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POGO PRODUCING COMPANY
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SEC 1913 (3-99)
PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT
Except for the historical and present factual information contained herein, the
matters set in this presentation, including statements as to the expected
benefits of the merger such as efficiencies, cost savings, market profile and
financial strength, and the competitive ability and position of the combined
company, and other statements identified by words such as "expects," "projects,"
"plans," and similar expressions are forward-looking statements within the
meaning of the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements are subject to risks and
uncertainties that may cause actual results to differ materially, including the
possibility that the anticipated benefits from the merger cannot be fully
realized, the possibility that costs or difficulties related to the integration
of our businesses will be greater than expected, the impact of competition and
other risk factors relating to our industry as detailed from time to time in
Pogo's reports filed with the SEC. Pogo and North Central disclaim any
responsibility to update these forward-looking statements. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those indicated. Additional
information regarding the transaction can be found in the company's Current
Reports on Form 8-K filed on November 20, 2000 and the Company's Preliminary
Proxy Statement on Schedule 14A filed on January 12, 2001.
ADDITIONAL INFORMATION
Investors and security holders of Pogo Producing Company are urged to read the
definitive proxy statement regarding the business combination transactions
referred to in this conference call, when it becomes available, because it will
contain important information. The definitive proxy statement will be filed with
the SEC by Pogo Producing Company. Investors and security holders may obtain a
free copy of the proxy statement (when it is available) and other documents
filed by Pogo Producing Company with the SEC at the SEC's website at
www.sec.gov. The definitive proxy statement and these other documents may also
be obtained free of charge by directing a request to Pogo Producing Company, 5
Greenway Plaza, Suite 2700, Houston, TX 77046, Attn: Investor Relations, or by
telephone at (713)297-5000 or by fax at (713) 297-5100.
In addition, the identity of the individuals who, under SEC rules, may be
considered "participants in the solicitation" of Pogo Producing Company
stockholders, in connection with the proposed merger, and information concerning
their interests, is available in an SEC filing under Schedule 14A made by Pogo
Producing Company on November 20, 2000 and the Company's Preliminary Proxy
Statement on Schedule 14A filed on January 23, 2001.
A rebroadcast of the teleconference call that the following transcript
originates from can be found at www.pogoproducing.com and www.streetfusion.com.
The rebroadcast will be available on both of these websites through February 6,
2001. Real Network's Real Player or Microsoft Media Player is required to
access the webcast. They can be downloaded from www.real.com or
www.microsoft.com/windows/mediaplayer.
POGO PRODUCING COMPANY
YEAR END 2000 CONFERENCE CALL
January 23, 2001
3:30 p.m. EST
CHAIRPERSON: Paul Van Wagenen, Chairman and CEO
[OP = Operator PV = Paul Van Wagenen JU = Jim Ulm
SP = Unidentified Speaker
OP: Ladies and gentlemen, thank you for standing by. Welcome to the Pogo
Producing Company Year End 2000 Conference Call. At this time, all participants
are in a listen-only mode. Later, we will conduct a question and answer
session. At that time, if you have a question, you will need to press the "1"
followed by the "4" on your telephone. As a reminder, this conference is being
recorded today, Tuesday, January 23, 2001. I would now like to turn the
conference over to Mr. Paul Van Wagenen, Chairman and Chief Executive Officer.
Please, go ahead, sir.
PAUL VAN WAGENEN
Thank you, Cathleen. And thank you to our listeners for joining us today
for an overview of our quarterly and annual results highlighted in the press
release issued this morning. I am Paul Van Wagenen, Chairman and Chief Executive
Officer of the company. With me today are Jim Ulm, Pogo's Chief Financial
Officer; and Stuart Burbach, Pogo's Chief Exploration Officer. After our
remarks, we will be happy to answer any questions that you might have.
Before I begin, I want to remind you that this conference call will contain
statements that might be considered forward-looking and our forward-looking
statement policy can be found at the bottom of today's press release, and will
be updated from time-to-time in our SEC filings.
