Shares of The Houston Exploration Co. jumped at press time on news of pressure from hedge-fund manager Barry Rosenstein that the E&P company use its newfound cash, from asset sales, to buy back more shares. Rosenstein is also calling for THX to look at putting itself up for sale. Prior to the news, THX shares closed at some $53 each; after the news, they found the $58 mark. E&P executive suites are familiar with Rosenstein and his $5-billion hedge fund, Jana Partners LLC, from their pressure on Kerr-McGee Corp. management and board members a year ago to restructure that company. Hedge-fund manager Carl Icahn of Icahn Partners LP was the leader of that charge. Since the Icahn and Jana accumulation of Kerr-McGee shares, the company has spun off its chemicals business in an IPO; sold its upstream North Sea and most of its Gulf of Mexico assets; made onshore U.S. divestments; and has been buying back shares. Most of the activity is similar to what Icahn proposed for the company last spring. This spring, Rosenstein's Jana has accumulated 9% or some 2.6 million THX shares since late February at prices ranging from $49 to $59, and several at options prices of $30 and $50. Rosenstein says THX should use the $590 million of proceeds from an offshore Louisiana asset sale to Merit Energy Co., Dallas, to buy back stock, rather than make onshore U.S. acquisitions and reduce debt. This was presented to THX management but the response "has been the analytical equivalent of a shoulder shrug," Rosenstein wrote in a document filed with the SEC. THX share performance has not been stellar, Rosenstein notes. The first-quarter price change was a negative 0.2%, according to an analysis of some 400 energy stocks by research firm John S. Herold Inc. Within THX's peer group-midsize U.S. E&Ps, consisting of 14 stocks-the average first-quarter price change was 4.3%. In a 12-month price-change comparison by A&D Watch newsletter, THX shares fell to the bottom when measured against six other E&P stocks: Devon Energy Corp., up more than 40% since mid-April 2005; Kerr-McGee Corp., up more than 30%; Denbury Resources Inc., up more than 100%; Comstock Resources Inc., up more than 20%; and W&T Offshore Inc., up more than 100%. Denbury divested its Gulf of Mexico assets a couple of years ago and became a pure-play onshore producer, as THX has become with the recent sales of its Gulf assets. Comstock has also become an onshore pure-play, spinning its Gulf interests out with the IPO of Bois d'Arc Energy Inc. last year. Rosenstein says, in a letter to THX board members, "Paying only lip service to our request to consider our analysis, management has offered in response only unsupportable and qualitative assertions to support a stated course of action which appears guaranteed to satisfy no one." He believes acquiring assets is risky right now and won't improve share value like a stock-repurchase plan will. "Yet no credible justifications have been offered for this strategy of essentially continuing to drill away at a dry hole," he says. He adds that THX "shares should have risen substantially following the announcement of the asset sale, given that the company is now a pure-play onshore exploration company. Yet the stock as of last week has actually fallen 2% since the announcement of the sale." Merit Energy was the winning bidder of both of the THX Gulf-asset packages: $220 million for the offshore Texas package and $590 million for the offshore Louisiana package. The former involves some 58.5 billion cubic feet equivalent of proved reserves, representing a deal value of $3.76 per proved thousand cubic feet equivalent. The latter involves some 186.1 billion equivalent of proved, for a deal value of $3.17 per proved thousand equivalent. The balance of THX's assets is in South Texas, the Arkoma Basin, East Texas and the Rockies. William Hargett, THX chairman, president and chief executive, has written to Rosenstein that he has forwarded his comments to the board, a $200-million stock repurchase program is already under way, and "our board and the management team are always focused on delivering maximum value for all shareholders. Thank you for your interest in our company."

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