HOUSTON EXPLORATION CO company history: the story so far

History

Houston Exploration bought Gulf of Mexico gas assets with bank debt, sold them in 2006 to refocus onshore, then agreed in 2007 to merge into Forest Oil.

2003-2004: Refinancing and Gulf of Mexico buying

In February 2003 the company agreed with J.P. Morgan Securities to sell 3,300,000 new common shares, using the proceeds to buy back an equal number of shares from THEC Holdings Corp., which was tied to KeySpan Corporation. The share count was not meant to rise overall. In June it sold $175 million of 7% notes and used part of the money to redeem all of its $100 million 8 5/8% notes by July. That month the filings also show it suspending its duty to file periodic reports and its securities being notified for removal from listing, with no explanation in the record.

On October 15, 2003 it completed the purchase of Transworld's shallow-water Gulf of Mexico properties for a net $149 million, paid with $24 million of cash and $125 million borrowed on its bank credit facility. The properties held 91.5 billion cubic feet equivalent (Bcfe) of proved reserves.

In June 2004 it sold 6,200,000 shares for $297.6 million and used the money to buy back and cancel 10,800,000 KeySpan shares, then sold 620,000 more for $29.76 million. In August 2004 the board adopted a rights plan, a defence that lets other holders buy shares cheaply if anyone builds a large stake; 28,062,004 shares were then outstanding. The New York Stock Exchange certified the company's securities for listing that month. In September and October it bought BP offshore assets for $31.5 million and Orca Energy's properties for a net $109.8 million, with 62.5 Bcfe of reserves, funded largely by bank borrowings.

2005: Moving onshore

In October 2005 the company agreed to buy South Texas interests from Kerr-McGee and Westport, raising its capital budget from $512 million to $733 million. The deal closed on November 30 at a net $159.0 million, with about 88 Bcfe of proved reserves, funded by $142.7 million of borrowing. The same day it replaced its credit facility with a five-year $750 million one, with an initial borrowing base of $600 million, now secured by onshore assets. About $370 million was borrowed at closing. The filing also pointed to a planned sale of its Gulf of Mexico assets.

2006: Selling the Gulf of Mexico

In February 2006 the company agreed to sell its Texas Gulf of Mexico assets to Merit Energy-affiliated partnerships for about $220 million. The sale closed March 31, with net cash of about $190.8 million. About $158 million went to repay debt, leaving $249 million borrowed. In April it agreed to sell substantially all its Louisiana Gulf of Mexico assets, which held 186.1 Bcfe of reserves, for about $590 million. That closed around June 1 with net cash of about $530.8 million. Of that, $314.2 million went to a qualified intermediary for tax-deferred exchanges, and about $216.6 million mostly repaid debt, leaving $50 million borrowed. The company kept 18 Louisiana offshore blocks and expected to pay about $30 million to settle a net profits interest triggered by the sale. The borrowing base was cut to $500 million.

2007: The Forest Oil merger

On January 7, 2007 the company agreed to merge into Forest Oil Corporation. Each share would convert into $26.25 in cash plus 0.84 Forest shares, subject to election and proration. JANA, holding about 14.7%, agreed to vote in favour. The deal needed shareholder approval from both companies and antitrust clearance, with an outside date of September 30, 2007. In February the company reported year-end 2006 proved reserves of 699,328 million cubic feet equivalent. It estimated its capitalised costs exceeded the accounting ceiling by $573 million to $596 million at a $4.95 gas price, though a writedown would be needed only if the final test price fell below about $6.70. The outcome was not shown.

On May 21, 2007 holders of $169,178,000 of the $175 million 7% notes tendered and consented, and a supplemental indenture removing most restrictive terms was signed. It takes effect only if the notes are purchased, which depends on the merger completing. In June 2007 the company terminated the registration of a class of securities and its exchange filed to remove a class from listing. As of the latest filing, the merger was still pending.

Written from the 20 story beats below (2003 to 12 June 2007), which come from the company's own announcements and filings.

Beat by beat

The events that changed the company's story, in plain English, each written against everything known about the company at the time. The dot shows whether it was good, bad or neutral for shareholders.