Pogo has just completed a splendid year. It is a story of growth,
innovation and promises kept. In 2000, the company achieved an impressive 33%
increase in year-over-year production growth, made especially noteworthy because
it was accomplished entirely with the drill bit. Most of Pogo's dramatic
production growth was in Thailand, as Pogo has established a permanent planned
international presence. Of paramount importance, the company expects
POGO PRODUCING COMPANY - January 23, 2001 Page 2
further sequential production increases both in Thailand and domestically for
each of the next two years.
In 1999, Pogo reported company-wide average daily production of 41,700
equivalent barrels of oil and natural gas per day. In 2000, Pogo's average
daily production jumped to 55,700 equivalent barrels per day - a 33% year-over-
year increase. That production was also extraordinarily well balanced, with 51%
of it crude oil and liquid hydrocarbons, and 49% natural gas.
Achieving a 33% increase in production without making a significant
acquisition of proven reserves from another producer would ordinarily signal a
reduction in the company's proven reserves base. Happily, that was not the case
with Pogo in 2000. In fact, it was the ninth consecutive year that Pogo's
successful drilling program yielded sufficient newly discovered reserves to more
than offset Pogo's production for that year.
Moreover, Pogo's record of constantly increasing proven reserves holds true
separately for both our domestic property component and for Thailand as well.
At year end 1999, Pogo's company-wide proven reserves, as estimated by the
independent engineers at Ryder Scott, stood at 847.4 billion cubic feet of
equivalent hydrocarbons or BCFE. During 2000, Pogo produced and sold some 122
BCFE, or about 15% of those proven reserves.
Meanwhile, the company discovered enough new reserves on its leases to more
than replace all of those record high production volumes, raising Pogo's year
end 2000 proven reserves to 941.9 BCFE. That number reflects a company-wide
177% replacement of Pogo's high production of 2000.
We're particularly proud of our fourth quarter drilling program in the Gulf
of Mexico. We successfully drilled two of the excellent prospects that we
acquired in the March 2000 federal outer continental shelf lease sale. The two-
block prospect at Ewing Banks, Blocks 871 and 872, was drilled last quarter and
discovered some 134 feet of oil across two different reservoirs. It was flow-
tested from one of the two pay intervals at a calculated daily rate of
approximately 4,300 barrels of oil and 2.9 million cubic feet of natural gas. A
second well on the Ewing Banks prospect is presently being drilled, and more
wells will be anticipated. Pogo owns 50% of that new field, which should be on
production by the fourth quarter of this year.
POGO PRODUCING COMPANY - January 23, 2001 Page 3
Even more significant to Pogo are the two discovery wells at Main Pass
Blocks 61/62. Again, this field was bought at that same March 2000 OCS lease
sale, and was drilled twice before the year was out. The Block 61 #1 well
discovered 96 feet of net oil on a huge structure. And a delineation well, the
Block 62 #1, was then drilled to the Southwest of the 61 #1, and that
second well established the continuing existence of the oil column approximately
120 feet down structure. Those two Main Pass wells have now confirmed the
presence of an 800 acre reservoir with as much as 640 feet of total oil column.
A third well on this new field will begin drilling within a few days, and
more wells will follow. Pogo owns 100% of the working interest ownership of
this field and plans to bring it on stream prior to the end of this year.
Continuing development activity at Mississippi Canyon Block 661705 field, which
is operated and owned approximately 70% by Pogo, should result in production by
the fourth quarter of this year, also. Those three offshore fields allow Pogo
to project another domestic production increase in 2001, as they all start
producing in the fourth quarter of this year, and yet again in 2002 when we will
benefit from a full year of production from all three fields.
In Thailand, the next exploration program of seven to ten wells will begin
in early February. Initial drilling will focus on the exploration areas of
South Jarmjuree and Kung. Meanwhile, six platforms have been ordered by
Pogo and its partners in Thailand. Those platforms are now being fabricated and
five of the six are earmarked for the Benchamas field. When they have been
built, set and the wells drilled, those new platforms should bring on
significant new volumes of crude oil by approximately mid-2002. One of the six
new platforms will be designated for the Maliwan field, which should begin
producing by the fourth quarter of this year.
Three additional future platform locations have already been identified and
justified by successful Maliwan field drilling performed in 1999 and 2000.
Those three and other platforms should be ordered by Pogo and its partners later
this year.
