Fir Tree Partners Plans To Vote Against Plains Exploration's (PXP) Acquisition of Pogo Producing (PPP)

In a 13D filing on Plains Exploration & Production Company (NYSE: PXP) earlier today, 9% holder Fir Tree Partners said they plan to vote against the previously announced acquisition proposal of Pogo Producing Company (NYSE: PPP).

The firm said, "Our decision is based upon detailed financial analysis which suggests that a termination of the transaction could result in PXP’s share price appreciating by 70% or more over the ensuing year. Large scale share repurchases are a much more efficient use of shareholder capital given the extreme decline in PXP’s share price that was sparked by the announcement of the PPP deal and the negative natural gas price environment which makes PPP a less attractive/less valuable asset."

NOTE: Daniel Loeb's Third Point LLC is a large holder (7.9%) of Pogo Producing, and led the push to get the company sold. Third Avenue Management also owns a large stake (7%)

A Copy of the Letter:

Dear Mr. Flores (Chair/Pres/CEO),

We are writing to inform you that we currently own, or have the right to control, approximately 9% of Plains Exploration & Production Company (“PXP”) shares and plan to vote against the previously announced acquisition proposal of Pogo Producing Company (“PPP”).

Our decision is based upon detailed financial analysis which suggests that a termination of the transaction could result in PXP’s share price appreciating by 70% or more over the ensuing year. Large scale share repurchases are a much more efficient use of shareholder capital given the extreme decline in PXP’s share price that was sparked by the announcement of the PPP deal and the negative natural gas price environment which makes PPP a less attractive/less valuable asset.

We would like to start by saying we believe the management team at PXP is world class and has done a tremendous job of creating value for shareholders over the past 5 years. Importantly, it has demonstrated an impressive track record of both reserves growth and earnings growth which has translated into meaningful share price appreciation.

When the Pogo deal was announced in July, it initially appeared that it may have been reasonably attractive (though we would have preferred share repurchases) based on (i) the level of near-term cash flow accretion to PXP shares and (ii) the ability to acquire diversified reserves that would help build a best-in-class MLP. Since the announcement, the macro environment and industry fundamentals have changed materially. Most importantly, PXP has lost ~$1 billion in shareholder value as a result of the announcement. In the absence of the deal, we believe PXP could opportunistically repurchase 20-25 million shares (or 30% of the company) with proceeds from asset divestitures. Importantly, such repurchases would not compromise the financial flexibility of the company and it would maintain a Net Debt / EBITDA ratio in the 2.0-2.5x target range.

We believe the deal is no longer attractive to PXP shareholders for the following reasons:

1. Poor Deal Economics – PXP is the cheapest publicly traded exploration and production company of scale in the United States. Even prior to the deal, the market had given PXP minimal credit for its non-cash flow generating portfolio of Gulf of Mexico assets and California real estate, which it planned to divest. When adjusting PXP’s capitalization for the value of these non-core assets, PXP appears significantly cheaper than the target PPP and tremendously cheaper than its publicly traded comparable companies.

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2. Capital Markets Turmoil – The recent correction in the capital markets has materially lowered the value of the Pogo asset base as the equity markets have weakened by 5% and NYMEX natural gas prices are down 5-10% across the curve. The natural gas-weighted asset portfolio of Pogo has been especially impacted by the current environment and the unhedged earnings power of the business has been compromised. Specifically, we believe Pogo’s 2008E EBITDA will be off greater than 10% from levels pre-announcement based on current market pricing. Meanwhile, oil has been generally strong both benefiting PXP’s oil-heavy asset base, while the deep and liquid forward markets provide ample opportunity to hedge production forward.

3. PXP Standalone Assets Attractive for MLP – We strongly support management’s stated plans to move forward with its previously announced MLP formation. PXP’s existing oil-based, long-lived mature properties are ideal for placement into an upstream MLP. While the PPP assets would provide geographic diversity to the current PXP portfolio, we don’t believe this diversity would be awarded with a higher public market valuation. Further, upon completion of PXP’s MLP formation, the Partnership will provide a superior acquisition vehicle for proved developed producing assets similar to Pogo’s.

Importantly, we believe PXP will generate over ~$1 billion in after-tax proceeds over the next twelve months from the opportunistic sale of its non-core assets. Accordingly, the company could use the proceeds from these divestitures to repurchase 20-25 million shares. Assuming the company was valued at comparable company levels, PXP shares would be worth $70-75, representing 70-90% upside from current share levels. We believe upside remains to this valuation if the company successfully completes the formation of an upstream master limited partnership.

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In our view, the steps outlined above will generate much greater value for PXP shareholders than the path you are currently pursuing. We are available to discuss these issues further at your convenience. We look forward to the continued success of PXP under your stewardship.

Kind regards,
Andrew Fredman
Clinton Biondo

Loeb's Third Point LLC Gets Two on Pogo Producing's (PPP) Board

Pogo Producing Company (NYSE: PPP) and Third Point LLC reached an agreement under which Pogo's Board of Directors will be expanded from eight to ten members and Daniel S. Loeb and Bradley L. Radoff of Third Point will be appointed to the Board of Directors effective immediately.

