Pogo Producing said Friday it is selling its Thailand assets, including about 341 Bcfe of proved reserves, to PTTEP Offshore Investment Co. Ltd and Mitsui Oil Exploration Co. Ltd. for $820 million in cash, which Pogo plans to use to fund acquisitions and capital projects.
Pogo said it plans to continue to focus on financial discipline, including the repurchase of potentially as much as 12% of its outstanding shares and the curtailment of development drilling because of current high drilling costs. However, the sale of its international assets will fund capital projects and new purchases, said CEO Paul G. Van Wagenen. The transaction is expected to close in the third quarter.
“An important strategic goal of 2005, entering into an agreement to sell our Thailand assets if the right price was offered, has been achieved,” said Wagenen. He said the American Jobs Creation Act of 2004 created unique tax implications that made the value of the sale more attractive. “Given the current strength of the energy market, the demand for high quality international properties, and the one-time tax treatment afforded by the Act, we decided that the divestiture of our licenses in Thailand and Hungary was in the best interests of our shareholders and our company.”
On June 7, Pogo announced the sale of Pogo Hungary Ltd. for $9 million. The company announced plans to sell its international operations in January and to curtail its 2005 discretionary development drilling until costs or drilling efficiencies improved. At the same time, Pogo also announced a stock repurchase program totaling $275-375 million in common stock.
“We expect to resume our discretionary development activities when the costs or drilling efficiencies have improved,” said Wagenen. “In the meantime, we will continue to repurchase shares and strengthen our balance sheet. The proceeds from the Thailand sale will be used to fund capital projects and will enable us to vigorously pursue market opportunities, including acquisitions.”
Lehman Brothers analyst Thomas Driscoll said he expects Pogo to be “active in the M&A space as well as more aggressive in completing its share buyback program” with the proceeds from the sales.
New hydrocarbons added in 2004 to Pogo reserves base in Thailand were equal to 20.2 Bcfe, or about 30% of Pogo’s actual 68.4 Bcfe of 2004 Thailand production. During the first quarter, 25 successful wells were drilled in the Gulf of Thailand on Pogo’s 46.34%-owned Block B8/32.
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