Our on-shore divisions in the Permian Basin and the Gulf Coast are also
very active. In the Permian, we drilled 42 new wells in 2000, and 40 of them
were successfully completed as producers. And we've budgeted to drill 46 more
Permian Basin wells in 2001. In the on-shore Gulf Coast area, we have started
exploratory drilling on the first of six prospects generated from
POGO PRODUCING COMPANY - January 23, 2001 Page 4
our 61 square mile 3D Seismic shoot in the Thibodaux area of Lafourche Parish,
Louisiana. If most, or all, of those six wells are successful, many additional
wells would be expected to follow.
Our exploratory Seismic operation in Hungary is progressing rapidly. The
Szolnok license area 2D program was completed in October, and the 888.8 line
km of Seismic data which was generated is proving to be very interesting,
leading to the immediate commencement of two simultaneous 3D Seismic acquisition
programs.
In the Tompa license area, 36,000 acres of 3D has already been generated
within the last 60 days, with at least 40,000 additional acres presently
working. In the Kenderes sub-area of the Szolnok license area, 41,000 acres
of 3D has been completed. A new 3D acquisition program will begin in the
Koros sub-area in southern Szolnok in May. Our objective is to be ready to
commence a multi-well drilling program in each of the Tompa and Szolnok license
areas before the end of this year. Pogo owns 100% of the 778,000 license acres
in these two prospective parts of the Panonian Basin in Central and
Southeastern Hungary.
In another international venue, the Denmark North Sea, where Pogo is a
40% owner of an 81,000 acre license, an exploratory well should be drilled late
this year to capitalise on both our 3D Seismic data on the block and the recent
flourish of successful drilling activity in the geographic area surrounding our
Denmark license.
Pogo's Board of Directors today approved a $275 million capital and
exploration budget for 2001, up from approximately $180 million expended in
2000. That budget should be well within most street estimates of Pogo's 2001
discretionary cash flow. And it includes the planned drilling of 151 gross
wells company-wide.
Of course, none of the forgoing results or forward-looking statements
reflect any information from North Central Oil Corporation, the wholly-owned
subsidiary of NORIC Corporation. An announcement of Pogo's pending
acquisition of NORIC Corporation was made on November 20, 2000. As previously
announced, pending regulatory and shareholders' approval, closing of the
acquisition is anticipated late this quarter. Based upon information provided
to us by North Central, their independent engineers at the firm of Miller &
Lents have estimated North Central's year-end 2000 proven reserves to be 537
BCFE. That is an increase of some five BCFE from the mid-year 2000 Miller &
Lents reserves report, which was examined
POGO PRODUCING COMPANY - January 23, 2001 Page 5
by Pogo in evaluating this acquisition, and is an impressive 105 BCFE increase
from North Central's proven reserves as of year-end 1999. It represents a
production replacement rate of 341% for the year 2000.
As we have said repeatedly since the announcement of this planned
acquisition, we are very pleased with the potential that it offers. It is an
outstanding company with great potential that will fit Pogo's business plan
famously. Now here is our Chief Financial Officer, Jim Ulm, who will briefly
review Pogo's financial results. And following his report, Stuart, Jim and I
will be happy to answer your questions. Jim?
JIM ULM
Thank you Paul, and thank you everyone for listening in today. The
operating successes in 2000 that Paul described earlier set the stage for Pogo's
best financial results ever. Record revenues of almost $500 million, net income
of $87 million, and discretionary cash flow totalling $316 million. We paid off
our bank debt in May of 2000, fully funded our capital program and added over
$135 million to free cash by year-end. These results improved our financial
strength and put us in an excellent position to negotiate the North Central
transaction Paul mentioned.
Post the announcement of the North Central deal, we have hedged, using
floors, 70 MMcf per day for the period from April 2001 through December
2002. These floor prices equal $4.25 per MCF for April 2001 through March
2002, and $4.00 per MCF for April 2002 through December 2002.
Thank you. And I'd like to open the call up for questions.
