EX-99.1 4 a06-11709_1ex99d1.htm UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION OF POGO SUBSIDIARIES

Exhibit 99.1

 

POGO PRODUCING COMPANY & SUBSIDIARIES

 

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

The following unaudited pro forma condensed consolidated financial statements are presented to give effect to the following:

 

•                              The disposition of an undivided 50 percent interest in each and all of the Company’s federal and state Gulf of Mexico oil and gas leasehold interests and related pipelines and equipment for $500 million in cash, which closed on May 31, 2006 (“Gulf of Mexico Disposition”); and

 

•                              The pro forma results of Northrock Resources Ltd. (“Northrock”) from January 1, 2005 until September 27, 2005, the date the Company acquired Northrock.  Northrock’s results are included in the Company’s historical results for periods subsequent to September 27, 2005.

 

The unaudited pro forma condensed consolidated income statement for the year ended December 31, 2005 has been derived from the Company’s consolidated income statement for the year ended December 31, 2005 and from the unaudited consolidated income statement of Northrock from January 1, 2005 through the date of its acquisition on September 27, 2005.  The unaudited pro-forma condensed consolidated income statement should be read together with the Company’s consolidated income statement and the notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2005.

 

The unaudited pro forma condensed consolidated balance sheet as of March 31, 2006 and the unaudited pro forma condensed consolidated income statement for the three months ended March 31, 2006 have been derived from the Company’s interim consolidated financial statements (which include the results of Northrock) included in its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2006 and should be read in conjunction with those financial statements, including the notes thereto.

 

The unaudited pro forma condensed consolidated financial statements are based on the following assumptions and adjustments:

 

•                                          the income statement presents the Company’s operations as if the Gulf of Mexico Disposition and the Northrock acquisition had occurred on January 1, 2005;

 

•                                          the historical income statement of Northrock has been adjusted to conform to the financial statement presentation format of the Company;

 

•                                          the balance sheet data presents the Company’s Gulf of Mexico Disposition as if it occurred on March 31, 2006; and

 

•                                          the unaudited pro forma estimates of proved reserves and unaudited pro forma standardized measure of discounted future net cash flows related to proved oil and gas reserves give effect to the Gulf of Mexico Disposition as if it had occurred at December 31, 2005.

 

The unaudited pro forma condensed consolidated financial statements are presented for illustrative purposes only.  The financial results may have been different if Northrock and the Company had always been combined or if Northrock and the Gulf of Mexico Disposition had occurred as of the dates indicated above.  This financial information does not purport to indicate the future results that the Company will experience.

 


 

POGO PRODUCING COMPANY AND SUBSIDIARIES

Pro-Forma Condensed Consolidated Balance Sheet

March 31, 2006

(in millions)

(Unaudited)

 

 

 

Historical
Consolidated

 

Gulf of Mexico
Disposition
Pro-Forma
Adjustments

 

Pro-Forma

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash investments

 

$

23.7

 

$

471.6

(a) 

$

495.3

 

Accounts receivable

 

166.1

 

 

 

166.1

 

Other receivables

 

26.8

 

 

 

26.8

 

Deferred tax asset

 

21.2

 

 

 

21.2

 

Inventories - Product

 

14.5

 

 

 

14.5

 

Inventories - Tubulars

 

21.6

 

 

 

21.6

 

Other

 

3.2

 

 

 

3.2

 

Total current assets

 

277.1

 

471.6

 

748.7

 

 

 

 

 

 

 

 

 

Property and equipment:

 

7,341.1

 

(654.0

)(b)

6,687.1

 

Less - Accumulated D D & A

 

1,992.0

 

(465.1

)(b)

1,526.9

 

 

 

5,349.1

 

(188.9

)

5,160.2

 

 

 

 

 

 

 

 

 

Other

 

43.0

 

 

 

43.0

 

 

 

$

5,669.2

 

$

282.7

 

$

5,951.9

 

LIABILITIES

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable - operating activities

 

$

149.1

 

$

—

 

$

149.1

 

