Houston-based independent Pogo Producing Co. is gearing up to expand exploration in the deepwater Gulf of Mexico (GOM) through the end of the year, after the board of directors upped the capital expenditure budget by 36%. Every operating division of the company will share in the increased funding, but most of the money will be directed toward drilling of at least five new high-potential GOM exploration prospects.
“Perhaps a keynote of Pogo’s mid-year report is the marked acceleration of exploration activity planned for the balance of 2004,” said CEO Paul G. Van Wagenen on Tuesday. “Of particular interest are a handful of deeper outer continental shelf (OCS) wells scheduled for drilling late this year.” Most of the new GOM prospects, he said, were acquired in the Minerals Management Service lease sale in March 2004.
The $150 million capital budget increase, which now totals $565 million for the year, includes $85 million more earmarked for additional drilling on the OCS. The budget will give Pogo money to prospect at least five exploratory wells targeting deeper than usual depths, ranging between 14,000-21,000 feet subsea. The exploration prospects have been developed with 3-D seismic information. In such projects, both the target sizes and expected costs will be larger.
“We had planned to redouble our 2004 Gulf of Mexico exploratory budget from the very moment it was set last January, contingent upon award of the lease sale blocks by the Minerals Management Service, and a continuation of strong energy prices,” said Van Wagenen. “Those conditions have been met and we are eager to begin drilling in the fourth quarter.”
Pogo’s new plans for the deepwater GOM were announced the same day it also released a less-than-stellar 2Q earnings report. However, while crude and liquid oil production was down worldwide, natural gas production grew 12% over a year ago, averaging 338.1 MMcf/d, compared with 301.7 MMcf/d.
Quarterly earnings were off 18.2%, falling to $65.2 million ($1.02/share) from $79.7 million ($1.29) for the same period of 2003. The quarter’s results included a charge of 11 cents/share on the early redemption of outstanding notes, which are designed to save the company $11 million a year in interest. However, without the charge, Pogo was still below Wall Street’s earnings forecast of $1.33/share.
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