-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DYz3Q/B4j/w+4RESQpDXCa3Ko0HDoR1l/ns61dmD0o+Pivk4oAagNMTIHaKzXAh8 /60Q+21Ha+9mRNeMU0t6OA== 0000902664-06-001253.txt : 20060417 0000902664-06-001253.hdr.sgml : 20060417 20060417170518 ACCESSION NUMBER: 0000902664-06-001253 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20060417 DATE AS OF CHANGE: 20060417 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: HOUSTON EXPLORATION CO CENTRAL INDEX KEY: 0001015293 STANDARD INDUSTRIAL CLASSIFICATION: OIL AND GAS FIELD EXPLORATION SERVICES [1382] IRS NUMBER: 222674487 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-48519 FILM NUMBER: 06762912 BUSINESS ADDRESS: STREET 1: 1100 LOUISIANA STREET STREET 2: SUITE 2000 CITY: HOUSTON STATE: TX ZIP: 77002-5219 BUSINESS PHONE: 713-830-6800 MAIL ADDRESS: STREET 1: 1100 LOUISIANA STREET STREET 2: SUITE 2000 CITY: HOUSTON STATE: TX ZIP: 77002-5219 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: JANA PARTNERS LLC CENTRAL INDEX KEY: 0001159159 IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: JANA PARTNERS LLC STREET 2: 536 PACIFIC AVENUE CITY: SAN FRANCISCO STATE: CA ZIP: 94133 BUSINESS PHONE: 2125935955 SC 13D/A 1 sc13da.txt THE HOUSTON EXPLORATION COMPANY UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------- SCHEDULE 13D Under the Securities Exchange Act of 1934 (Amendment No. 1)* THE HOUSTON EXPLORATION COMPANY - -------------------------------------------------------------------------------- (Name of Issuer) Common Stock, $0.01 Par Value - -------------------------------------------------------------------------------- (Title of Class of Securities) 442120101 - -------------------------------------------------------------------------------- (CUSIP Number) Marc Weingarten, Esq. Schulte Roth & Zabel LLP 919 Third Avenue New York, New York 10022 (212) 756-2000 - -------------------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) April 17, 2006 - -------------------------------------------------------------------------------- (Date of Event which Requires Filing of This Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box. [ ] NOTE: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7 for other parties to whom copies are to be sent. (Continued on following pages) (Page 1 of 5 Pages) - -------------------------- * The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). - ------------------------------ -------------------- CUSIP NO. 442120101 SCHEDULE 13D PAGE 2 OF 5 PAGES - ------------------------------ -------------------- - ------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY) JANA PARTNERS LLC - ------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [ ] - ------------------------------------------------------------------------------- 3 SEC USE ONLY - ------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* AF - ------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) [ ] - ------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - ------------------------------------------------------------------------------- 7 SOLE VOTING POWER 2,617,700 --------------------------------------------------------- NUMBER OF 8 SHARED VOTING POWER SHARES BENEFICIALLY -0- OWNED BY --------------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER REPORTING PERSON WITH 2,617,700 --------------------------------------------------------- 10 SHARED DISPOSITIVE POWER -0- - ------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH PERSON 2,617,700 - ------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - ------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 9.0% - ------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* IA - ------------------------------------------------------------------------------- * SEE INSTRUCTIONS BEFORE FILLING OUT! - ------------------------------ -------------------- CUSIP NO. 442120101 SCHEDULE 13D PAGE 3 OF 5 PAGES - ------------------------------ -------------------- The Schedule 13D filed on February 21, 2006 by JANA Partners LLC, a Delaware limited liability company (the "Reporting Person"), relating to the shares ("Shares") of common stock, $0.01 par value, of The Houston Exploration Company (the "Issuer"), is hereby amended as set forth below by this Amendment No. 1 to the Schedule 13D. Item 3. Source and Amount of Funds or Other Consideration. Item 3 of the Schedule 13D is hereby amended and restated as follows: As of the date of this filing, the Reporting Person may be deemed the beneficial owner of 2,617,700 Shares. The aggregate purchase price of the Shares owned beneficially by the Reporting Person is approximately $152,374,946. Such Shares were acquired with investment funds in accounts under management. Item 