico and the acceleration of
annual routine maintenance and repair on the Company's Western Division
properties. The increase in lease operating expenses in the Kingdom of Thailand
for the first quarter of 2000, compared to the first quarter of 1999, primarily
related to the fact that, prior to the commencement of production, no lease
operating expenses were incurred by the Company in the Benchamas field. A
substantial portion of the Company's lease operating expenses in the Kingdom of
Thailand relates to the lease payments made in connection with the bareboat
charter of the FPSO for the Tantawan field and the FSO for the Benchamas field.
Collectively, these lease payments accounted for $3,757,000 and $2,742,000 (net
to the Company's interest) of the Company's Thailand lease operating expenses
for the first quarter of 2000 and the first quarter of 1999, respectively.
Pipeline Operating and Natural Gas Purchases
Revenue from the sale of natural gas is reported as revenue under "Pipeline
sales and other." Prior to the acquisition of the Pogo Onshore Pipeline
interests, the Company did not separately report its pipeline operating expenses
or revenues, nor did it purchase any natural gas for resale to customers of its
pipelines. The increase in pipeline operating expenses and natural gas purchase
costs for the first quarter of 2000, compared to the first quarter of 1999,
primarily related to increased purchases of natural gas resulting from increased
natural gas sales by the Company.
12
<PAGE>
General and Administrative Expenses
The increase in general and administrative expenses for the first quarter of
2000, compared with the first quarter of 1999, related to increased expenses
associated with the Company's Thailand operations due to the commencement of
production from the Benchamas field, as well as an increase in the size of the
Company's work force and normal salary and concomitant benefit expense
adjustments.
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
increase in exploration expense for the first quarter of 2000, compared to the
first quarter of 1999, resulted primarily from increased geophysical activity by
the Company in most of its operational areas, particularly the offshore Gulf of
Mexico and in the North Sea.
Depreciation, Depletion and Amortization Expenses
The increase in the Company's Depreciation, Depletion and Amortization
("DD&A") expense for the first quarter of 2000, compared to the first quarter of
1999, resulted primarily from an increase in the Company's liquid hydrocarbon
and natural gas production that was only partially offset by a decrease in the
Company's composite DD&A rate.
The decrease in the composite DD&A rate for all of the Company's producing
fields for the first quarter of 2000, compared to the first quarter of 1999,
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 lower
than the Company's recent historical composite rate (principally the Benchamas
field) and a corresponding decrease in the percentage of the Company's
production coming from fields that have DD&A rates that are higher than the
Company's recent historical composite DD&A rate.
Interest
Interest Charges. The decrease in the Company's interest charges for the
first quarter of 2000, compared to the first quarter of 1999, resulted primarily
from a decrease in the average amount of the Company's outstanding debt due to
the issuance of the Trust Preferred Securities in the second quarter of 1999,
that was not entirely offset by 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
March 31, 2000, the Company was not a party to any interest rate swap
agreements.
Capitalized Interest. The increase in capitalized interest for the first
quarter of 2000, compared to the first quarter of 1999, resulted primarily from
an increase in the amount of capital expenditures subject to interest
capitalization during the first quarter of 2000 ($234,575,000), compared to the
first quarter of 1999 ($186,533,000), and from an increase in the interest rate
discussed above 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 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.
Minority Interest - Dividends and Costs Associated with Preferred Securities
of a Subsidiary Trust
Pogo Trust I, a subsidiary trust, issued $150,000,000 of Trust Preferred
Securities on June 2, 1999. The amounts recorded for 1999 under Minority
Interest - Dividends and Costs Associated with Preferred Securities of a
Subsidiary Trust principally reflect cumulative dividends and, to a lesser
extent, the amortization of issuance expenses related to the offering and sale
of the Trust Preferred Securities.
13
<PAGE>
Foreign Currency Transaction Losses
The foreign currency transaction losses reported for the first quarter of 2000
and the first quarter of 1999 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 subsidiary 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. During each
period presented, the value of the Thai Baht weakened against the U.S. dollar,
resulting in a foreign currency transaction loss. 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 March 31,
2000, the Company was not a party to any financial instrument that was intended
to constitute a foreign currency hedging arrangement.