2007

12 June
HOUSTON EXPLORATION CO's exchange filed to remove a class of its securities from listing.
listing compliance notice
6 June
HOUSTON EXPLORATION CO terminated the registration of a class of securities, ending its reporting obligation for them.
listing compliance notice
23 May
On May 21, 2007 the company received the consents and tenders needed from holders of $169,178,000 of its $175M 7% senior subordinated notes due 2013 in a tender offer begun May 2, 2007, and signed a supplemental indenture removing substantially all restrictive covenants and certain default provisions. The changes take effect only once a majority of the notes are accepted for purchase, and that purchase depends on the Forest merger conditions being met. This resolves the open question of the notes exchange offer: it was a tender offer tied to the merger, and the earlier exchange offer is not mentioned.
security holder rights change
8 Feb
The company reported year-end 2006 proved reserves of 699,328 MMcfe (671,636 MMcf of gas and 4,615 MBbls of oil and liquids), prepared by Netherland, Sewell & Associates. It estimated its capitalised costs exceeded the accounting ceiling by about $573M to $596M pre-tax at a $4.95 per Mcf gas price, but said a fourth-quarter writedown would be needed only if the price at the final test date is below about $6.70 per Mcf, since gas prices rose after year-end. It also added further gas hedges on February 7, 2007. The filing repeats the pending Forest merger information.
resource reserve update
8 Jan
On January 7, 2007 the company agreed to merge into Forest Oil Corporation. Each share converts into $26.25 in cash plus 0.84 Forest shares, with holders able to elect cash, stock or a blend, subject to proration. The deal needs approval from both companies' shareholders and antitrust clearance, and has an outside date of September 30, 2007. Termination fees are $55M payable by the company or $60M payable by Forest in specified circumstances. JANA, holding about 14.7%, agreed to vote for the merger. This is the outcome of the strategic alternatives review that earlier filings said was under way (the filing does not itself say so). The company also amended its rights plan so the deal does not trigger it, and offered executives amendments providing 60 days of transition service followed by severance; 401(k) balances will vest on the merger. The deal is pending, so shareholders' position has not yet ended.
business combination

2006

2 June
The Louisiana Gulf of Mexico sale closed on May 31 and June 1, 2006 at a $590M gross price, with net cash of about $530.8M (some interests went to Nippon Oil and Chevron under preferential rights). Of that, $314.2M went to a qualified intermediary for tax-deferred exchanges and about $216.6M mostly repaid credit facility debt, leaving $50M borrowed; the borrowing base was cut to $500M. The company keeps 18 Louisiana offshore blocks (16 undeveloped, two with exploratory wells in progress) and expects to pay about $30M to the predecessor owner of the October 2003 properties to settle a net profits interest triggered by the sale. This resolves the April agreement.
asset acquisition disposition
10 Apr
On April 7, 2006 the company agreed to sell substantially all of its Louisiana Gulf of Mexico assets to Merit Energy-affiliated partnerships for about $590M cash, effective January 1, 2006 and expected to close May 31, 2006. These assets had 186.1 Bcfe of proved reserves at December 31, 2005 and about 22% of 2005 production. It continues the Gulf of Mexico exit begun with the Texas sale.
material agreement
6 Apr
The Texas Gulf of Mexico sale to Merit Energy affiliates closed March 31, 2006 for a $220M gross price, with net cash of about $190.8M (some interests went to Hydro Gulf of Mexico and Nippon Oil under preferential rights). These assets were about 18% of 2005 production and 58.5 Bcfe (7%) of proved reserves; $158M repaid credit facility debt, leaving $249M borrowed, and the borrowing base was cut from $600M to $550M. This resolves the February agreement.
asset acquisition disposition
1 Mar
On February 28, 2006 the company agreed to sell the Texas portion of its Gulf of Mexico assets to partnerships affiliated with Merit Energy for about $220 million cash, effective January 1, 2006 and expected to close March 31, 2006. This is the first concrete step in the Gulf of Mexico divestiture hinted at in the November 2005 filing. The filing also announces the release of full-year 2005 results (the results themselves are in an exhibit not included here).
material agreement