QUESTIONS AND ANSWERS
OP: Thank you. Ladies and gentlemen, we will now begin the question and answer
session. If you have a question, please press the "1" followed by the "4"
on your telephone. You will hear a three-tone prompt acknowledging your
request. If your question has been answered and you wish to withdraw your
polling request, you may do so by pressing the "1" followed by the "3". If
you are on a speaker-phone, please pick up your handset before entering
your request. One moment, please, for your first question. [Pause] As a
reminder, ladies and gentlemen, if you do have a question, please press the
"14" at this time.
POGO PRODUCING COMPANY - January 23, 2001 Page 6
Your first question is from John Herrlin, of Merrill Lynch. Please proceed
with your question.
JH: Hi, guys. I just had a question on Block 61. You kind of gave us
enough information to calculate the size of the shoebox. I was wondering
if you wanted to be more specific in terms of what you think the reserve
potential is there, since it's a nice discovery.
PV: Yes, it is. This is Paul, John. Thanks for calling in. It is a terrific
discovery, and we can tell you that we have booked almost 16 million
barrels of proven reserves from just those first two wells on that
particular shoebox. So, it's a good-sized box. We intend to develop it.
It will require some drilling and some additional wells. As I mentioned,
the third well on the prospect is being drilled almost immediately, and
further wells will be drilled quickly in order to get the thing on stream
before the end of the year.
The ultimate size is not at this present moment known to us, but it's
obviously a very good-sized one for our company.
JH: And then I had one follow-up. With capex, could you break it down between
exploration and development, Paul?
PV: Yes. Pogo's exploration and development is broken down about 75:25 in
favor of development for the year 2001. We have a number of facilities
that need to be set as well this year, including the ones at Main Pass
61/62, as you know, in order to get that one on stream. And we're still
setting facilities as well on Ewing Banks and finishing up the facilities
to get the Mississippi Canyon block on stream. So, domestically, it's
approximately the same as it is internationally. It's about 75:25
development to exploration.
JH: Then, the last question. In terms of activity, you are having a busier
year. Are you seeing any problems, or are you having any problems, getting
services at all? Rigs or service providers?
PV: No. To date, we've been very fortunate and I think that stems from a long-
standing relationship with lots of drillers and service and supply
companies that we have over the last 31 years. Obviously, prices are up
some. That's good news for the service companies and the drillers. But it
has not translated itself into a problem for us in getting the rigs and
services that we need. We're locked in with the rigs we need in the
capital budget.
POGO PRODUCING COMPANY - January 23, 2001 Page 7
JH: Thanks.
PV: Thank you, John.
OP: Your next question is from Jeff Robertson, of Lehman Brothers. Please
proceed with your question.
JR: Good afternoon, Paul.
PV: Hi, Jeff.
JR: You've got a lot of properties and projects scheduled to start production
toward the end of this year and carrying through next year in the Gulf of
Thailand, in particular. Are you all comfortable yet in talking about, a
little more specifically, in terms of what those increases might be?
PV: Yes, let me give you as much help as I can at this moment on that, Jeff.
We've just completed what really turns out to be the first year of what we
promised to be three pretty remarkable years with regard to projections of
production. You have to think back through this year, which was a 33%
year-over-year production increase. Building upon that, we've said, and we
believe, that in the year 2001 we see, at Pogo, an 8% to 10% year-over-year
production increase. And, of course, as you've pointed out, in both
domestically and in Thailand, that leads to a very good 2002.
Domestically, we have those three properties that are coming on stream in
the fourth quarter in the Gulf of Mexico. That should add significant
volumes. And in Thailand we have five production platforms that will be
set in the Benchamas area that should be coming on stream in about mid-
2002. So, you're going to see some very significant year-over-year
increases in production company-wide at 2002 relative to 2001.
So, we're very optimistic, and happy about all of that. In addition to
that, of course, we're looking forward to the completion of the merger with
North Central, which will significantly increase our domestic natural gas
production, effective as of the completion of that merger, which is
expected within just a few weeks.
JR: Okay. So, Paul, the 8% to 10% refers to just Pogo, ex North Central,
right?
PV: That's correct.
JR: Okay. And a couple of other things. In Thailand, Paul, you all were
working on a project, I believe it is to the East of Tantawan with the
offset operator British Gas, I think.
POGO PRODUCING COMPANY - January 23, 2001 Page 8
PV: Right.