Third Point and its affiliates have agreed not to solicit proxies in connection with Pogo's 2007 annual meeting or take certain other stockholder actions.

Pogo is still actively exploring strategic alternatives.

Link to past reports related to Third Point LLC and Pogo Producing

Loeb's Third Point LLC Proposes 6 Nominees to Pogo Producing (PPP) Board, Proposes Board Size Increased to 11

In an amended 13D filing on Pogo Producing Company (NYSE: PPP), 7.9% holder Dan Loeb's Third Point LLC proposed six nominees for election to the company's board of directors.

The firm proposed:

1. to nominate George K. Hickox, Jr., Christian Woessner, III, and Benjamin W. Miller to replace the Company's three directors whose terms expire at the Annual Meeting.

2. to amend the Bylaws to set the number of members of the Board at eleven.

3. amend the Bylaws to provide the Company's shareholders with the right to fill vacancies and newly created directorships on the Board

4. proposes to nominate Elizabeth K. Blake, George W. Braly and Robert T. Hanley for election at the Annual Meeting to fill the newly created directorships

5. proposes to amend the Bylaws to permit that the Chairman of the Board will be appointed by the Board and will not automatically be the CEO.

Loeb's Third Point Confirms Intent to Conduct Proxy Contest Related to Pogo Producing (PPP)

Friday afternoon, Dan Loeb's Third Point LLC filed an amended 13D confirming its intent to conduct a proxy contest at the 2007 annual shareholders meeting of Pogo Producing Company (NYSE: PPP) that will allow the firm to elect new directors comprising a majority of the Company's board of directors. Third Point hold 4,615,000 common shares of PPP, representing 7.9% of the common shares outstanding.

In a letter to the company Loeb said, "While we are disappointed in the results achieved under your leadership, we continue to believe the Company's assets are valuable and under-utilized. Hiring Goldman, Sachs & Co. and TD Securities Inc. to help the Company explore strategic alternatives is a positive step, but we have no faith in the current board's ability to oversee such a process."

A Copy of the Letter:

Dear Mr. Van Wagenen:

Entities advised by Third Point LLC ("Third Point") hold 4,615,000 common shares of Pogo Producing Company ("Pogo" or the "Company"), representing 7.9% of the common shares outstanding.

We have reviewed the operating and financial results for 2006 and guidance for 2007 released yesterday. We were hopeful that the results and guidance would reflect the improvement in operations that you projected on October 24, 2006 during your third quarter earnings conference call (the "Call"). Needless to say, we are disappointed by the results but not surprised-given the Company's sad history of failing to meet projections.

During the Call you projected fourth quarter production of between 85,000 and 90,000 barrels of oil equivalent per day ("boepd"). You further projected production would ramp from the then current rate of 87,000 boepd to a 2006 year-end exit rate of 95,000 to 100,000 boepd. Actual fourth quarter production of 84,400 boepd was not only below your prior projections but implies that production actually declined from the date of the Call through the end of the year.

Unfortunately production was not the only disappointment in the financial results. The $4.39 per thousand cubic feet equivalent ("mcfe") you reported for 2006 drill bit reserve replacement is appalling and emblematic of the Company's poor capital allocation decisions during your tenure. What we find particularly perplexing, however, is that after announcing on the Call a 10% increase in capital spending to $880 million for 2006, by year's end spending had increased a further $64 million to $944 million. Not only does Pogo allocate capital poorly, but it seems unable to operate within its stated budgets.

While we are disappointed in the results achieved under your leadership, we continue to believe the Company's assets are valuable and under-utilized. Hiring Goldman, Sachs & Co. and TD Securities Inc. to help the Company explore strategic alternatives is a positive step, but we have no faith in the current board's ability to oversee such a process.

Accordingly, as we advised you in our letter dated December 1, 2006, we intend to conduct a proxy contest at the 2007 annual meeting of shareholders that will allow us to elect new directors comprising a majority of the Company's board of directors. We will provide formal notice of our director slate and specific proposals in a forthcoming communication.

Sincerely,
Daniel S. Loeb
Chief Executive Officer

Link to Loeb's past actions related to PPP

Loeb Gets His Way - Twice

Dan Loeb of Third Point LLC scored a double win today.

1. Nabi Biopharmaceuticals (Nasdaq: NABI) announced that Thomas H. McLain has resigned as chairman, chief executive officer and president, effective immediately. Loeb had been pushing for McLain's ouster.

Link to past reports on Loeb's moves related to NABI

2. Pogo Producing Company (NYSE: PPP) confirmed that its Board of Directors previously initiated the exploration of a range of strategic alternatives to enhance shareholder value and is continuing to do so, including the possible sale or merger of Pogo, the sale of its Canadian, Gulf Coast, Gulf of Mexico or other significant assets, and changes to the company's business plan. Pogo retained Goldman, Sachs & Co. and TD Securities Inc. as financial advisors for the process. Loeb has been pushing the company to sell.