Accounts payable - investing activities

 

138.7

 

—

 

138.7

 

Income taxes payable

 

63.2

 

144.1

(c)

207.3

 

Accrued interest payable

 

27.5

 

—

 

27.5

 

Accrued payroll and related

 

3.8

 

—

 

3.8

 

Price hedge contracts

 

25.7

 

—

 

25.7

 

Other

 

10.2

 

0.2

(d)

10.4

 

Total current liabilities

 

418.2

 

144.3

 

562.5

 

 

 

 

 

 

 

 

 

Long-term debt

 

1,577.5

 

—

 

1,577.5

 

Asset retirement obligation

 

150.3

 

(34.9

)(b)

115.4

 

Deferred income taxes

 

1,291.5

 

(33.0

)(c)

1,258.5

 

Price Hedge Contracts

 

24.5

 

—

 

24.5

 

Deferred credits

 

36.4

 

—

 

36.4

 

Total liabilities

 

3,498.4

 

76.4

 

3,574.8

 

SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

Common stock

 

65.3

 

—

 

65.3

 

Additional capital

 

955.3

 

—

 

955.3

 

Retained earnings

 

1,527.3

 

206.3

(d)

1,727.2

 

 

 

 

 

(6.4

)(e)

 

 

Accumulated other comprehensive income (loss)

 

(15.8

)

6.4

(e)

(9.4

)

Deferred Compensation

 

—

 

—

 

—

 

Treasury stock, at cost

 

(361.3

)

—

 

(361.3

)

Total shareholders’ equity

 

2,170.8

 

206.3

 

2,377.1

 

 

 

$

5,669.2

 

$

282.7

 

$

5,951.9

 

 


 

POGO PRODUCING COMPANY AND SUBSIDIARIES

Pro-Forma Condensed Consolidated Statement of Income

Three Months Ended March 31, 2006

(in millions, except per share amounts)

(Unaudited)

 

 

 

Pogo
Historical
Consolidated

 

Less:
Gulf of Mexico
Disposition (f)

 

Pro-Forma

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

Oil & gas revenues

 

$

354.4

 

$

39.6

 

$

314.8

 

Other

 

19.1

 

—

 

19.1

 

Total

 

373.5

 

39.6

 

333.9

 

Expenses

 

 

 

 

 

 

 

Lease operating

 

57.1

 

9.0

 

48.1

 

General and administrative

 

28.7

 

—

 

28.7

 

Exploration

 

2.7

 

—

 

2.7

 

Dry hole and impairment

 

25.6

 

4.8

 

20.8

 

DD&A

 

110.1

 

7.4

 

102.7

 

Production and other taxes

 

13.5

 

0.2

 

13.3

 

Transportation and other

 

25.5

 

1.1

 

24.4

 

Total

 

263.2

 

22.5

 

240.7

 

Operating income

 

110.3

 

17.1

 

93.2

 

Interest:

 

 

 

 

 

 

 

Charges

 

(28.3

)

—

 

(28.3

)

Income

 

0.5

 

—

 

0.5

 

Capitalized

 

16.2

 

0.6

 

15.6

 

Commodity derivative income (expense) (e)

 

3.3

 

—

 

3.3

 

Foreign currency transaction gain

 

(0.2

)

—

 

(0.2

)

Income from before taxes

 

101.8

 

17.7

 

84.1

 

Income taxes

 

34.3

 

6.2

 

28.1

 

Net income

 

$

67.5

 

$

11.5

 

$

56.0

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

Basic

 

$

1.18

 

 

 

$

0.98

 

Diluted

 

$

1.16

 

 

 

$

0.97

 

 

 

 

 

 

 

 

 

Weighted average shares:

 

 

 

 

 

 

 

Basic

 

57.3

 

 

 

57.3

 

Diluted

 

57.9

 

 

 

57.9

 

 


 

POGO PRODUCING COMPANY AND SUBSIDIARIES

Pro-Forma Condensed Consolidated Statement of Income

Year Ended December 31, 2005

(in millions, except per share amounts)