JR: Have you made any progress on resolving the issues you needed to go ahead
with that?
PV: Not quite finished yet. Thank you, Jeff. That Block 9A is a block, as you
mentioned, that is operated and leased by British Gas. It contains as a
partner, Chevron, who's our partner on our side of the line. We've worked
an agreement on farming-in from British Gas. It is still subject to
certain regulatory governmental approvals within the Department of Mineral
Resources and the government of Thailand. As soon as those approvals are
obtained, we'll be wanting to move ahead with that, because we have, as you
know, some pretty significant prospects on either side of the line based
upon 3D Seismic that we've shot on both sides of that line in earlier
years.
JR: From a timing standpoint, Paul, is it realistic that if you get that farm-
out agreement completed, say, in the first half of this year, that
production - and you've got the drilling - that you could start producing
at the end of 2002 or is it beyond that?
PV: I think that would probably be reasonable, but I can't say that it's
likely. Because we just don't have any control over the governmental
approvals.
JR: And lastly, Paul, with your increase in production in Thailand and with the
strengthening in oil prices, and now the increasing in costs, have you seen
any adjustment to the gas price for your contract over there?
PV: Yes, we adjust our gas price under contract every six months, in April and
October. It was last adjusted in October based on the trailing six months,
as you know. We'll see a new adjustment in April of this year, will be
based on the trailing six months from October through April, and it will be
based, as it usually is, principally upon Singapore fuel oil prices, which
as you know are a proxy for world oil prices. As long as world oil prices
stay as good as they seem to be right now, we would expect to perhaps pick
up a little bit on the price in April from the current prices.
JR: Okay. Thank you, Paul.
PV: Thank you.
OP: Your next question is from Alessandra Zortea, from Goldman Sachs. Please
proceed with your question.
AZ: Good afternoon.
POGO PRODUCING COMPANY - January 23, 2001 Page 9
PV: Hi, Alessandra.
AZ: Hey, Paul, I'm going to follow up a little bit on the first question that
Jeff asked you. Without pinning down, sort of, growth rates or ultimate
production numbers, can you give us a sense if you put together Main Pass
61/62 and Ewing Banks and Mississippi Canyon 661/705... Because they're
coming out a little earlier than I thought you had previously indicated.
Can you give us, at least, a range or a sense as to those three projects,
how much they could add to your production?
PV: Sure. I can give you some help on that. With regard to timing, all of
them are basically are mid-fourth quarter of this year. Main Pass 61/62
will be very near the end of the fourth quarter near the end of the year.
Most of the production you'll see there will stabilise in 2002 first
quarter.
Ewing Banks could be on stream a little earlier in the fourth quarter, and
mid-fourth quarter you're going to see Mississippi Canyon. I've said
previously, in a forward-looking statement publicly, we think that the
production rates' gross rates from the development project at Mississippi
Canyon could probably reach something on the order of gross 50 million
cubic feet of natural gas a day, and perhaps as much as 4,000 to 5,000
barrels of oil a day, net to our interest, which is approximately 70%. And
then reducing it for royalties. That's a production increase when it's
stabilises of something on the order of 30 million cubic feet of gas a day
and something around 3,000 barrels of oil a day, which is significant.
The other two blocks could very well...
AZ: Sorry, Paul. This was Mississippi Canyon, right?
PV: That was the Mississippi Canyon 661/705 development project. When you
combine that with probably a fairly decent gas at stabilised rates from the
other two exploration successes that we've had at Main Pass 61/62, and at
Ewing Banks 871/872, I can see Pogo hoping, in the stabilised early
production, to be able to see some rates incrementally of somewhere in the
order of 30 million to 35 million cubic feet of natural gas per day,
incrementally adding in 12,000 to 13,000 barrels of crude oil a day.
Now, that is very early, and it's accumulative of three blocks. And it does
not account for what may well be further development on all of these blocks
to raise the
POGO PRODUCING COMPANY - January 23, 2001 Page 10
production levels on any one or more of them to higher levels. But based on
what we know now, this could be an early stabilised rate in 2002 that
you'll start to see ramping up in late 2001.
AZ: And, I'm sorry, Paul. When you say based on what we know now, that's based
on the wells you've currently drilled?
