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Activist Hedge Fund Calls Pogo 'Attractive Investment'

New York-based hedge fund Third Point LLC, which last year became the biggest shareholder in Western Gas Resources before its high-profile acquisition by Anadarko Petroleum Corp., on Tuesday announced it had purchased a 7.2% stake in independent producer Pogo Producing Co. Third Point also holds options to purchase another 200,000 shares.

Third Point, run by Chief Investment Officer Daniel Loeb, acquired the Pogo shares as "an attractive investment," and noted it may hold discussions with third parties or the Houston-based producer regarding potential changes to operations, strategy, management or capital structure to enhance shareholder value. Third Point's purchase of 4.2 million shares in Pogo was disclosed in a Schedule 13D filing with the Securities and Exchange Commission on Tuesday. Third Point had no stake in Pogo when the third quarter ended on Sept. 30, and on the news, Pogo's shares rose more than $3 to trade at $50.77.

Last year Third Point acquired an 8.6% stake in Western Gas Resources and became its largest shareholder. The fund then urged the producer to buy back 10-15% of its shares from the market to increase shareholder value (see Daily GPI, Aug. 19, 2005). Third Point also urged management to put a portion of its assets into a master limited partnership, and it offered to serve on Western Gas's board and fill a seat vacated by a retiring director.

Anadarko purchased Western Gas earlier this year in a mega-transaction that included the purchase of Kerr-McGee Corp. (see Daily GPI, June 26). Interestingly, Kerr-McGee in early 2005 was targeted by activist financier Carl S. Icahn and Icahn Partners, which had bought nearly 9% of the company and then urged changes (see Daily GPI, Feb. 25, 2005). Under pressure from Icahn, Kerr-McGee sold off its chemicals business and became a pure-play oil and natural gas producer before Anadarko's acquisition (see Daily GPI, April 3).

Pogo, which was incorporated in 1970, owns approximately 4.8 million gross leasehold acres in major oil and gas provinces in North America, 6.35 million acres in New Zealand and 1.48 million acres in Vietnam. At the end of 2005, Pogo had estimated proved net reserves of 2,042 Bcfe of gas, or about 144 million bbl of oil and 1,178 Bcf of natural gas. Its market capitalization was approximately $2.7 billion on Dec. 31, 2005.

Earlier this year, Pogo said it would sell about half of its Gulf of Mexico leasehold interests to fund its $750 million acquisition of Latigo Petroleum Inc. (see Daily GPI, April 24; April 18). In October, Pogo announced it would sell other domestic noncore assets, beginning with some Outer Continental Shelf (OCS) properties and onshore Gulf Coast properties in a process expected to close in early 2007 (see Daily GPI, Oct. 19). A second phase targeting noncore assets in the Permian Basin, the Texas Panhandle and western Canada will kick-off in early 2007, and could close around mid-year. Pogo sold some assets in Thailand in 2005.

In 3Q2006, Pogo's average daily liquids production rose to 35,258 boe/d. Natural gas production averaged 273.7 MMcf/d, compared with 222.5 MMcf/d in 3Q2005. Its quarterly production continued to be impacted by the shut-in of more than one-third of Pogo's OCS volumes due to the hurricanes Katrina and Rita. Approximately 8 MMcf/d of Pogo's net offshore natural gas production capacity and 3,100 b/d of crude oil production were still being postponed at the end of the quarter and were expected to continue until completion of repairs to gathering and terminaling facilities, as well as joint venture-owned platform facilities.

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