<PAGE>

                                                                   EXHIBIT 10.36

             EXTENSION AGREEMENT TO CONTINUE EMPLOYMENT AGREEMENT
                   BETWEEN J. DON MCGREGOR ("EXECUTIVE") AND
          POGO PRODUCING COMPANY, A DELAWARE CORPORATION ("COMPANY"),
                       DATED EFFECTIVE FEBRUARY 1, 2001


   WHEREAS, Executive and Company are parties to an "Employment Agreement"
bearing an original "Effective Date" of February 1, 1999; and

   WHEREAS, February 1, 2001, (even date herewith) is hereby deemed to be the
"Renewal Date" in that Employment Agreement; and

   WHEREAS, Executive and Company each wish to extend said Employment Agreement
for an additional one-year period so as to terminate (unless further extended)
two years thereafter, (to-wit January 31, 2003); and

   WHEREAS, Company desires to retain the services of Executive for the benefit
of Company and its shareholders, and desires to induce Executive to remain in
its employ for that extended time period; and

   WHEREAS, Executive has agreed to continue to serve as an employee of Company
for the period specified herein from and after the date of this Extension
Agreement; and

   WHEREAS, Company and Executive desire to enter into this Extension Agreement
in order to formally secure for Company the benefit of the experience and
abilities of Executive, and to set forth the agreements and understandings of
Company and Executive; and

   WHEREAS, Company has advised Executive that execution and performance of this
Extension Agreement by Company has been duly authorized and approved by all
requisite corporate action on the part of the Company.
<PAGE>

   NOW, THEREFORE, in consideration of the foregoing and the mutual promises and
agreements herein contained, and in consideration of the sum of $10 paid by
Company to Executive, receipt whereof is hereby acknowledged by Executive,
Executive and Company do hereby agree as follows:

   1.  The Employment Agreement between Executive and Company bearing an
"Effective Date" of February 1, 1999 and a "Renewal Date" which is deemed herein
to be February 1, 2001, is hereby extended for an additional one-year period
commencing February 1, 2002 and ending January 31, 2003, unless such employment
period is hereafter further extended for an additional period by both Executive
and Company.

   2.  All provisions of the Employment Agreement between Executive and Company
dated as of February 1, 1999, and as it is herein amended, are continued in full
force and effect without change as if the Employment Agreement had been
initially effective as of February 1, 2001.

                              POGO PRODUCING COMPANY



                              By: /s/ JOHN O. McCOY, JR.
                                 ------------------------------
                                 Senior Vice President and
                                 Chief Administrative Officer


ATTEST:

/s/ JOE ANN KINGDON
-------------------------------
Assistant Corporate Secretary

                              EMPLOYEE:


                              /s/ J. DON McGREGOR
                              ---------------------------------
                              J. Don McGregor