PV: That's correct. It's all been good news. We just are drilling another
well, a second well, at Ewing Banks right this minute. Within the next day
or so we will be drilling a third well on Main Pass. There is still
development, of course, going on, and connections and mechanics and
plumbing at work at Mississippi Canyon. So, I'm not trying to ____ of it
in any tricky way. I'm just saying, based on the wells that we've drilled
to date, this is the initial stabilised rate we could expect.
AZ: Right. And then can you remind us whether there is anything... or what
you're drilling right now that might be sort of along the magnitude of
these type of projects?
PV: Well, we have a good drilling program scheduled for 2001. It involves more
gross wells than we've drilled, well, at least in my memory, in the last 22
or 23 years at Pogo. We have 151 wells budgeted. 52 of those are in
Thailand. Of those 52 wells, we have a dozen more or less that are
exploration wells. We'll be drilling in an exploration program of seven to
ten wells that begins in February. And that is within just about a week or
so.
We'll be drilling at least a couple of new wells down in the Kung area
in the South part of Block B8/32. Those could be significant because
they're not yet in a production license area. We'll be drilling four or
five additional wells in the South Jarmjuree area, both South of the
production license area of Jarmjuree and in the Southern part of that PLA.
Those are exploration wells, or at least most of them are exploration wells
that could add significant reserves.
I'd like to point out - and I had not mentioned it until this moment -
that as you build through 2002 to 2003, you'll see a full year of
production from those five platforms at Benchamas that we mentioned will be
set on production by about mid-year 2002. You'll also see some stabilised
production from Maliwin that starts late this year. And you'll commence to
see near the end of 2003 the first production that we are expecting from
the Jarmjuree field, which should be coming on stream then.
POGO PRODUCING COMPANY - January 23, 2001 Page 11
So, a good company is always looking to layer on additional steps up
the ladder. And I think we've done that with the programs that we have
coming up.
AZ: And how about the Gulf of Mexico? Can you comment on exploration activity
there this year versus last year?
PV: Yes, I can. We have $125 million more or less earmarked for the offshore
Gulf of Mexico. That should drill about 33 wells, including setting a lot
of hardware. That compares to last year, when we spent about $67 million
in the Gulf of Mexico with such marked success. You also have to remember,
as you're factoring what Pogo will look like in the next two or three
years... Assuming a successful completion of the acquisition of North
Central, you're going to see a growing property mix from South Texas, South
Louisiana, and up in Wyoming, that is coming from that fine company.
And we expect that a more aggressive drilling program of about 66 wells
this year from those North Central properties, as compared to 44 wells
drilled last year. [We] should see some additional volumes. And we expect
that to grow. And we've said this in the past in a forward-looking
statement: 15% year-over-year on production, and that's basically North
American natural gas.
AZ: Okay, final question. The $275 million of capital for 2001 does account
for the money you're going to spend on the North Central properties, right?
PV: It does not. That $275 million capital budget is relative to Pogo's
properties only. The merger is not completed. Most street estimates are
well in excess of $300 million for discretionary cash flow relative to
Pogo's properties. North Central's budget is being handled by North
Central at this moment, prior to the finalisation of the merger. But we
are looking for, as a go-by starting point of about $75 million of capital
expenditures earmarked for the year 2001, assuming the completion of the
merger, relative to those North Central properties. So, that $75 million
should also be well within discretionary cash flow. A reasonable estimate
of that is somewhere in the $120 million range for the year 2001.
So, we have room to build that as we go through the year and I think that
will prove to be quite productive for us.
AZ: All right. Thank you.
POGO PRODUCING COMPANY - January 23, 2001 Page 12
PV: Thank you, Alessandra.
OP: Your next question is from Ellen Hannan, of Bear Stearns. Please proceed
with your question.
EH: Good afternoon. Most of my questions have been answered, except Paul,
could you give us some idea (and you may have told me in answering
Alessandra's question) the split in your capex, just from Pogo, between the
U.S. and the international?