(Unaudited)

 

 

 

Pogo
Historical
Consolidated

 

Plus:
Northrock
Historical from
January 1, 2005
through
September 26, 2005

 

Less:
Gulf of Mexico
Disposition (f)

 

Pro-Forma
Adjustments

 

Pro-Forma

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

Oil & gas revenues

 

$

1,216.3

 

$

305.3

 

$

162.7

 

$

—

 

$

1,358.9

 

Other

 

9.5

 

—

 

—

 

—

 

9.5

 

Total

 

1,225.8

 

305.3

 

162.7

 

—

 

1,368.4

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

Lease operating

 

153.7

 

48.3

 

33.5

 

—

 

168.5

 

General and administrative

 

87.3

 

12.9

 

—

 

—

 

100.2

 

Exploration

 

26.5

 

10.7

 

1.9

 

—

 

35.3

 

Dry hole and impairment

 

87.2

 

10.4

 

29.2

 

—

 

68.4

 

DD&A

 

312.2

 

53.6

 

26.7

 

(53.6

)(g)

423.5

 

 

 

 

 

 

 

 

 

138.0

(h)

 

 

Production and other taxes

 

59.5

 

6.2

 

0.8

 

—

 

64.9

 

Transportation and other

 

(9.1

)

4.7

 

4.9

 

—

 

(9.3

)

Total

 

717.3

 

146.8

 

97.0

 

84.4

 

851.5

 

Operating income

 

508.5

 

158.5

 

65.7

 

(84.4

)

516.9

 

Interest:

 

 

 

 

 

 

 

 

 

 

 

Charges

 

(68.7

)

—

 

—

 

(24.6

)(i)

(100.1

)

 

 

 

 

 

 

 

 

(6.8

)(j)

 

 

Income

 

8.3

 

4.9

 

—

 

(4.9

)(k)

8.3

 

Capitalized

 

23.4

 

—

 

1.7

 

36.7

(l) 

58.4

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity derivative income (expense) (e)

 

(13.6

)

—

 

—

 

—

 

(13.6

)

Foreign currency transaction gain

 

0.1

 

—

 

—

 

—

 

0.1

 

Income from continuing operations before taxes

 

458.0

 

163.4

 

67.4

 

(84.0

)

470.0

 

Income taxes

 

167.9

 

71.8

 

23.6

 

(33.6

)(m)

182.5

 

Net income from continuing operations

 

$

290.1

 

$

91.6

 

$

43.8

 

$

(50.4

)

$

287.5

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

4.80

 

 

 

 

 

 

 

$

4.76

 

Diluted

 

$

4.76

 

 

 

 

 

 

 

$

4.72

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

60.4

 

 

 

 

 

 

 

60.4

 

Diluted

 

60.9

 

 

 

 

 

 

 

60.9

 

 


 

POGO PRODUCING COMPANY AND SUBSIDIARIES

Pro-Forma Combined Supplemental Oil and Gas Disclosures

(Unaudited)

 

The following pro-forma estimated reserve quantities and estimated standardized measure of discounted future net cash flows show the effect of the disposition as if it had occurred on December 31, 2005 (dollars expressed in millions).

 

 

 

Historical
Consolidated

 

Less:
Gulf of Mexico
Disposition

 

Pro-Forma

 

Proved:

 

 

 

 

 

 

 

Oil, Condensate and Natural Gas Liquids (Bbls.)

 

144,040,865

 

15,846,401

 

128,194,464

 

Natural Gas (MMcf.)

 

1,177,725

 

48,287

 

1,129,438

 

 

 

 

 

 

 

 

 

Proved Developed:

 

 

 

 

 

 

 

Oil, Condensate and Natural Gas Liquids (Bbls.)

 

118,573,719

 

10,928,567

 

107,645,152

 

Natural Gas (MMcf.)

