Pogo's Chairman and Chief Executive Officer, Paul G. Van Wagenen said, "Pogo's near-record first quarter natural gas production, combined with unusually high average natural gas and crude oil prices, resulted in best-ever quarterly revenues and cash flows. First quarter net income was affected by Pogo's very active drilling program. The continuation of strong energy fundamentals prompts Pogo to seek further growth through a combination of accelerated exploratory drilling and opportunistic acquisitions. Current market conditions also provide Pogo an opportunity to enhance its already strong balance sheet by taking a conservative approach to discretionary developmental drilling while drilling and service costs remain extraordinarily high."
PRODUCTION AND PRICES
In the first quarter of 2005, the company produced a daily average of 48,767 barrels of liquid hydrocarbons, including crude oil, condensate and plant products, down 10% from an average of 54,245 barrels per day produced during the first quarter of last year. However, Pogo produced a near-record 335.1 million cubic feet of natural gas per day (mmcf/d), up 12% from 299.6 mmcf/d produced during the first quarter of 2004.
Natural gas prices averaged $5.20 per thousand cubic feet (mcf) in the 2005 first quarter, up 9% from $4.79 per mcf in the same quarter of 2004. Average oil and condensate prices also rose to $45.15 per barrel, up 29% from $35.13 per barrel in the same quarter of last year.
FIRST QUARTER DRILLING RESULTS
Pogo drilled 88 gross wells during the first quarter, successfully completing 80 of them, a 91% success rate. There are 226 gross wells in Pogo's 2005 capital and exploration budget, including 45 exploration wells. This first quarter drilling pace puts Pogo a bit ahead of schedule.
THE OUTER CONTINENTAL SHELF (O.C.S.)
As announced in March, Pogo recorded an exploratory discovery with its Ewing Bank Block 948 No. 1 well in the Pleistocene Ang-B interval, between 13,710 and 13,910 feet subsea. Production from that discovery well could begin by mid-2006. With the earlier discovery at Main Pass Block 72 No. 5, the current six-well offshore exploratory program is now complete. Later this year, further offshore exploration is budgeted for the Eugene Island and Chandeleur Sound areas. Other offshore exploration opportunities are now being studied for possible drilling in late 2005, perhaps including one or more of the four new lease blocks upon which Pogo was high bidder at the March federal O.C.S. lease sale.
THE PERMIAN BASIN
In the first quarter, 36 Permian Basin wells were drilled, 34 of which were successfully completed as producers, and 34 more were being drilled, completed or tested as the quarter ended. Notable among the successes was the Pogo-operated, 54% Pogo-owned, Lea County, New Mexico, Foxglove 29 Federal No. 1 that flowed 2.5 mmcf/d from the Middle Morrow formation. Several offset drilling locations could be identified in the near future depending upon production performance.
Elsewhere in the Permian Basin, the 100%-owned Britt 4-14 in Wheeler County, Texas, flowed 1.8 mmcf/d from the Atoka Wash formation at 15,410 feet subsurface. Several more 2005 wells are planned for that area. Also of note, Pogo drilled three first quarter horizontal wells targeting the Brown Dolomite formation at a vertical depth of only 3,300 feet subsurface, in the Borger and Bivins field areas in the Texas panhandle. Those three wells flowed on test at an average rate of about 1 mmcf/d per well.
THE ONSHORE GULF COAST
Pogo drilled nine straight successful first quarter wells in the onshore Gulf Coast area. Seven of those successes were in the Zapata County, Texas, Los Mogotes and South Hundido fields. Among the seven were the Cassin No. 4, 49% Pogo-owned, which tested at 7 mmcf/d, and the Haynes No. 140, 70% Pogo- owned, which flowed 5 mmcf/d. A previously reported first quarter exploratory success was the South Rosita Prospect, Hoffman 116 No. 1, 47% Pogo-owned, in Duval County, Texas, which will be completed within 45 days to produce from two zones at a combined rate of up to 10 mmcf/d.
During the first quarter, 13 wells were drilled in the Wind River Basin Madden field, targeting the Lower Fort Union formation, yielding 11 successes, with 13 more Madden field wells being drilled or completed as the quarter ended. Pogo generally owns about 14% of the Madden field.
Although Pogo's 100%-owned Natrona County, Wyoming, Crockett Ridge 13 Federal No. 1 well was unsuccessful in testing the Lower Fort Union and Lance formations during the first quarter, there are believed to be several additional, drillable prospects on Pogo's 16,000-acre Crockett Ridge leasehold inventory. At least one of those prospects will be drilled in 2005, as well as a similar Lower Fort Union exploration well in the nearby Polo prospect area, which Pogo also solely owns.
THE GULF OF THAILAND
Twenty-five wells, all successful, were drilled during the first quarter on Pogo's 46.34%-owned Gulf of Thailand Block B8/32. The first quarter drilling program included development wells on Tantawan field platforms "E" and "C," and Benchamas field platforms "F" and "J." Additionally, two first quarter exploratory discoveries, the Benchamas No. 28, which logged 365 feet of pay, and Chaba No. 4 that discovered pay thickness of 71 feet, each confirm future platform locations.
On March 31, Pogo and its partners applied for two new Production License Areas covering all of the remaining exploration acreage within Block B8/32. When, and if, the applications are granted, all of the approximately 608,000 acres in Gulf of Thailand Block B8/32 will be held as production licenses by Pogo and its partners for many years to come.
New 3-D seismic data has been shot across a significant portion (about 429,000 acres) of Pogo's license blocks located in the northern portion of the Taranaki Basin. The entire Pogo license area spans some 1,043,000 acres. The data is now undergoing final processing, and should be ready for analysis by Pogo's international geoscience team by the middle of this year. It is our hope that several viable exploratory prospects will be identified, allowing Pogo to undertake a multiple well drilling program beginning in the first half of 2006.
THE THAILAND/HUNGARY SALES PROCESS
Steps leading to the possible sale of Pogo's Thailand and Hungary assets are presently being undertaken. Data rooms are open and filled with apparently interested prospective bidders. Bids must be submitted to Pogo by late May. If bids are received for Thailand, Hungary, or both, that are deemed adequate, Pogo will sell those assets, and tax-efficiently repatriate the proceeds, during 2005. If Pogo does not receive a bid that it deems adequate, the properties will not be sold.
SENIOR SUBORDINATED NOTES PLACED IN FIRST QUARTER
As was previously announced, on March 29, Pogo placed, in a private offering, $300 million of 6-5/8% senior subordinated notes due 2015. The net proceeds from the notes were used to reduce outstanding senior indebtedness under Pogo's revolving credit facility.
QUARTERLY DIVIDEND DECLARED
The Board of Directors has declared a cash dividend of $0.0625 (six and one-fourth cents) per share of common stock, to be paid on May 27, 2005 to shareholders of record on May 13, 2005.
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