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Pogo boosts U.S. reserves with $186M acquisition Texas independent raises capital spending 36% to $565M; ‘high-potential’ GOM wells to be drilled Ray Tyson Petroleum News Houston Correspondent
Fast-growing independent Pogo Producing Co., which quadrupled production and more than doubled its reserve base over the last five years, is tacking on an additional $189 million worth of natural gas properties in the U.S. San Juan basin.
The two acquisitions from undisclosed sellers would bolster Pogo’s proved reserves by an estimated 100 billion cubic feet of gas equivalent and production by 15 million cubic feet per day, Pogo said Aug 27. The deals were expected to close Sept. 1 and Dec. 1.
Upon closing, Pogo would have acquired more than 150 billion cubic feet of equivalent reserves for about $235 million to date in 2004.
Pogo’s reserves, consisting of 59 percent gas and 41 percent oil at year-end 2003, have increased to about 1.8 billion cubic feet of gas equivalent from about 847 million cubic feet five years ago. During the same period, daily gas volumes have increased to more than 300 million cubic feet from 141 million cubic feet, while daily oil production has gone to more than 58,000 barrels from roughly 18,000 barrels.
Pogo said it intends to drill about 50 wells on its recently acquired San Juan properties in 2005 and 2006. Pogo would operate the properties.
Just prior to the announced acquisitions, Pogo embarked on its most ambitious drilling program ever, increasing its 2004 capital budget in the second quarter by a hefty $150 million or 36 percent to $565 million.
That investment would allow the Houston-based company to drill 390 wells this year, up from 300 wells under the previous 2004 budget and up head over heels compared to the record-setting 248 wells Pogo drilled in 2003.
In this year’s second quarter alone, the company drilled 93 wells, 86 of which were completed as producers. Thirty-five of the 96 wells were drilled in the San Juan basin of northwestern New Mexico and southwestern Colorado, an area that represented just $7 million or 2 percent of Pogo’s former budget.
“These particular long-lived assets bolster our growing San Juan presence and fit well with our strategy of acquiring North American reserves,” Paul Van Wagenen, Pogo’s chief executive officer, said of the company’s recently acquired San Juan properties.
Forty-six percent or $190 million of Pogo’s former $415-million capital budget for 2004 was earmarked for the Gulf of Mexico and Gulf Coast regions. The company said “a significant” piece of the $150-million increase in capital expenditures would go to drilling at least five “high-potential” Gulf prospects on leases acquired by Pogo in the federal government’s Central Gulf of Mexico oil and gas lease sale held last March.
In the United States, Pogo also operates in the Rocky Mountains and Permian Basin of northwestern Texas and southeastern New Mexico. The two regions combined represented $65 million or 15 percent of its 2004 exploration and production budget.
Pogo’s biggest push overseas is in offshore Thailand where the company dedicated $115 million or 28 percent of its entire budget on exploration and development. The well-diversified independent also is active in the Denmark North Sea, New Zealand and Hungary. Liquids production down However, the company’s oil and other daily liquids production in the 2004 second quarter dropped to an average 58,000 barrels from a record 69,137 barrels in 2003 second quarter, in part because of a field shut in and facility upgrade in the Gulf of Thailand during the previous quarter. The company said it was trying to remedy the shortfall by completing or recompleting “high concentration” oil wells in the Benchamas field.
Pogo also attributed some of the overall liquids shortfall to natural production decline at its Main Pass block 61/62 field in the Gulf of Mexico. The company said it would drill an additional well to improve reservoir drainage.
However, the company said the decline in oil volumes in the 2004 second quarter was offset by increased natural gas production that averaged 338.1 million cubic feet per day, up 12 percent from the 301.7 million cubic feet per day in the same quarter last year.
Still, Pogo’s net income of $65.2 million or $1.02 per share in the 2004 second quarter was down 18 percent compared to the $79.7 million or $1.29 per share the company earned in the 2003 second quarter. The company said its profit was reduced by $7 million because of a premium call on the early redemption of its outstanding 10 3/8 percent notes. However, the move is expected to save Pogo more than $11 million in annualized interest expense.
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