Unocal Corp. (UCL) on Monday said it agreed to sell virtually its entire Canadian oil and gas exploration and production portfolio to Pogo Producing Co. (PPP) for $1.8 billion in cash.

The move is unrelated to Unocal's pending $16 billion-plus acquisition by Chevron Corp. (CVX) and comes after it had announced in early May that it would sell Northrock Resources (search).

Unocal said it would realize after-tax proceeds of $1.5 billion from the sale of Northrock Resources, a plan that was pending before the Chevron deal.

Though Pogo emphasized how the deal would boost reserves and add to earnings starting next year, at least one analyst suggested that the price paid for them may have been too high.

"We do not believe that these assets have the demonstrated reinvestment opportunities to justify the premium paid," Lehman analyst Thomas Driscoll said in a research note. "The plus for Pogo is that the acquisition provides some clarity related to Pogo's strategic direction."

Record oil and gas prices over the past year have driven acquisition prices. Pogo, for example, is paying $16.77 per barrel of oil equivalent -- a 20 to 25 percent premium to where the company trades now, Driscoll said.

The Pogo deal is expected to close in the third quarter, pending Canadian approvals. Unocal said Canada accounted for less than 7 percent of its global reserves as of the end of 2004 and its production as of the first quarter.

Shares in Pogo were off 1.5 percent at $53.95 on the New York Stock Exchange (search), while Unocal shares were up 21 cents at $65.95, also on the NYSE.

Pogo said the deal would increase its proven oil and gas reserves by 45 percent and would add to earnings and cash flow from 2006. Chief Executive Paul Van Wagenen told Reuters the company expected to give a production outlook for Northrock in about two weeks.

"They're very high-end value assets, they're real proven reserves," he said.

Pogo will pay for the assets with a mix of cash, asset sales, credit facility access and "opportunistic capital market transactions."

"There are no additional financing worries or contingencies," Van Wagenen said.

Pogo also said it has started a hedging program stemming from the Northrock deal, with floors of $50 and ceilings of $78 to $82 a barrel for 15,000 barrels of oil per day from 2006. It has also hedged 75 million cubic feet per day of natural gas, with a 2006 floor of $6 and ceilings of $13.50 to $14.

In addition, Pogo said it would maintain its share repurchase program, under which it has already bought back $220 million worth of shares. The program has a minimum of $275 million and a maximum of $375 million.