PV: Yes, Ellen. Thank you for asking. I didn't do that precisely, and I'm
happy to. Of our $275 million, $70 million of it is earmarked for
Thailand. And that will, we think, drill us 52 wells, and fabricate at
least six platforms. We also have $17 million earmarked for Hungary, which
will complete the 3D Seismic that I talked about on both the Szolnok and
the Tompa areas. And we budgeted for the first couple of wells, as well, in
that particular budget.
The rest of it is for North America. $125 million of it for the offshore
and the rest of it for the onshore and the Permian and Alberta.
EH: Okay. Thank you. Just one last question maybe for Jim. This is not easy
to forecast, but could you give us your sense of what you're looking for as
a percentage of your taxes to be deferred in 2001 relative to the current
price outlook in your hedges? And how much foreign income versus U.S.
income you might expect to generate?
JU: Sure, Ellen, I'll take a stab at that. Our tax rate that we had in 2000,
you'll notice was about 43%, and that's representative of our U.S. rate of
35% and the rate with the income that we generated in Thailand of about
50%. We had significant drilling that we talked about during the year. We
also had some tax credits available in Thailand. And as a result, we
deferred about 95% of our taxes in 2000.
Going forward, it will depend, obviously, on commodity prices, as you say.
But, I think if you're somewhere in the 50% to 60% range for deferring,
you'll be pretty close.
EH: Great. Thank you very much.
PV: Thank you, Ellen.
OP: Your next question is from Kelly Krenger, of Bank of America Securities.
Please proceed with your question.
POGO PRODUCING COMPANY - January 23, 2001 Page 13
KK: Good afternoon. I just have a few questions here. I was wondering if you
could tell us what percent of your reserves, if you've got this data done
at this stage, are proved and developed?
JU: Kelly, I don't have that number off the top of my head at this point. And
I'll have to communicate that at a later point.
KK: Okay. And, if I recollect right, you guys didn't do much in the way of
buying or selling properties in 2000. And if I just use the reserve adds
and the capital that you indicated you spent in your press release for
2000, it looks like your finding costs are roughly $5.00. Is that about
right?
PV: That's about right. We spent about $180 million and we added 217 BCFE,
proven.
KK: Okay. And, lastly, what was your cash balance at the end of the year?
JU: Kelly, our cash balance was about $82 million. And that's, as I've
mentioned, reflective of the fact we've paid off our bank debt in May. We
generated significant free cash this year, both in the U.S. and Thailand,
and ended the year with about $82 million, I think it's about $81.5 million
exactly, of cash.
KK: Okay. That's great. Thank you.
OP: As a reminder, ladies and gentlemen, if there are any additional questions,
please press the "1" followed by the "4" at this time. [pause] You have a
follow-up question from Jeff Robertson, of Lehman Brothers. Please proceed
with your question.
JR: One quick one, Paul, and then a different one. On the reserves, the 942
BCF equivalence, what percent of those are oil and gas?
PV: Yes. At year-end, that is 61% oil, and 39% gas, which is reflective of the
fact that we found a lot of good oil in Benchamas in Thailand, and now in
the Gulf of Mexico blocks that we have talked about fairly extensively on
this telephone call. You would be interested to know, and I think it's
important to note, that pro forma, the combined Pogo-North Central reserves
would be 57% natural gas, 43% oil.
JR: Okay. And that includes the 537 B's?
PV: Right. Their's are about 89% gas.
JR: Okay. Paul, as you look at Pogo today, with North Central. The Canadian
assets that you all acquired in the arch transaction are a pretty small
part of the overall picture.
POGO PRODUCING COMPANY - January 23, 2001 Page 14
PV: That's correct.
JR: What do you want to do in Canada in terms of either growing it, or just
what are your plans up there?
PV: Let me answer that in two parts. We've had some very good success in our
drilling in the second half of the year 2000. We've drilled several wells
that appear to be quite prospective, and will be quite productive Notably
among those is a 15 of 21 well in the Garrington area North of Calgary,
which looks like several BCF of reserves and probably will be on stream in
the second quarter of the year. And it could be doing about, in a forward-
looking statement sort of way, 5 million or 6 million cubic feet of natural
gas per day. And fortunately, we have that particular block at this time
100%.
