Pogo Producing Co. announced two transactions last week that have it pulling one foot out of the Gulf of Mexico and planting it in the Permian and Anadarko basins.
First, Houston-based Pogo said it is growing its proven reserves by 13% through the acquisition of Latigo Petroleum Inc., a Tulsa-based producer focused on the western and panhandle areas of Texas. Later in the week Pogo said it would sell an undivided 50% of each and all of its Gulf of Mexico leasehold interests to Mitsui companies (Mitsui & Co. Inc. and Mitsui Oil Exploration Co. Ltd.) for $500 million cash, to be used to fund the Latigo acquisition.
Pogo, which set an earnings record last year, is paying $750 million for privately held Latigo in a deal that grows its proven reserves to 2,317 Bcfe, adds under-developed contiguous acreage, extends its reserves life to 10 years and adds more than 400 development and exploration drilling locations.
"The Latigo acquisition involves properties in the Permian Basin of west Texas and southeastern New Mexico and in the Texas panhandle area of the Anadarko Basin," the company said. "Today's Gulf of Mexico sale, combined with the Latigo acquisition, marks a very significant step in solidifying Pogo's onshore North American focus. Pogo will retain the remaining 50% interest in each of its present Gulf of Mexico properties, which will then represent, after these two transactions, slightly more than 6% of Pogo's total prove reserves. Nevertheless, that relatively modest remaining Outer Continental Shelf presence maintains some production capacity and retains the possibility to participate, to some extent, in any significant future discovery which might be made on those offshore blocks."
Onshore, Pogo is acquiring 275 Bcfe of estimated proved reserves on about 404,700 net acres. Latigo's reserves are 49% natural gas and 51% oil. Pogo said it also 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 sizable, as yet unexplored but prospective, leasehold acreage position and its extensive new 3-D seismic database, the acquisition cost per estimated proven reserves would be $2.51/Mcfe.
"Latigo will provide Pogo with a balanced portfolio of proven reserves, low-risk development and extensive exploration opportunities," said Pogo CEO Paul G. Van Wagenen. "The addition of Latigo's properties in one of Pogo's most active geographic areas will result in significant, cost-effective growth."
Latigo's Permian Basin area hydrocarbons are adjacent to many of Pogo's existing fields and are characterized by long reserve life with low decline rates. About 60% of Latigo's reserves and 50% of its production are in this predominantly oil-bearing region. About 40% of Latigo's reserves and 50% of its production are in the Texas panhandle. Pogo is acquiring established fields with significant development potential. Latigo currently has seven rigs operating, and Pogo's drilling agenda for 2006 will include adding two more rigs and drilling more than 100 locations.
Financing will include cash, credit under Pogo's existing facility, and "opportunistic" capital market transactions. The deal is subject to customary approvals and is expected to close in May.
Pogo has about 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.
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