Nearly two-thirds of Pogo Producing Co.’s Gulf of Mexico (GOM) production, equaling 23,000 bbl/day of crude and 33 MMcf/d of natural gas, continues to be shut in as a result of recent hurricane-related damages, and the losses will affect output in the fourth quarter and possibly longer, the company said Tuesday.

CEO Paul G. Van Wagenen said Hurricane Ivan hit some of Pogo’s most productive offshore blocks, including top producers in the Main Pass Blocks 61/62 fields. “That delayed revenue and cash flow is very material to Pogo’s current quarterly results, and will also impact the fourth quarter and perhaps, but to a much lesser extent, the first quarter of 2005,” said Van Wagenen.

“Production is delayed until the pipeline owners complete their repairs, but the hydrocarbons are not lost,” he said. “They will be produced.” In order to protect Pogo’s cash flow, he said the company has business interruption insurance covering many of the affected blocks. Coverage begins 60 days after the blocks were shut-in and continues until the production is restored.

The Minerals Management Service (MMS) reported on Tuesday that 1.54 Bcf/d of total Gulf gas production and 429,158 bbl/d of oil remain shut in because of damage from Ivan. Nine platforms and one rig are still evacuated. Seven platforms were completely destroyed. A total of 22.1 million bbl of oil and 92.5 Bcf of gas production since Sept. 11 has been deferred because of Ivan, MMS said.

In the third quarter, Pogo’s production averaged 110.6 MMboe/d, about 1.4% lower sequentially and about 3% down from reported volumes in 3Q2003. Hurricane-related disruptions were cited as the biggest reason for the sequential decline, and Hurricane Ivan is estimated to have caused 6,000 boe/d of lost volumes in the third quarter.

Pogo’s natural gas sales for the quarter totaled 338,730 Mcf/d, compared with 284,525 Mcf/d in 3Q2003. For the first nine months, Pogo’s gas sales were 325,537 Mcf/d, compared with 296,919 Mcf/d a year earlier.

Despite the production declines, Pogo upped its 2004 capital expenditure budget by 45%, to $820 million, on the strength of several recent acquisitions. Along with new assets in the San Juan Basin, which were purchased last summer, Pogo has acquired 23 Bcfe of reserves in Lavaca and Hidalgo counties in South Texas from an undisclosed seller. The properties currently net about 6 MMcf/d from the Frio, Vicksburg and Wilcox formations, and up to six new wells are planned for 2005. Closing on the $43.8 million transaction is expected early next month. In mid-September, Pogo also acquired the interest of one of its GOM partners in the South Pass Block 49 field.

Pogo’s 2004 property acquisitions made or announced to date total $302 million in expenditures, or 37% of the newly adjusted $820 million capital and exploration budget. In addition to their exploration potential, the purchases cumulatively total 179 Bcfe of estimated proven reserves. The impact of about 40 MMcf/d of cumulative additional production will mostly impact 2005 when all the property purchases are closed, said the CEO.

“Our balance sheet remains rock solid,” said Van Wagenen. “We will continue to actively seek other attractively priced properties with drilling potential wherever they might be found in our focus areas.”

The Houston-based producer’s 3Q2004 earnings were strong compared to a year ago, with net income of $86.6 million ($1.36/share), on revenues of $364.2 million, compared with net income totaling $67.7 million ($1.07), on revenues of $279.3 million in 3Q2003.

Pogo drilled 94 wells in the third quarter, completing 88 of them as producer, which is a 94% success rate. Additionally, as the third quarter ended, there were 61 wells being drilled, including all of Pogo’s major operating regions. The fourth quarter, weather permitting, should be even busier from the standpoint of exploratory drilling, the company said.

In a research note, Lehman Brothers analyst Thomas Driscoll said that based on Pogo’s hurricane-related downtime, estimated 2004 production should average 110,000-111,000 boe/d, about 4.4% lower than 2003, and “reflect a reduction of 10 MMcf/d and 5,000 bbl/d versus pre-storm estimates.”

The note said, “Production growth, in our opinion, is the main catalyst for Pogo’s stock. The previously announced disappointments in Hungary along with a lackluster U.S. production profile has led the stock to lag its peers.” Driscoll continued, “we do not expect material appreciation until there is more clarity on the 2005 production growth profile.”

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