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Rivals Pogo, Noric to Merge in $750 Million Deal
Houston-based Pogo Producing Co. added to its natural gas asset base last week, announcing it will acquire cross-town rival Noric Corp. for $750 million in cash and debt, upping its reserve base by 63% and increasing its projected annual 2000 production by 35% --- with most of the new assets in natural gas fields in Texas, Louisiana and the Rocky Mountains. Noric is the parent corporation of North Central Oil Corp.
Under the deal, Pogo's oil and gas reserves will increase to 1.38 Tcf, adding to profit immediately upon closing, expected in the first quarter of 2001. Pogo's reserves will stand at 61% gas and 39% oil following the purchase, and the company expects the merger to boost earnings 3% to 7.5% in 2001. Profit will be 15% to 20% higher in 2002 and 2005 and at least 30% higher after that.
Calling Noric's track record "enviable," Pogo CEO Paul Van Wagenen said in a conference call with analysts that Noric had a "laser focus" on finding proven reserves. "We are not a company that buys a lot of things," said Van Wagenen. "We looked for a very long time," before deciding to acquire Noric, he said.
The deal will increase Pogo's proved oil and gas reserves to 1.379 million Bcfe, consisting of 61% gas and 39% oil, up from its current 847.4 Bcfe, with 44% gas and 56% oil at year-end 1999. Pogo's projected annual 2000 production will increase to 165 Bcfe from 122 Bcfe. The deal also extends Pogo's current indicated reserve life by 20%, to 8.3 years.
Pogo's core exploration regions include the Gulf of Mexico, offshore Thailand, the Permian Basin of Texas, Hungary, Canada and the North Sea. Pogo also owns various interests in 106 federal and state Gulf of Mexico lease blocks offshore Louisiana and Texas. North Central's core regions are South and East Texas, South Louisiana and the Rocky Mountains in the Madden Deep Unit. There are also more than 140 identified exploration drilling locations in onshore and offshore Gulf Coast regions.
"Pogo has had a record year in terms of both revenues and production," said Van Wagenen. "Now, through our exciting combination with North Central, we can look forward to building on these successes in the years ahead." He said the transaction enables Pogo to achieve several "key" objectives, including the "significant enhancement of our long-lived North American natural gas position and improved exploration and production potential in our core domestic operating areas in and around the Gulf of Mexico."
Van Wagenen said Pogo expects to realize additional benefits from its increased natural gas production, "which we believe will be the energy commodity of choice for the next several years."
In 1999, Pogo and North Central generated a combined $132.5 million of discretionary cash flow, which is projected to increase by 185% to $378 million in 2000. Pogo plans to hedge a "significant" portion of North Central's gas volumes through at least 2002 to take advantage of the "strong North American natural gas market," said Van Wagenen.
Noric shareholders will receive $315 million of Pogo stock and $315 million in cash. Pogo assumes $120 million in debt. Under the agreement, Pogo will issue approximately 14.2 million common shares if its average closing price is less than $22.25 in a specific period before the transaction closes. If the stock price is more than $27.25, Pogo will issue 11.6 million common shares.
Carolyn Davis, Houston
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