S&P lowers Pogo Producing, rates notes B+

Standard & Poor's said it lowered its corporate credit rating on Pogo Producing Co. to BB from BB+, the subordinated debt rating to B+ from BB and the preferred stock rating to B from B+ and removed the ratings from CreditWatch with negative implications.

At the same time, S&P assigned its B+ rating to the company's proposed $350 million senior subordinated notes due 2017.

The outlook is stable.

Proceeds from the note issuance will be used to fund a portion of the company's proposed $1.8 billion purchase price of Northrock Resources Ltd.

S&P said the downgrade reflects Pogo's increased debt levels to about $1.7 billion from $880 million to finance its acquisition of Northrock from Unocal Corp., resulting in a significant increase in Pogo's overall leverage to about $5.00 per barrel of oil equivalent from $2.55 per barrel of oil equivalent as of Dec. 31, 2004. Furthermore, the rating action also incorporates Pogo's more aggressive initiatives in 2005, declining production levels, increasing costs and Pogo's most recent operational underperformance in 2004.

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