So, we have some good results. We don't have a lot of reserves. And I think
that's the point of your question, and it's correctly phrased. We don't
have a lot of reserves. We do have a lot of exploration acreage. And when
we bought it from Arch, we bought it for the exploration upside. And, as
with any international play, the exploration prospects that you generate on
120,000 gross acres, more or less in Canada, are going to take you a little
bit of time.
I don't know exactly that we'll be able to grow the base as fast as we
would like, easily. But, the base is obviously too little for our size of
company at the present time. And it takes a good while to grow it simply
with the drill bit. And so obviously, we're looking for the opportunity to
make an acquisition that would add real mass or real bulk to the size of
the Canadian portfolio.
JR: Okay. In terms of the types of things that might be attractive, do you
want to continue to look for things that would add more on the exploration
side, or are you looking for proved reserves, or both, or just whatever the
most opportunistic thing is?
PV: Right. It's a mix, always. We feel like we have outstanding
explorationists at Pogo. You're always looking for an opportunity to
exploit your asset base, and they are our asset base. You're also able,
once in a while, to make some opportunistic acquisitions of development
properties that through accelerated drilling and access to the capital
markets, which we offer obviously, to the portfolio of good properties that
belong to North
POGO PRODUCING COMPANY - January 23, 2001 Page 15
Central. That also adds a good bit of glamor to a company, particularly in
natural gas acquisitions in North America. It seems to be an awfully good
time to have that, isn't it?
JR: Yes. Lastly, Paul, as you put the North Central assets together with
Pogo's assets, is there much that you would look to sell over the course of
the year to clean up the asset base?
PV: Not really looking to sell very much. I think it's just about as pristine
an acquisition as you could have found. When you find a company with over
a half a trillion cubic feet of proven reserves... 91% of those reserves
being in just seven fields, and all of the reserves being in 20 fields and
every one of those fields, save one - the Madden field in Wyoming, which is
a gem of a field with tons of upside potential - every one of the rest of
them are in the Gulf Coast onshore... you have an acquisition that really
doesn't need much in the way of weeding.
JR: Thank you, Paul.
PV: Thank you.
OP: Your next question is from Tim Koether, of UBS Warburg. Please proceed
with your question.
TK: Good afternoon. Can you just give us some idea as to your thoughts right
now with regards to the financing of the NORIC acquisition? It looks to
me, that with the cash on hand and your bank availability, that that's
something that you could do. And with the cash flow that you're going to
generate this year, [you could] pay that down fairly quickly. Can you just
tell me what you're thinking there?
JU: Yes. This is Jim. I guess the way I would answer that is our primary
focus here has initially been to make sure that we have liquidity at
closing. We are currently negotiating a new bank credit facility. We
think it'll be about a $500 million facility. We anticipate that we will
borrow somewhere in the range of $370 million, so we'll have $100 million
of dry powder under the new facility at closing.
You're correct in that our estimates show that we'll generate free cash
this year that we'll use to pay down the debt. So, the primary
consideration here is to have liquidity at closing. And then in terms of
permanent financing, we'll consider that at a later point and we'll do it
opportunistically.
POGO PRODUCING COMPANY - January 23, 2001 Page 16
TK: Okay. And would you mind just going over your hedging position again?
JU: Sure. We hedged 70 million cubic feet of natural gas a day, beginning in
April 2001 going through December of 2002. We purchased a floor, which
means we get to keep all the upside. The first floor that we bought ran
from April 2001 through March of 2002. That was a $4.25 floor.
The second, or the last couple of months of 2002, running April 2002
through December 2002, we bought a $4.00 floor. So, 70 million a day, $4.25
floor, April through March. $4.00 floor April through December 2002.
TK: Great. Thanks.
PV: Cathleen, I'm told we have time for just one more question.
OP: Actually we have no other questions right now.
PV: Thank you very much. And I'd like to say that we do appreciate your tuning
in. We appreciate your interest in Pogo. We have, I think, a very
significant story of growth that we're telling. This is a company that's
31 years old and with age comes some amount of wisdom in the way you do
business. But we have an attitude of a new company with new assets, new
discoveries, lots of potential. And we're very excited about it, and I
think you can tell that. Thank you.
OP: Ladies and gentlemen, that does conclude your conference call for today.
You may disconnect and we thank you for participating.
[End of Recording]