The acquisition of Latigo and its assets in the Permian Basin and Texas Panhandle is expected to:
Under the agreement, Pogo will acquire 275 bcfe of estimated proven reserves on approximately 404,700 net acres. Latigo's reserves are 49% natural gas and 51% oil. Beyond the proven reserves, Pogo believes that Latigo's properties contain high quality probable reserves and significant exploration potential. After allocating $60 million of the purchase price to Latigo's sizeable, as yet unexplored but prospective, leasehold acreage position and its extensive new 3-D seismic database, Pogo's acquisition cost per estimated proven reserves, would be $2.51 per thousand cubic feet equivalent ("mcfe").
BENEFITS OF THE LATIGO TRANSACTION
Critical Mass and Scope. The acquisition provides Pogo with additional critical mass in a core Pogo area in the Permian Basin and panhandle of Texas.
Significant Exploration and Development Opportunities. Latigo's development activities are concentrated in Texas, including the Collie Field in Reeves and Ward Counties, and the Courson Ranches areas located in Roberts and Ochiltree Counties. Key exploration plays have been identified in the 250,000 acres of the panhandle Ranches area.
"We are pleased to announce the acquisition of Latigo, which fits into our strategy to grow Pogo's asset base in North America. Latigo will provide Pogo with a balanced portfolio of proven reserves, low risk development and extensive exploration opportunities," said Paul G. Van Wagenen, Chairman and Chief Executive Officer of Pogo. "The addition of Latigo's properties, in one of Pogo's most active geographic areas, will result in significant, cost- effective growth," Mr. Van Wagenen concluded.
Pogo has entered into costless collars covering about 75% of Latigo's current production volumes extending throughout the remainder of 2006 and full year 2007 and 2008. Pogo has oil costless collars covering 2,500 barrels of oil per day with a floor of $60.00 per barrel and ceiling averaging $84.25 per barrel for the balance of 2006, $60.00 per barrel by $83.15 per barrel for all of 2007, and $60.00 per barrel by $80.13 per barrel for all of 2008. Pogo has gas costless collars covering 15 mmcf/d of gas with floors of $7.00 per mcf and ceilings ranging from $10.60 to $10.70 per mcf for the remainder of 2006; $8.00 per mcf by $13.40 to $13.65 per mcf for all of 2007; and $8.00 per mcf by $12.05 to $12.25 per mcf for all of 2008.
Pogo intends to finance the Latigo acquisition utilizing cash on hand, capacity under its existing revolving credit facility and opportunistic capital market transactions. Regarding 2006 results, Pogo expects to update the full year 2006 guidance on April 25, 2006, in conjunction with the release of the company's first quarter 2006 results. The transaction is subject to customary regulatory approvals and is expected to close during May of 2006.
Pogo Producing Company explores for, develops and produces oil and natural gas. Headquartered in Houston, Pogo owns approximately 3,885,000 gross leasehold acres in major oil and gas provinces in North America, 1,044,000 acres in New Zealand and 1,480,000 acres in Vietnam. Pogo common stock is listed on the New York Stock Exchange under the symbol "PPP."
Latigo is a privately owned exploration and production company that was formed by Latigo Management, Warburg Pincus LLC and JPMorgan Partners in 2002.
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