July 17 (Bloomberg) -- Plains Exploration & Production Co., the U.S. oil company that made a failed takeover bid last year for Stone Energy Corp., agreed to buy Pogo Producing Co. for $3.6 billion.

Pogo stockholders will receive 0.68201 share of Plains and $24.88 in cash for each of their shares, the Houston-based buyer said today in a statement. That values Pogo at $59.79 a share, an 18 percent premium to yesterday's closing price.

Daniel Loeb's Third Point LLC hedge fund has pressed Pogo since late last year to shed assets or sell itself after its shares lagged behind rivals. The purchase will almost double output at Plains and will provide established wells needed for a planned master limited partnership, or MLP, Chief Executive Officer James Flores told investors on a conference call.

``The focal point of this company is going to be 2008 and the formation of the MLP,'' said Michael Bodino, an analyst at Coker & Palmer in Metairie, Louisiana, who rates Plains shares at ``buy'' and doesn't own any.

MLPs are exempt from corporate income taxes and pay out most of their earnings in distributions to unit holders. Flores said 80 percent to 85 percent of Pogo's assets eventually may be placed in the new Plains partnership.

Shares of Plains fell $3.31, or 6.5 percent, to $47.88 in New York Stock Exchange composite trading. Pogo climbed $7.02, or 14 percent, to $57.50.

Price Comparison

Plains is paying about $16.50 per barrel of oil equivalent in proved reserves, according to Coker & Palmer's Bodino. Recent transactions in the industry ranged between $18 and $21 per barrel, he said.

The Pogo acquisition, the biggest ever for Plains, will add producing wells and exploration properties in the Panhandle, Permian Basin and Gulf Coast areas of Texas, Flores said. It also will include assets in the Madden Field in Wyoming and the San Juan Basin in New Mexico, he said.

Plains operates in the Los Angeles and San Joaquin basins in California and the Santa Maria Basin off that state's coast, as well as the Gulf of Mexico and Colorado's Piceance Basin.

Pogo, also based in Houston, became more attractive as a takeover target after it agreed in May to sell its Canadian unit for $2 billion, analysts such as FirstEnergy Capital Corp.'s Mark Friesen have said.

Partnerships Planned

Plains is among several U.S. oil and natural-gas producers, including Pioneer Natural Resources Co. and Petrohawk Energy Corp., that have announced plans in the past few months to form MLPs.

Such partnerships, which Kinder Morgan Inc. and other pipeline companies began forming about a decade ago, provide their creators a ready buyer for cash-producing assets. They attract investors with tax-advantaged, cash payouts.

Assets placed in an MLP can command a market value that, in some cases, is 50 percent higher than in a standard corporate structure, Steven Webster, president of private-equity firm Avista Capital Partners LLC in Houston, said last month.

Plains and Pogo have assets that may be suitable for an MLP because they are low risk and have a long reserve life, said Subash Chandra, an analyst at Jefferies & Co. in New York. The combined company, ``in broad strokes, will be onshore and long lived,'' he said.

After the Canadian divestiture and other asset sales, Pogo's reserves would last 12 years at the company's current rate of production.

Stone Bid Dropped

Chandra said he doesn't expect a competing takeover offer for Pogo. Plains last year accepted a $43.5 million breakup fee to drop its bid for Stone Energy after Energy Partners Ltd. made a competing offer. Energy Partners dropped its deal in October, after becoming the target of an unsolicited takeover bid itself.

Plains expects the Pogo acquisition to result in annual merger savings of $50 million, Flores said on the conference call. Debt won't increase because proceeds from the pending sale of Pogo's Canadian assets match the company's $2 billion in borrowings, Plains Chief Financial Officer Winston Talbert said.

After completing the deal, Plains will have proved reserves equivalent to about 635 million barrels of oil, the company said.

The purchase agreement includes a $100 million breakup fee, Flores said. Lehman Brothers Inc. advised Plains on the transaction, and Pogo was advised by Goldman, Sachs & Co. and TD Securities.

To contact the reporters on this story: Dan Lonkevich in New York at dlonkevich@bloomberg.net; Sonja Franklin in Calgary at sfranklin6@bloomberg.net.

Last Updated: July 17, 2007 16:13 EDT