Income Tax Expense
The increase in the Company's income tax expense for the first quarter of
2000, compared to the first quarter of 1999, resulted primarily from increased
pre-tax income and the increased contribution to pre-tax income from the
Company's Kingdom of Thailand operations which are subjected to a tax rate in
excess of the U.S. tax rate. Management currently expects that its foreign taxes
will constitute a substantial portion of its overall tax burden for the
foreseeable future.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
The Company's Condensed Consolidated Statement of Cash Flows for the first
quarter of 2000 reflects net cash provided by operating activities of
$52,821,000. In addition to net cash provided by operating activities, the
Company received $1,106,000, primarily from the exercise of stock options.
During the first quarter of 2000, the Company invested $35,596,000 of such
cash flow in capital projects and paid $1,209,000 ($0.03 per share) in cash
dividends to holders of the Company's common stock and paid $2,513,000 in cash
distributions to holders of its Trust Preferred Securities. As of March 31,
2000, the Company's cash and cash equivalents were $21,354,000 and its long-term
debt stood at $375,000,000.
Effective May 3, 2000, the borrowing base under the Company's revolving credit
facility was increased to $200,000,000 and restriction against new indebtedness
was increased a corresponding amount to $565,000,000. As of May 3, 2000, the
Company had $195,000,000 of availability under its revolving credit facility and
its unsecured credit line.
Future Capital Requirements
The Company's capital and exploration budget for 2000, 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 $200,000,000. The Company
currently anticipates that its available cash and cash equivalents, cash
provided by operating activities and funds available under its credit agreement,
uncommitted credit line and banker's acceptance facility 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 2000, and future dividend and distribution payments at current levels
(including a dividend payment of $0.03 per share to be paid on May 26, 2000 to
shareholders of record on May 12, 2000). The declaration of future dividends on
the Company's equity securities will depend upon, among other things, the
Company's future earnings and financial condition, liquidity and capital
requirements, its ability to pay dividends and distributions 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.
14
<PAGE>
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, 1999 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.
Current Hedging Activity. From time to time, the Company has used and expects
to continue to use hedging transactions with respect to a portion of its oil and
gas production to achieve a more predictable cash flow, as well as to reduce its
exposure to price fluctuations. While the use of these hedging arrangements
limits the downside risk of adverse price movements, it may also limit future
revenues from favorable price movements. The use of hedging transactions also
involves the risk that the counterparties will be unable to meet the financial
terms of such transactions. All of the Company's recent historical hedging
transactions have been carried out in the over-the-counter market with
investment grade institutions. The Company accounts for these transactions as
hedging activities and, accordingly, gains or losses are included in oil and gas
revenues when the hedged production is delivered. Neither the hedging contract
nor the unrealized gains and losses on these contracts are recognized in the
financial statements. During the first quarter of 2000, approximately 38% of the
Company's equivalent oil and natural gas production was subject to hedge
positions. No significant amounts of the Company's equivalent oil and natural
gas production were subject to hedge positions during the first quarter of 1999.
Natural Gas. As of March 31, 2000, the Company had entered into commodity
price hedging contracts with respect to its natural gas production for 2000 as
follows:
<TABLE>
<CAPTION>
NYMEX CONTRACT PRICE PER MMBTU(A)
---------------------------------
COLLARS
------------
VOLUME
IN FAIR MARKET
PERIOD MMBTU(A) SWAPS FLOORS CEILINGS VALUE(B)
------ -------- ----- ------ -------- ----------------
<S> <C> <C> <C> <C> <C>
Price Swap Contracts:
April 2000 - May 2000 305 $2.70 - - $ (72,000)
April 2000 - August 2000 2,295 $2.87 - - $ (187,000)
April 2000 - August 2000 3,060 $2.53 - - $(1,313,000)
Collar Contracts:
April 2000 - September 2000 7,320 - $2.25 $2.80 $(1,156,000)
</TABLE>
- ------------
(a) "MMBtu" means million British Thermal Units.
(b) Fair Market Value is calculated using prices derived from NYMEX futures
contract prices existing at March 31, 2000.