4. Purpose of Transaction. Item 4 of the Schedule 13D is hereby amended and restated as follows: The Reporting Person acquired the Shares for investment in the ordinary course of business. The Reporting Person believes that the Shares at current market prices are undervalued and represent an attractive investment opportunity. The Reporting Person may make further purchases of the Shares from time to time and may dispose of any or all of the Shares held by it at any time. On April 17, 2006, following earlier discussions between representatives of the Reporting Person and the Issuer regarding the Issuer's strategic direction and related matters, the Reporting Person's Managing Partner, Barry Rosenstein, sent a letter to the Board of Directors of the Issuer, which letter set forth the Reporting Person's belief that the Issuer should use the proceeds from its recent disposition of certain assets to repurchase shares of its common stock and addressed related matters. The Reporting Person also expressed its belief that the Issuer should explore strategic alternatives, including a sale. The letter sent by the Reporting Person is attached hereto as Exhibit A and is incorporated herein by reference. The Reporting Person intends to continue discussions regarding these matters with representatives of the Issuer. Except as set forth herein, neither the Reporting Person nor the Principals have any present plan or proposal that would relate to or result in any of the matters set forth in subparagraphs (a) - (j) of Item 4 of Schedule 13D. The Reporting Person intends to review its investment in the Issuer on a continuing basis. Depending on various factors including, without limitation, the Issuer's financial position and strategic direction, price levels of the Shares, conditions in the securities market and general economic and industry conditions, the Reporting Person may in the future take such actions with respect to its investment in the Issuer as it deems appropriate including, without limitation, purchasing additional Shares or selling some or all of its Shares, and, alone or with others, pursuing discussions with the Issuer, other stockholders and third parties with regard to its investment in the Issuer, and/or otherwise changing its intention with respect to any and all matters referred to in Item 4 of Schedule 13D. - ------------------------------ -------------------- CUSIP NO. 442120101 SCHEDULE 13D PAGE 4 OF 5 PAGES - ------------------------------ -------------------- Item 5. Interest in Securities of the Company. Paragraphs (a), (b) and (c) of Item 5 of the Schedule 13D are hereby amended and restated as follows: (a) The aggregate percentage of Shares reported to be beneficially owned by the Reporting Person is based upon 29,071,130 Shares outstanding, which is the total number of Shares outstanding as of March 9, 2006 as reported in the Issuer's proxy statement pursuant to Section 14(a) of the Securities and Exchange Act dated March 17, 2006. As of the close of business on April 13, 2006, the Reporting Person may be deemed to beneficially own 2,617,700 Shares constituting approximately 9.0% of the Shares outstanding. (b) The Reporting Person has sole voting and dispositive powers over the 2,617,700 Shares reported herein, which powers are exercised by the Principals. (c) The following transactions in the Shares were effected by the Reporting Person since the most recent filing of Schedule 13D. All of the transactions in the Shares were effected in open market purchases on the NYSE through various brokerage entities.
Date of Transaction Shares Purchased (Sold) Price Per Share - --------------------- -------------------------------------------------- ------------------------------ 2/27/2006 (100,000) $59.78 2/27/2006 (18,600) $59.76 2/28/2006 (180,000) $58.68 3/1/2006 (112,000) $56.54 3/3/2006 Options to Purchase 92,000 shares $50.00 (Exercise Price) 3/3/2006 Options to Purchase 8,000 shares $50.00 (Exercise Price) 3/3/2006 Options to Purchase 50,000 shares $50.00 (Exercise Price) 3/6/2006 Options to Purchase 138,000 shares $50.00 (Exercise Price) 3/6/2006 Options to Purchase 12,000 shares $50.00 (Exercise Price) 3/9/2006 (100,000) $50.18 3/10/2006 (100,000) $50.03 3/10/2006 (600) $49.83 3/13/2006 (50,000) $50.86 3/14/2006 35,000 $51.18 3/14/2006 40,000 $51.17 3/17/2006 Options Exercised for 322,000 Shares $50.00 (Exercise Price) 3/17/2006 Options Exercised for 28,000 Shares $50.00 (Exercise Price) 3/17/2006 Options Exercised for 50,000 Shares $50.00 (Exercise Price) 4/3/2006 Options Exercised for 1,837,000 Shares $30.00 (Exercise Price) 4/10/2006 25,000 $54.21 4/10/2006 75,000 $54.26 Note: Options exercisable for 50,000 shares have expired.
