Houston-based Pogo Producing Co. is apparently ready to announce as early as today the $1.8 billion acquisition of Northrock Resources, which owns the western Canada crude-oil and natural-gas properties of Unocal Corp. Pogo has long been one of the best managed and most profitable independent exploration and production companies in Houston, although it’s stock price has not kept pace with industry competitors during the recent run-up in energy prices over the past year.
Inasmuch as Pogo has a market cap of about $3.3 billion, the acquisition is a big bite for the company, which has been selling off interests in a couple of foreign countries recently to raise cash for the transaction. The deal will increase Pogo’s proven oil and gas reserves by 45% as the company will acquire 644 billion cubic feet of natural gas equivalent of estimated proven reserves on about 300,000 acres in Western Canada and another 1.1 million of undeveloped acres. Pogo projects that the Northrock properties contain more than 200 billion cubic feet equivalent of very high quality probable reserves and another 500 billion cubic feet equivalent of possible reserves. The deal reflects Pogo’s bet that energy prices will remain high for the forseeable future, and the company has entered into hedging investments to cover most of its production volumes through 2007 in an effort to protect its rate of return on the investment.
The well-managed but relatively small Pogo is an attractive acquisition target itself in the hot energy industry, but Pogo’s longtime chairman and CEO, Paul G. Van Wagenen — an attorney by background who is one of Houston’s most unassuming and delightful business executives — has built Pogo systematically over the past 35 years and simply will not give up Pogo’s independence unless a takeover deal is too sweet for Pogo’s shareholders to turn down.