Would a rose by any other name still smell?

While poets, lovers and philosophers normally grapple with this kind of question, some Texas oilmen are probably hoping that the answer is “no.”

DevX Energy, nee Queen Sand Resources, nee Northland Operating Co., has been busily trying to reinvent itself as of late, apparently with good reason.

The Dallas-based domestic oil and natural gas company approved the most recent name change in September (the others occurred in 1996 and 1998) along with sweeping revisions to its capital structure and management.

Shareholder Meeting Brings Sweeping Change

At a Sept. 18 annual meeting, shareholders approved a plan for a “reverse” one-for-156 stock split, an issuance of 10 million new shares and the name change. A few days before that, CFO Richard I. Benn resigned and was replaced by William W. Lesikar.

In the meantime, the firm had already announced plans to buy back $75 million of its junk bonds at a deep discount.

A quick look at the charts for this struggling concern provides an indication of the atmosphere that must have prevailed at the recent shareholder meeting.

An investor who had purchased shares in the then-Northland Operating Co. at their peak months after the firm’s founding in 1994 would have seen the stock price go from around $19.20 to $7.69 in 1998 to about $0.04 just before the split, which went into effect Oct. 27.

To put it another way, if one were to take the immediate post-split opening price of $7, which is about where the stock is still trading, and do the math backwards, the same share would have been worth about $3,000 in 1994.

Bondholders, chiefly three “institutional investors,” have made out somewhat better.

The tender offer, completed Nov. 1, saw the company use the $70 million stock issue in part to buy back $75 million of 12.5% bonds due July 2008 for $49 million, or roughly 65% of their face value.

Which was okay, considering that the securities would have fetched about $40 million on the open market, sources indicate.

Now That’s Junk!

John Thieroff, an analyst at Standard & Poor’s, reports that the bonds were at such a deep discount recently as to be yielding in the “upper 20% range,” or somewhere to the north of the “deadbeat” level for individual auto loans.

Why was this energy company in such dire straits given the recent gusher in energy prices? According to the S&P analyst, the firm, which had been undergoing “serious production declines during 1999 and 2000,” was unable to participate in this rally in oil prices.

“They fell into trouble because prices went down and they were over leveraged,” he says. To “insure their survival,” the firm sold futures contracts at about $18 to $19 per barrel.

The recent bond buyback, which still leaves the issue with $50 million outstanding, “was designed to make their coupons payable,” the S&P analyst says. “They were on the verge of going broke every six months.”

But, as the ratings agency acknowledges, the latest moves may prove to be steps in the right direction.

As word got out that the firm was going to issue stock and pay off debt, S&P, which had downgraded it to triple-C-plus from single-B in April 1999, announced in August 2000 that it was being placed on CreditWatch with positive implications.

Now, although the firm, whatever you want to call it, is far from out of the woods, there is some hope. DevX Energy will probably be able to work through most of its hedges over the next quarter.

Provided, that is, that there are no more surprises over the price of oil.

Officials at the firm were unavailable for comment.

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