Pogo Producing Co. expects to make $700-800 million from the sale of a boatload of nonstrategic North American oil and natural gas properties. The Houston-based independent selected the assets from its holdings in the Gulf of Mexico, South and East Texas, South Louisiana, the Permian Basin, Texas Panhandle and Western Canada.

Pogo, which said it would use the proceeds from the sales to reduce its debt, expects to close the sale of the Gulf, Texas and Louisiana properties in the first three months of 2007. The properties included in the first phase of the sale, which total 125,000 gross leasehold acres, are expected to produce oil and natural gas equal to 37 MMcfe/d in 2007, and they represent more than 90 Bcfe of proven, probable and possible reserves, Pogo said. The second phase of the sale, covering properties in the Permian Basin, Texas Panhandle and Canada, should begin in early 2007 and be completed by mid-year.

All together, Pogo owns about 4.8 million gross leasehold acres in North America. It also holds about 3 million acres in New Zealand and 1.5 million acres in Vietnam. At the end of last year, Pogo’s estimated proved net reserves were 2,042 Bcfe, which included 144 million barrels of oil and 1,178 Bcf of natural gas.

“We are constantly evaluating our assets, in order to high-grade our operations and strengthen our balance sheet,” said CEO Paul G. Van Wagenen. “Consistent with our previously stated goal of reducing risk and enhancing investment value to our shareholders, we have initiated a review of all of Pogo’s assets to determine where to deploy our resources most effectively.”

Van Wagenen said the sale will “further concentrate Pogo’s asset base into one that is more capable of steady, predictable growth, as well as reducing unit operating costs, improving capital efficiency and increasing Pogo’s profitability.” Jefferies Randall & Dewey, a division of Jefferies & Co. Inc., will assist in the initial sale process.

Standard & Poor’s analyst Ben Tsocanos said last week the ratings and outlook on Pogo would not immediately change from “BB/Negative/–.” But he noted the move is a “meaningful step toward addressing debt leverage that we regard as very aggressive for the current rating.”

Friedman Billings Ramsey noted the asset sale should reduce Pogo’s exposure to “shorter-lived GOM/Gulf Coast assets, improve unit cost structure, and strengthen the balance sheet.” Analysts also thought the sale would serve as a “proxy for our net asset value (NAV) for the company. Our discounted cash flow-based NAV calculation implies nearly a $90/share NAV, or a value of $3.04/Mcfe of proved reserves. If the noncore/marginal assets are sold for proximal value (which we believe it will), it would validate our NAV calculation.”

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