Plains Exploration & Production Co., Houston, (NYSE: PXP) plans to acquire Pogo Producing Co., Houston, (NYSE: PPP) for $1.5 billion in cash and approximately $2.1 billion in stock in a total deal valued at approximately $3.6 billion.

Pogo shareholders will receive 0.68201 Plains share and $24.88 in cash per Pogo share, a 19% premium to the pre-announcement value of Pogo shares. Plains shareholders own approximately 66% of the combined company.

Pogo has 432 productive and 56 dry gross wells on 5.1 million gross lease acres in North America, 6.3 million gross acres in New Zealand and 1.5 million gross acres in Vietnam with additional assets in Canada and the Gulf of Mexico.

The deal values Pogo's assets at approximately $16.4 per proved BOE, according to Morgan Stanley.

Following its sale of Calgary unit Northrock Resources Ltd. to Abu Dhabi National Energy Co. PJSC, Abu Dhabi, UAE, (Abu Dhabi: TAQA) Pogo's production will be approximately 47,000 BOE per day. Proved reserves, excluding the Northrock assets, are 1.3 trillion cu. ft. of gas equivalent (219 million BOE, 65% gas).

Pro forma, Plains will have proved reserves of approximately 635 million BOE and proved, probable and possible reserves of 1.4 billion BOE. Plains plans to form an MLP to include 75% of its assets post-closing of the Pogo deal.

Plains chairman, president and chief executive James C. Flores says, "This transaction almost doubles PXP's production with the addition of substantial producing properties and significant growth potential in Texas, primarily the Panhandle, Permian and Gulf Coast, plus the prolific Madden Field in Wyoming and the San Juan Basin in New Mexico.

"Since most of the Pogo assets are complementary to the profiles of the PXP assets, with long production lives and low decline rates, PXP will now be positioned to create one of the best-in-class MLPs in the E&P marketplace."

Pogo chairman, president and CEO Paul G. Van Wagenen says, "This transaction...creates a combined company with impressive financial and operational strength able to successfully capture the best of opportunities in our industry. We look forward to a prosperous future of great accomplishments benefiting our shareholders."

Two members of the Pogo board will join the Plains board at closing. Lehman Brothers Inc. is financial advisor to Plains and Goldman, Sachs & Co. and TD Securities Inc. are financial advisors to Pogo. The deal is expected to close in the fourth quarter.

Standard & Poor's Ratings Services has affirmed Plains' BB corporate credit rating following the announcement, and revised the CreditWatch status on Pogo from BB to Negative from Developing.

S&P credit analyst Jeffrey Morrison reports, "The affirmation of the PXP ratings reflects the significant (55%-60%) equity component of the proposed transaction financing. In addition, PXP's business-risk profile should benefit from additional onshore reserve scale and added basin diversity."

He adds that the CreditWatch on Pogo is if the Plains acquisition does not proceed. Following its sale of its Canadian assets, Pogo has a reduced reserve and production base, and uncertainty remains regarding the company's strategic options in the event that the Plains deal fails to close.

At the close of the transaction, S&P expects to make Pogo's debt ratings match those of Plains.

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