Previously stalled by depressed commodity prices, MitchellEnergy & Development Corp. is flying right again with 12%return on equity in exploration and production, 15 to 20% ingathering and 55 to 60% in natural gas liquids (NGLs), according toone analyst. For Chairman, CEO and gas and oil industry veteranGeorge P. Mitchell, 80, now might be the time to bail out.

The company’s board of directors hired Goldman, Sachs & Co.and Chase Securities Inc. to help weigh strategic alternatives,including a sale or merger. Mitchell Energy said it would notcomment until a decision is made. “The message is that the ‘forsale’ sign is out and we’re welcoming people to come by and kickthe tires,” a spokesman said.

John Olson, energy analyst for Sanders Morris and Mundy, saidMitchell could go for $30 a share or better. “Mitchell is capturingan exquisite time to sell assets. All of his businesses are inwonderful shape right now and the profitability of the company hasimproved substantially.

“The suspects [that could acquire Mitchell] are your usualenergy conglomerates, power companies and producers, and bigproducers, I should say. Mitchell is fairly unique in the sensethat almost all of their assets are inside Texas and over half oftheir gas reserves and the like are in the Fort Worth Basin, whichserves the Greater Dallas-Fort Worth market, which is one of thelargest gas markets in the country. Texas Utilities, TXU, is thelargest buyer of gas in the country.” In addition, two gas-firedcogeneration plants are planned for the area, and Mitchell recentlyrevised its gas reserves, upping its holdings by 25%. “And that’sprobably a conservative rendering because there are so many otheropportunities in the Fort Worth Basin.”

Mitchell, based in The Woodlands, TX, is one of the country’slargest independent gas and gas liquids producers. Primarybusinesses include gas and oil production and the gathering,processing and marketing of gas and gas liquids. George Mitchellowns 64% of the company’s class A (voting) shares and 50.7% of itsclass B (non-voting) shares.

The company was founded in 1946 as a small wild-catting firm inHouston. In fiscal 1999, ending Jan. 31, Mitchell produced 94 Bcfgas, 17.5 million barrels of liquid hydrocarbons (gas liquids, oiland condensate) and replaced 185% of its gas and oil production. Atyear-end 1998, Mitchell’s proved reserves totaled 867 Bcf gas and155 million barrels of liquid hydrocarbons. The company has about875 full-time employees.

Mitchell claims it is well positioned to take advantage of thecurrent upturn in energy prices. The company has a developmentbacklog of 1,000 wells, an attractive 3-D seismic prospectinventory, quality gathering and processing operations and a soundcost structure.

However, in June at Mitchell’s 1999 annual meeting, GeorgeMitchell conceded the company had experienced its share ofturbulence. “…[T]he bottom fell out for oil and NGL prices duringthe third quarter, and we were faced with some of the lowest pricesseen in the last 20 years. I don’t think I need to dredge up allthe gory details, but we were forced to take some painful actionsto ensure the profitability of our company.” Mitchell was referringto a downsizing and restructuring, completed in February, thatslashed 235 jobs for a 21% reduction in total employment. Also inFebruary, Mitchell said its fiscal 2000 capital budget of $137million represented a 33% reduction from the $205 million spent inthe prior year, excluding asset acquisitions.

At the June meeting, Mitchell conceded his company was tradingat a multiple to cash flow significantly lower than its peers.”While we can’t explain this difference, it may be due in part tothe erroneous assumption that growth can only be achieved throughmergers and acquisitions. With our current backlog of 1,000development drilling wells, we think that we have plenty ofopportunity to grow.”

Mitchell’s shares are traded on the New York and Pacific stockexchanges under the symbols MNDA (voting) and MNDB (non-voting).Wednesday Mitchell voting shares closed at $23.75, up 81 cents. Thestock’s 52-week range is $9.63 to $24.44. Non-voting shares closedat $23.13, up $1.25. The stock’s 52-week range is $9.88 to $23.69.

Following service as a captain in the Army Corps of Engineersduring World War II, George Mitchell joined a newly formedwild-catting company, first as a consulting geologist and engineerand later as a partner. He was named president in 1959 and hasguided the company since.

Joe Fisher, Houston

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