SHAREHOLDERSDEAR

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Pogo’s first quarter was, in many ways, the most productive and rewarding

in its 34-year history. Pogo produced more crude oil and natural gas than in

any previous calendar quarter. In so doing, Pogo generated more free cash to

pay for the new projects underway and on the drawing board, and retired

a significant portion of its outstanding debt as well.

Pogo’s recent drilling success has caused it to stand out from its peers.

Without any meaningful 2002 property acquisitions, Pogo’s equivalent oil

and gas production rates jumped 38%. First quarter 2003 production levels

are up another 20% from the full year of 2002, and 30% from the

comparable 2002 first quarter.

Pogo’s first quarter 2003 liquids production, including crude oil, condensate

and plant products, topped 60,000 barrels per day for the first time ever,

totaling 67,602 barrels per day. That number is up from the 2002 average of

51,840 barrels per day.

Natural gas production last year averaged 279 million cubic feet per day

(mmcf/d). First quarter 2003 natural gas production surpassed 300 mmcf/d

for the first time ever, totaling 304.8 mmcf/d. When measured on an energy

equivalent basis, Pogo produced 118,394 equivalent barrels per day in the

quarter just ended.

Pogo is off to a very good start in 2003. Our production targets were reached

at Main Pass Blocks 61/62 field a bit ahead of schedule. Stabilized production

from our fine Mississippi Canyon Blocks 661/705 field also arrived early.

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Pogo’s biggest first quarter production jump, however, came in the

Gulf of Thailand. We must always allow for regular mechanical downtime on

those large offshore facilities; however, during the first quarter, downtime

simply did not occur. Moreover, natural gas nominations by the Petroleum

Authority of Thailand (PTT) were unusually high. Higher gas deliveries, in

turn, resulted in higher production of associated liquid hydrocarbons.

High companywide production combined with lofty energy prices yielded a

very good first quarter. Pogo reported net income of over $88 million, or $1.45

per share, on revenues of over $310 million. Those numbers reflect large

increases compared to the first quarter of last year when Pogo recorded just

over $9 million of net income, or $0.17 per share, on revenues of just under

$143 million. Pogo’s free cash flow allowed us to continue to fund an active

drilling program and still retire a very significant amount of outstanding debt.

Pogo’s gross debt at year-end 2002 stood at $725 million. It was reduced

during the last 90 days by $135 million, to end the first quarter at $590 million.

Pogo’s net debt is another $150 million lower yet.

THAILAND

Pogo scored ten out of ten in first quarter wells drilled in the Gulf of

Thailand. During much of the quarter, only the GlobalSantaFe

"Compact Driller" rig was busy on our license, but the "Ensco 50" has now

returned, setting up a two rig second quarter. Nine of the ten first quarter

Thailand wells were developmental in nature, expanding the capacity of

Tantawan platforms "A" and "B." Remember, those platforms began producing

back in 1997. Yet, based on reservoir pressures, untapped pay sands were

encountered in each of the nine wells. The lone Thailand exploration well

drilled during the quarter was the Benchamas No. 27, and it was a good one,

discovering a structure containing 210 feet of net oil and gas pay, enough

to justify locating a future Benchamas field production platform in that

vicinity. When ordered, built and placed, that new Benchamas platform would

be placed very near Jarmjuree field’s northern boundary.

At least 16 development wells, all in Benchamas field and six exploration

wildcats located all across Block B8/32 are planned for second quarter

drilling. Meanwhile, the next eight platforms are already in the works,

promising continued future growth in the Gulf of Thailand.

THE GULF OF MEXICO

In the Gulf of Mexico, Pogo and its partners drilled an exploratory discovery

well at Chandeleur Sound Block 69, No. 1, encountering 40 feet of new natural

gas pay. It will be followed shortly by another exploration well, the

Chandeleur Sound Block 70, No. 1. Chandeleur Sound should begin producing

in the third quarter and the natural gas will be transported to Pogo’s nearby

facilities at Main Pass Block 10.

Pogo’s 100%-owned Main Pass Blocks 61/62 field well B-5 was a fine first

quarter success, expanding the uphole BA4AA sand lobe in the southern part

of Block 62. The new well is already on stream and is producing at a rate of

3,000 barrels per day.

ONSHORE OPERATIONS

In the Permian Basin, 28 wells were drilled, with 27 of them completed as

producers in the first quarter, and another 13 wells were being drilled as

the quarter ended. Drilling included 17 lower ownership Aldwell Spraberry

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to be on track. We are moving along smoothly in bidding and selecting drillers

and service providers for each of the planned wells. Our geoscientists are

refining their locations for the first six prospects. We will keep you posted as

we begin drilling.