 

906,005

 

29,159

 

876,846

 

 

 

 

 

 

 

 

 

Standardized measure of discounted future net cash flows related to proved oil and gas reserves

 

$

4,562.8

 

$

530.2

 

$

4,032.6

 

 


 

POGO PRODUCING COMPANY & SUBSIDIARIES

 

Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements

 

a)                   Represents cash proceeds of $500 million from the Gulf of Mexico Disposition, less purchase price adjustments of $28.4 million arising between the effective date of January 1, 2006 and May 31, 2006.  The Company used the net cash proceeds from the Gulf of Mexico Disposition to repay a portion of the debt incurred to fund the previously announced purchase of Latigo Petroleum, Inc., which was acquired by the Company on May 2, 2006.

 

b)                  Represents adjustments to remove the carrying value of the properties to be sold and the associated accumulated amortization and asset retirement obligation as of March 31, 2006.

 

c)                   Represents the assumed current income taxes payable associated with the gain on sale and the reversal of historic deferred taxes on the properties to be sold at March 31, 2006, which were calculated using the 35% statutory U.S. federal tax rate.

 

d)                  Represents the assumed gain associated with the Gulf of Mexico Disposition, which has been calculated as follows:

 

Proceeds

 

$

 500.0

 

 Less:

 

 

 

Purchase price adjustments:

 

28.4

 

Carrying value of properties

 

188.9

 

Asset retirement obligation

 

(34.9

)

Transaction costs

 

0.2

 

Pre-tax gain

 

$

317.4

 

Income taxes @ 35%

 

(111.1

)

Pro-forma gain on the disposition, net of tax

 

$

206.3

 

 

The actual gain will depend on the book values of the disposed properties and related liabilities at the closing date.  The gain has not been reflected in the accompanying pro forma condensed consolidated income statements.

 

e)                   Represents $6.4 million of deferred losses in accumulated other comprehensive income as of March 31, 2006 that will be reclassified to earnings due to the loss of hedge accounting on certain derivative contracts designated as hedges against a portion of the Company’s Gulf of Mexico production.  This one time charge is based on the fair value of the Company’s derivative contracts as of March 31, 2006 and has not been reflected in the accompanying pro forma condensed consolidated income statements.  The actual charge will be based on the fair value of these derivative contracts subsequent to March 31, 2006 when the transaction is completed.  Subsequent to the sale, the derivative contracts associated with the Gulf of Mexico Disposition will continue to be carried on the Company’s balance sheet at fair value with changes in fair value reflected on a mark to market basis in our income statement.  For purposes of the pro forma income statement presentation, we have not reflected any mark to market adjustments associated with changes in fair value of the derivative contracts that will lose hedge accounting in conjunction with the Gulf of Mexico Disposition.

 


 

f)                     Represents adjustments to remove the historical revenues, operating expenses and capitalized interest associated with the properties subject to the Gulf of Mexico Disposition and the related income taxes calculated using the 35% statutory U.S. federal tax rate.

 

g)                  Represents the reversal of historical Northrock depreciation, depletion, and amortization expense.

 

h)                  Represents the pro-forma depreciation, depletion, and amortization expense based on the allocation of the Northrock purchase price to depreciable and depletable assets.

 

i)                      Represents the pro-forma interest expense and amortization of debt issuance costs on the 6.875% Senior Subordinate Notes due 2017 issued to partially fund the acquisition of Northrock.

 

j)                      Represents pro forma interest expense on the proceeds under the Company’s bank credit facility used to partially fund the acquisition of Northrock.  For purposes of the pro forma financial information, the Company has assumed an interest rate on the bank credit facility of 4.41%.  A 1/8% variance in this rate would change interest expense by $256,000 per year.

 

k)                   Represents the reversal of interest income related to a note receivable from Northrock’s former parent.  The note receivable was eliminated as part of the Northrock acquisition.

 

l)                      Represents the capitalization of interest based on the allocation of the Northrock purchase price to unproved oil and gas properties using a weighted average borrowing rate of 5.1%.

 

m)                Represents income tax expense on the pro forma adjustments based on the applicable statutory rate (including state and provincial taxes) of 36.5% for U.S. adjustments and 39.5% for Canadian adjustments.