These hedging transactions are settled based upon the average of the reported
settlement prices on the NYMEX for the last three trading days or, occasionally,
the penultimate trading day of a particular contract month. With respect to any
particular swap transaction, the counterparty is required to make a payment to
the Company in the event that the settlement price for any settlement period is
less than the swap price for such transaction, and the Company is required to
make payment to the counterparty in the event that the settlement price for any
settlement period is greater than the swap price for such transaction. For any
particular collar transaction, the counterparty is required to make a payment to
the Company if the settlement price for any settlement period is below the floor
price for such transaction, and the Company is required to make payment to the
counterparty if the settlement price for any settlement period is above the
ceiling price for such transaction. For any particular floor transaction, the
counterparty is required to make a payment to the Company if the settlement
price for any settlement period is below the floor price for such transaction.
The Company is not required to make any payment in connection with the
settlement of a floor transaction.
15
<PAGE>
The Company believes that it has no material basis risk with respect to gas
swaps because it only enters into them with respect to its domestic offshore
natural gas production, substantially all of which is sold under spot contracts
that have historically correlated with the swap price.
Crude Oil. As of March 31, 2000, the Company had entered into commodity price
hedging contracts with respect to its crude oil and condensate production for
2000 as follows:
<TABLE>
<CAPTION>
NYMEX CONTRACT PRICE PER BBL
----------------------------
COLLARS
------------
VOLUME FAIR MARKET
PERIOD IN BBLS SWAPS FLOORS CEILINGS VALUE(A)
------ ------- ----- ------ -------- ------------
<S> <C> <C> <C> <C> <C>
Price Swap Contracts:
April 2000 - December 2000 550,000 $21.15 - - $(2,333,000)
Collar Contracts:
April 2000 - September 2000 183,000 - $21.00 $25.00 $ (315,000)
July 2000 - December 2000 184,000 - $21.00 $25.03 $ (33,000)
</TABLE>
(a) Fair Market Value is calculated using prices derived from NYMEX futures
contract prices existing at March 31, 2000.
Substantially all of the Company's domestic oil production is sold under spot
contracts that generally correlate to the NYMEX West Texas Intermediate price,
the Company believes that it currently has no material basis risk with respect
to these transactions. The actual cash price that the Company receives, however,
varies from the NYMEX West Texas Intermediate price when adjusted for location,
quality and other differences. These differences could give rise to basis risk
in the future.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
27 Financial Data Schedule
(B) Reports on Form 8-K
Report filed on February 2, 2000, announcing the date of the Company's
Annual Shareholder's Meeting in 2000.
16
<PAGE>
POGO PRODUCING COMPANY AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
POGO PRODUCING COMPANY
(Registrant)
/s/ THOMAS E. HART
---------------------------------
Thomas E. Hart
Vice President and Chief Accounting Officer
/s/ JAMES P. ULM, II
----------------------------------
James P. Ulm, II
Vice President and Chief Financial Officer
Date: May 8, 2000
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) OF POGO PRODUCING
COMPANY, INCLUDING THE CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2000 AND THE
CONSOLIDATED STATEMENTS OF INCOME FOR THE NINE MONTHS ENDED MARCH 31, 2000, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-2000
<CASH> 21,354
<SECURITIES> 0
<RECEIVABLES> 73,972
<ALLOWANCES> 0<F1>
<INVENTORY> 22,864
<CURRENT-ASSETS> 119,286
<PP&E> 1,826,801
<DEPRECIATION> 1,049,423
<TOTAL-ASSETS> 952,030
<CURRENT-LIABILITIES> 84,114
<BONDS> 375,000
0
0
<COMMON> 40,382
<OTHER-SE> 240,852
<TOTAL-LIABILITY-AND-EQUITY> 952,030
<SALES> 105,504<F2>
<TOTAL-REVENUES> 105,499
<CGS> 25,087<F3>
<TOTAL-COSTS> 25,087<F3>
<OTHER-EXPENSES> 52,226<F4>
<LOSS-PROVISION> 0<F5>
<INTEREST-EXPENSE> 8,746
<INCOME-PRETAX> 21,858
<INCOME-TAX> 9,902
<INCOME-CONTINUING> 11,956
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,956
<EPS-BASIC> 0.30
<EPS-DILUTED> 0.29
<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 AND PIPELINE 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>