Pogo had a very fine first quarter, busy with good results, and the second

quarter promises to be busier still.

Faithfully,

PAUL G. VAN WAGENEN

Chairman, President and

Chief Executive Officer

field wells. Among the larger-interest first quarter Permian Basin wells,

several were notable including the Pecos 33 Federal, No. 2, in Eddy County,

New Mexico. Pogo owns two-thirds of it. It tested at over 10 mmcf/d from the

Morrow, but we have decided to be safe, not greedy, and produce it at a

steady 5 mmcf/d. That success has set up two or three other wells, including

the Pecos 32 State, No. 1.

Our most recent Neff field well, the Livingston Ridge 19, No. 1, which is

100%-owned by Pogo, was drilled in the first quarter and is now producing

430 barrels and .3 mmcf/d. Two other wells have been drilled in this same

trend, and are awaiting completion units.

In the Gulf Coast onshore region, Pogo was eight out of eight with four wells

still drilling as the quarter ended. Four of the natural gas successes were in

Pogo’s 67%-owned Los Mogotes field. The other four include a 100%-owned

South Hundido field well, the Benevides Trust, No. 2, which is producing at

2.6 mmcf/d. Also notable, was the 65%-owned Mujeres Creek Winch No. 20

well, now producing 3.5 mmcf/d.

At Madden field in the Wind River Basin of central Wyoming, where Pogo

owns about 11%, the five mile deep Bighorn 9-4 well finished drilling in March

and is now being completed. It logged 240 feet of natural gas pay. Elsewhere

at Madden field, seven shallow Lower Fort Union formation wells were

successfully drilled during the first quarter.

EUROPEAN OPERATIONS

In Hungary, we are seeing nothing but green lights ahead relative to a third

quarter start for our drilling program.The regulatory compliance process seems

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Revenues:Oil and gas

Other

Total

Operating Costs and Expenses:Lease operating

General and administrative

Exploration

Dry hole and impairment

Depreciation, depletion and amortization

Production and other taxes

Accretion and other

Total

Operating Income

Interest:Charges

Income

Capitalized

Minority Interest:Dividends and costs associated with preferred securities of a subsidiary trust

Foreign Currency Transaction GainIncome Before Taxes and Cumulative Effect of Change in

Accounting PrincipleIncome Tax ExpenseIncome Before Cumulative Effect of Change in Accounting PrincipleCumulative Effect of Change in Accounting PrincipleNet Income

Earnings Per Common ShareBasic

Income before cumulative effect of change in accounting principleCumulative effect of change in accounting principleNet income

Diluted

Income before cumulative effect of change in accounting principle

Cumulative effect of change in accounting principle

Net income

Dividends Per Common Share

Weighted Average Number of Common Sharesand Potential Common Shares Outstanding:

Basic

Diluted

See accompanying notes to consolidated financial statements.

Three Months Ended March 31,

2003 2002(Expressed in thousands, except per share amounts)

$ 309,867 $ 142,297

887 613

310,754 142,910

33,089 28,472 13,372 11,542

1,832 (176)

2,178 4,995

80,419 65,806

8,954 2,811

3,076 181

142,920 113,631

167,834 29,279

(13,695) (14,588)

387 378

4,014 6,653

— (2,502)

226 672

158,766 19,892

(66,123) (10,867)

92,643 9,025

(4,166) —

$ 88,477 $ 9,025

$ 1.52 $ 0.17(0.07) —

$ 1.45 $ 0.17

$ 1.44 $ 0.17 (0.07) —

$ 1.37 $ 0.17

$ 0.05 $ 0.03

61,157 53,75065,128 54,487

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

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CONSOLIDATED BALANCE SHEETS

March 31, December 31,

2003 2002

(Expressed in thousands, except per share amounts)

ASSETS

Current Assets:Cash and cash equivalents $ 144,838 $ 134,449

Accounts receivable 140,246 101,807

Other receivables 30,008 14,634

Deferred income tax 2,250 20,041

Inventories - Product 5,399 2,501

Inventories - Tubulars 7,913 9,406

Other 1,917 4,818

Total current assets 332,571 287,656

Property and Equipment:Oil and gas, on the basis of successful efforts accounting

Proved properties 3,503,335 3,396,669

Unevaluated properties 137,250 141,094

Other, at cost 27,525 26,626

3,668,110 3,564,389

Accumulated depreciation, depletion and amortization

Oil and gas (1,446,648) (1,389,976)

Other (16,515) (15,364)

(1,463,163) (1,405,340)

Property and equipment, net 2,204,947 2,159,049

Other Assets:Deferred income tax 2,416 2,416

Debt issue costs 10,889 11,368

Foreign value added taxes receivable 14,865 13,908

Other 19,887 17,196 48,057 44,888

Total Assets $ 2,585,575 $ 2,491,593

See accompanying notes to consolidated financial statements.

