To discourage a hostile takeover, Houston Exploration Co.‘s board of directors has adopted a shareholder rights plan that may be exercised if any group — with the exception of 24% shareholder KeySpan Corp. — acquires or announces a tender offer for 10% or more of the company’s outstanding common stock. The “poison pill” plan was not in response to any specific effort to acquire the independent producer, it said in a statement. Rather, it is designed to “assure that all stockholders of the company receive fair and equal treatment in the event of any proposed takeover of the company and to guard against two-tier or partial tender offers, open market accumulations and other tactics designed to gain control of the company without paying all stockholders a fair price.” CEO William G. Hargett said the plan was adopted “in light of recent acquisition activity in our sector, continuing volatility in commodity prices, and the prospect of KeySpan divesting their remaining interest in our company. Given the cyclical nature of our sector these plans are very common and have been adopted by virtually all of our peers, allowing the board of directors to ensure equal and fair treatment of all stockholders in an acquisition context.” In May, KeySpan successfully completed a $449 million exchange transaction with Houston Exploration that reduced its ownership from 55% to 24% (see NGI, May 31).

Stone Energy Corp., which focuses its operations offshore in the Gulf of Mexico and in the Rocky Mountains, reported a 25% increase in earnings in the second quarter, but its natural gas output was down and oil equivalent barrels were flat compared with a year earlier. The Lafayette, LA-based producer’s net income was $35.9 million ($1.33/share), compared with $28.6 million ($1.08) in 2Q2003. Revenue reached $142.2 million versus $117.2 million. Cash flow was $108.8 million compared with $88.9 million, and net cash flow totaled $89.1 million versus $103.8 million in 2Q2003. Prices averaged $37.09/bbl of oil and $5.86/Mcf of gas on average daily production volumes of 261 MMcfe, which was flat compared with a year ago. Gas production was down, however, to 159 MMcf/d versus 170 MMcf/d, which Stone partly attributed to non-core divestitures. In July, Stone sold its interests in 21 non-core properties located in various regions of the Rocky Mountains for approximately $8 million. The sale, said management, was made to allow an increased focus on higher potential drilling opportunities in the Rockies as it attempts to growth this business. The divested properties comprised 1% of Stone’s total estimated proved reserves at Dec. 31, 2003 and included approximately 28% of Stone’s well count in the Rockies. At the time of the sale, Stone estimated that average net daily production from the 21 properties was less than 2 MMcfe.

Cheniere Energy Inc. widened its loss in the second quarter over a year ago, blaming the decline on the cost of developing its liquefied natural gas (LNG) receiving terminals. The Houston-based producer reported a net loss of $8.05 million (minus 43 cents/share) versus a net loss of $1.62 million (minus 11 cents) in 2Q2003. Factors that contributed to the quarterly decline included LNG terminal development costs of $5.45 million, which were offset by a $751,907 minority interest in the operations of the Corpus Christi facility. Cheniere also lost $1.6 million in general and administrative expenses and another $1.49 million for its equity share in the net loss of the Freeport development. However, working capital climbed higher at the end of the second quarter, to $8.45 million from $155,526 on Dec. 31, 2003, primarily because of the sale of common stock through a private placement offering in January 2004 and stock options that resulted in net proceeds of $16.4 million. Cheniere also received a $2.5 million payment from Freeport LNG for selling its 60% interest in the project, as well as $2.19 million in partnership contributions from its Corpus LNG minority owner.

Shell Exploration & Production Co. said last week that it will have to shut down its Mars tension leg platform again for about two weeks starting Nov. 4 to permanently replace flexjoints on its Mississippi Canyon oil and natural gas pipelines in the Gulf of Mexico. The company decided to make temporary repairs to both the oil and gas lines while the flexjoints were refurbished. Although the flexjoints should be ready for installation in September, the company will delay the operation until early November for logistical reasons. “We feel that the weather conditions at that time will be more conducive to efficiently and safely completing the operations,” said Frank Glaviano, Gulf of Mexico east asset manager.

Questar Corp. said last week that it will increase capital spending by $25 million to accelerate its drilling programs in the Rockies and Midcontinent regions. The company now expects to spend $480 million for 2004 capital projects, with $344 million targeted for exploration and production, gas development, gas gathering and other nonregulated activities through its Questar Market Resources subsidiary. The regulated pipeline and utility businesses plan to spend $127 million. Questar’s exploration and production businesses “are generating double-digit growth with the drill bit against a backdrop of declining overall production for the industry,” said CEO Keith O. Rattie. The company has managed a 13% year-over-year rise in nonregulated natural gas equivalent production in the first half of 2004. “Our balance sheet is strong. Our total debt to capitalization is now in the middle of our 40 to 45% target range,” Rattie added. “What’s more, we have attractive projects that generate risk-adjusted returns well above our cost of capital, even at natural gas prices well below current levels.”

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