2005

1 Dec
On November 30, 2005 the company closed the South Texas purchase from Kerr-McGee/Westport, which was flagged as pending: a $162.7M price cut by $3.7M to a net $159.0M, with $142.7M borrowed on the credit facility after the earlier $16.3M deposit. The properties have about 88 Bcfe of proved reserves (75% gas), about 10 MMcfe/day of production, 60% average working interest and the company operates all of the reserves. The same day it replaced its credit facility with a new five-year $750M one (initial borrowing base $600M, up from $450M, maturing November 30, 2010) that is now secured by onshore assets and still ranks ahead of the 7% notes, with $370M borrowed at closing. The filing's risk language also refers to a planned divestiture of its Gulf of Mexico assets, a new direction that sets up the 2006 sales.
asset acquisition disposition
27 Oct
On October 21, 2005 the company agreed to buy interests in producing properties and undeveloped acreage in four South Texas fields from Kerr-McGee (KMOG Onshore LP) and Westport Oil and Gas for about $163 million cash, with a $16.3 million deposit borrowed on its credit facility and the rest to be borrowed, closing expected by November 30, 2005. The credit facility's borrowing base was raised from $400 million to $450 million, with $200 million borrowed and $22.3 million of letters of credit at October 27, 2005, and the 2005 capital budget was raised from $512 million to $733 million. The facility matures April 1, 2008 and ranks ahead of the $175 million 7% notes. This extends the acquisition-funded-by-bank-debt pattern.
debt financing

2004

1 Nov
The company closed the Orca Energy purchase on October 29, 2004: the $113.5 million price was cut by $3.7 million to a net $109.8 million, funded with $70.0 million borrowed on the revolving credit facility, $28.4 million of cash and the earlier $11.4 million deposit. The properties have estimated proved reserves of 62.5 Bcfe (81% gas), at a 68% average working interest, with the company operating 85% of the reserves. The BP offshore assets ($31.5 million after $1.5 million adjustments) closed September 30, 2004. This resolves the Orca deal announced in September. The filing also records that in June 2004 the company sold 6,200,000 shares for $297.6 million and used the proceeds to buy back and cancel 10,800,000 KeySpan shares, then sold 620,000 more for $29.76 million, and filed a new $477.36 million shelf registration (not yet effective).
asset acquisition disposition
22 Sept
On September 17, 2004 the company agreed to buy shallow-water Gulf of Mexico gas and oil properties from Orca Energy, L.P. for about $113.5 million cash, paying an $11.4 million deposit borrowed on its revolving bank credit facility and expecting to fund the rest from cash and more borrowings; closing is expected by October 29, 2004. The same release announces a $31.5 million purchase of offshore producing assets from BP Exploration & Production Inc., expected to close around September 30, 2004. This continues the Gulf of Mexico buying that began with Transworld in October 2003.
material agreement
17 Aug
the New York Stock Exchange certified HOUSTON EXPLORATION CO's securities for listing, clearing them to begin trading.
listing compliance notice
13 Aug
On August 12, 2004 the board declared a dividend of one preferred share purchase right per common share, payable August 23, 2004, under a Rights Agreement with The Bank of New York. Rights become exercisable if a person or group acquires 10% or more of the stock (KeySpan only above 24%); 28,062,004 common shares were outstanding.
dividend declaration

2003

29 Oct
The company completed its purchase of Transworld Exploration and Production's shallow-water Gulf of Mexico properties on October 15, 2003, for a net $149 million (after a $6 million reduction from the $155 million price), paid with $24 million of cash and $125 million borrowed under its revolving bank credit facility. The properties have estimated proved reserves of 91.5 Bcfe at July 1, 2003 and about 35 million cubic feet equivalent per day of production; Houston Exploration will operate 97 percent of the reserves at an average 65 percent working interest. This adds Gulf of Mexico reserves and increases bank borrowings.
asset acquisition disposition
28 July
HOUSTON EXPLORATION CO's securities were notified for removal from listing and registration on its exchange.
listing compliance notice
18 July
On July 17, 2003 the company said it had completed the redemption of all its $100 million 8 5/8% senior subordinated notes due January 2008. The redemption was funded with part of the net proceeds of the $175 million 7% senior subordinated notes due 2013, placed privately on June 10, 2003.
capital raising announcement
18 July
HOUSTON EXPLORATION CO suspended its duty to file periodic reports with the SEC.
listing compliance notice
26 Feb
The company agreed with J.P. Morgan Securities to sell 3,300,000 new common shares (including 300,000 over-allotment shares) in a public offering, using the shelf registration filed in May 1999. At the same time it agreed to use the net proceeds to buy back an equal number of shares from THEC Holdings Corp. (tied to KeySpan Corporation), so the filing indicates the share count is not meant to rise overall.
capital raising announcement