March 31, December 31,

2003 2002

(Expressed in thousands, except per share amounts)

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current Liabilities:Accounts payable - operating activities $ 57,274 $ 41,102

Accounts payable - investing activities 70,347 68,963

Accrued interest payable 15,124 11,096

Income taxes payable 59,649 15,527

Accrued payroll and related benefits 3,039 3,011

Deferred income tax 5,324 5,324

Price hedge contracts 6,968 2,433

Other 6,821 2,229

Total current liabilities 224,546 149,685

Long-Term Debt 587,988 722,903 Deferred Income Tax 520,122 526,897 Asset Retirement Obligation 65,409 —

Other Liabilities and Deferred Credits 18,177 14,324

Total liabilities 1,416,242 1,413,809 Commitments and Contingencies — —

Shareholders’ Equity:Preferred stock, $1 par; 4,000,000 shares authorized — —

Common stock, $1 par; 200,000,000 shares authorized,

61,379,292 and 61,061,888 shares issued,

respectively 61,379 61,062

Additional capital 830,882 822,526

Retained earnings 287,577 202,155

Accumulated other comprehensive income (loss) (8,795) (6,249)

Treasury stock (55,359 shares), at cost (1,710) (1,710)

Total shareholders’ equity 1,169,333 1,077,784

Total Liabilities and Shareholders’ Equity $ 2,585,575 $ 2,491,593

See accompanying notes to consolidated financial statements.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

Cash Flows from Operating Activities:Cash received from customers Operating, exploration, and general and administrative

expenses paidInterest paidIncome taxes paidIncome taxes receivedValue added taxes paidPrice hedge contractsOther

Net cash provided by operating activities

Cash Flows from Investing Activities:Capital expendituresProceeds from the sale of properties

Net cash used in investing activities

Cash Flows from Financing Activities:Borrowings under senior debt agreementsPayments under senior debt agreementsPayments of cash dividends on common stockPayments of preferred dividends of a subsidiary trustPayment of debt issue costs Proceeds from exercise of stock options

Net cash used in financing activitiesEffect of exchange rate changes on cash

Net increase in cash and cash equivalentsCash and cash equivalents at the beginning of the yearCash and cash equivalents at the end of the period

Reconciliation of net income to net cash provided by operating activities:Net income

Adjustments to reconcile net income to net cash provided by operating activities - Cumulative effect of change in accounting principle Minority interestAccretion and other Losses from the sales of propertiesDepreciation, depletion and amortizationDry hole and impairment Interest capitalizedPrice hedge contractsDeferred income taxesChange in operating assets and liabilities

Net Cash Provided by Operating Activities

See accompanying notes to consolidated financial statements.

Three Months March 31,

2003 2002(Expressed in thousands)

$ 294,921 $ 115,219

(49,734) (42,624)(9,001) (10,252)(5,000) —

— 25,103

(957) (2,360) (10,267) 11,672

4,013 (692)

223,975 96,066

(82,243) (87,491)— 14

(82,243) (87,477)

118,999 183,999 (254,000) (189,000)

(3,055) (1,611)— (2,438)

(100) (111)6,767 6,300

(131,389) (2,861)46 (37)

10,389 5,691 134,449 94,294

$ 144,838 $ 99,985

$ 88,477 $ 9,025

4,166 —— 2,502

4,101 (672)62 262

80,419 65,806 2,178 4,995

(4,014) (6,653) 1,119 2,662

17,001 7,546 30,466 10,593

$ 223,975 $ 96,066

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CORPORATE ADDRESS

Pogo Producing Company

5 Greenway Plaza, Suite 2700

P.O. Box 2504

Houston, Texas 77252-2504

(713) 297-5000

www.pogoproducing.com

WESTERN DIVISION

300 North Marienfeld, Suite 600

P.O. Box 10340

Midland, Texas 79702-7340

(915) 685-8100

THAIPO LIMITED

8th Floor, M. Thai Tower

All Seasons Place

87 Wireless Road

Khwaeng Lumpini, Khet Patumwam

Bangkok 10330, Thailand

011-662-654-0686

POGO HUNGARY LTD.

1054 Budapest

Kalman Imre U. 1.

Hungary

011-361-475-1390

P.O. Box 2504Houston, Texas 77252-2504www.pogoproducing.com

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