Link to past reports on Loeb's moves related to PPP

Loeb's Third Point LLC Raises Stake in Pogo Producing (PPP) to 7.9%

In an amended 13D filing on Pogo Producing Company (NYSE: PPP) Daniel Loeb's Third Point LLC disclosed a 7.9% stake (4.62 million shares) in the company. This is up from the 7.2% stake (4.2 million shares) the firm disclosed in a past filing.

Loeb has been calling on the Board to immediately initiate a process to sell the Company in whole or several parts to the highest bidder or bidders. Loeb was recently joined in his activist efforts by another large holder, Third Avenue Management.

Third Avenue Management Looks For Changes at Pogo Producing (PPP)

In a 13D filing after the close Monday on Pogo Producing Co. (NYSE: PPP), Third Avenue Management disclosed a 6.2% stake (3.6 million shares) in the company. The firm disclosed a letter to the company expressing their dissatisfaction with the company and its CEO.

In the letter the firm said, "we are notifying you that we are actively considering the various alternative courses of action with respect to our investment as described in item 4 of our recent Schedule 13D filing, which we may undertake alone or with others, in an attempt to generate a better return for TAM as well as for all of Pogo's shareholders."

Some changes the firm may propose includes: changes in the composition of the board of directors or management, including an increase in the size of the board of directors or in the nominees offered to fill any then existing vacancies on such board, changes to the certificate of incorporation or bylaws, changes in the capitalization or dividend policy, the acquisition or disposition of additional securities of the company and the sale of material assets or another extraordinary corporate transaction, including a sale transaction.

NOTE: Pogo Producing is also the target of activist investor Dan Loeb through his Third Point LLC hedge fund.

A Copy of the Letter:

Dear Mr. Van Wagenen:

Third Avenue Management LLC ("TAM"), on behalf of its advisory clients, currently owns 3.6 million common shares of Pogo Producing Company("Pogo"), representing a 6.2% ownership interest. We have been Pogo shareholders for approximately three years. TAM's philosophy is to investin strongly financed and well-managed companies, and we are typically long-term supportive shareholders. When we originally invested in Pogo, itmet our stringent investment criteria. However, during the three years thatwe have been shareholders, we have become increasingly disappointed with Pogo's operating performance and with your performance as CEO.

Particularly disconcerting is the deterioration in the company's financialposition. As the table below indicates, since 2003 net debt has increased by more than six times and net debt per mcfe of proved reserves has increased by more than five times. While we believe that the debt load is manageable, the apparent strategy of levering up during a period of historically high commodity prices is troubling.

In addition, the company's operations appear to have deteriorated markedly during the last three years. Production per share has dropped by more than 20%. On a unit of production basis, lease operating expense has increased by 178% and G&A has tripled. It is difficult to find a peer company whose operating costs have escalated as rapidly and to the high level that Pogo'shave. Although some increase in operating costs would have been understandable, given industry-wide cost inflation and hurricane related costs and production delays, the magnitude of these increases is alarming.

This combination of higher debt, lower production, higher operating costs,and the underwhelming results from your recent acquisition of NorthrockResources appear to have driven the poor relative performance of Pogo's stock over the last three years. Since the end of 2003, Pogo's stock is down 1% while the S&P Midcap Oil and Gas Exploration and Production Indexis up 78%. In May 2006, Moody's acknowledged the company's deterioration by downgrading Pogo's Corporate Family Rating to Ba3 from Ba2 citing "risingunsustainable reserve replacement costs, inconsistent production trends,and a sharp decline in organic reserve replacement."

It is readily apparent from the numbers contained in the chart below that Pogo is clearly in need of stronger leadership and a new strategic direction.

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Despite Pogo's poor performance over the past several years, your compensation has been rising. In 2005, you received an 11.8% increase in your base salary and your bonus grew by 25%. You also received a restricted stock award valued at approximately $2 million, up 55% compared to 2004. We believe that if Pogo's compensation structure were tied more closely to performance, these significant increases would not have occurred. These increases are even more concerning because they serve to increase the already overly generous termination provisions of your employment agreement, which provides, among other things, that in the event of a termination due to a change of control, you will receive lump sum payments of five years' salary and bonus plus an amount equal to four times the fair market value on the grant date of your most recent equity award.

We have no doubt that the value of Pogo and its business is substantial. To date, however, you have not been able to maximize shareholder value. It is clearly time for a change in direction. As a result, we are notifying you that we are actively considering the various alternative courses of action with respect to our investment as described in item 4 of our recentSchedule 13D filing, which we may undertake alone or with others, in an attempt to generate a better return for TAM as well as for all of Pogo's shareholders.

Sincerely,

Curtis Jensen

Portfolio Manager, Co-Chief Investment Officer

Ian Lapey

Portfolio Manager