Item 7. MATERIAL TO BE FILED AS EXHIBITS Item 7 of the Schedule 13D is hereby amended by the addition of the following: 1. Exhibit A - Letter from the Reporting Person to the Issuer's Board of Directors, dated April 17, 2006. 2. Exhibit B - Press release dated April 17, 2006. - ------------------------------ -------------------- CUSIP NO. 442120101 SCHEDULE 13D PAGE 5 OF 5 PAGES - ------------------------------ -------------------- SIGNATURES After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: April 17, 2006 JANA PARTNERS LLC By: /s/ Barry Rosenstein --------------------------- Name: Barry Rosenstein Title: Managing Partner By: /s/ Gary Claar --------------------------- Name: Gary Claar Title: Managing Director EX-99 2 exhibita.txt EXHIBIT A April 17, 2006 Board of Directors (the "Board") The Houston Exploration Company 1100 Louisiana Street, Suite 2000 Houston, Texas 77002 Attention: William G. Hargett, Chairman, CEO & President VIA FACSIMILE AND OVERNIGHT DELIVERY Gentlemen, JANA Partners LLC ("we" or "us") currently beneficially owns approximately 9% of the outstanding shares of The Houston Exploration Company ("Houston Exploration" or the "Company"). As one of the Company's largest investors, we have a substantial interest in seeing its leadership commit to a clear, determined path to delivering maximum value for all shareholders. We have therefore spent a significant amount of time analyzing the various options available to the Company and have made every effort to work constructively with management in discussing our analysis. As you know, we believe this analysis leaves no doubt that using the proceeds of the recent Gulf of Mexico asset sale and the strength of the Company's balance sheet to institute an immediate share repurchase is the option that creates the most value for shareholders. We have spoken with a large number of other shareholders who have come to the same conclusion. We have been shocked therefore by how little genuine interest management has shown in actually evaluating the analysis underlying this conclusion. Particularly where management has failed to deliver for shareholders, and we will address the Company's dismal performance below, we would expect them to show some semblance of curiosity about how they might generate increased value. Instead, the response to the detailed quantitative analysis we have shared with management has been the analytical equivalent of a shoulder shrug. 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. Specifically, it appears that the Company intends to pursue acquisitions which carry significant execution risk and which, even if successful, will not deliver the same benefit to shareholders as a significant share repurchase, and to use the remaining proceeds of the Gulf of Mexico sale to reduce debt to inefficient levels (with cash that can be put to better use to boost shareholder returns) and to conduct share repurchases too small to significantly impact the stock price. Yet no credible justifications have been offered for this strategy of essentially continuing to drill away at a dry hole. First, management has offered no evidence, nor could they, that putting a substantial portion of the sale proceeds towards new acquisitions would be anywhere near as accretive as repurchasing shares. Acquisitions which serve only to enlarge a company without creating value benefit no one. Instead, they should only be pursued when it can be demonstrated through actual financial analysis that they will benefit shareholders more than any other possible use of cash, which is clearly not the case here. But do not just take our word for this. As Lehman Brothers analyst Jeffrey W. Robertson in a report dated April 10, 2006 said of the Company's acquisition plans, "the acquisition case again appears to be the least attractive [scenario] having a lower implied value per share than even if the company simply holds the proceeds in cash." Second, management has cited, again without the benefit of any evidence of the value to shareholders, a desire to maintain the Company's current high credit rating. Given that the maintenance of this credit rating has little or no value to shareholders, we question management's seeming deference to the ratings agencies at the expense of shareholders, to whom the Board owes its primary fiduciary duties. Of course, we are not the only ones disturbed by the Company's stated intentions, as the market's reaction demonstrates. Your 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. Raymond James analyst Wayne Andrews in a report dated April 11, 2006 gave voice to the market's obvious unease in stating that "a bigger concern of ours relates to unclear specific priorities for [the] use of proceeds." A management team facing such reactions should be hungry, we believe, for ideas to boost value, which makes management's unwillingness to explore our proposals in anything but the most cursory manner or to offer any detailed analysis of their own all the more astounding. This lack of curiosity would be more defensible if the Company's leadership had a record of value creation upon which to rest. A review of the Company's performance however hardly offers any justification for such confidence. For example: o From the start of 2005 to today, a period of continued growth in the oil and gas exploration industry, the Company's stock price has stayed flat while its competitors' values have soared. While the stock prices of St. Mary Land & Exploration Co., KCS Energy Inc., Newfield Exploration Co. and Forest Oil Corp. have in this period risen approximately 108%, 94%, 48% and 82% (adjusting for the impact of Forest Oil's Mariner Energy spin-off), respectively, the Company's shares have risen less than 1%. While the Company did manage to ride the oil and gas boom starting in 2004, the 45% rise in its stock price since the start of that year pales in comparison to its stronger competitors, such as St. Mary (190%) and KCS Energy (154%). The same is true going back to the start of 2003, with Houston Exploration rising 69%, again far less than St. Mary (229%) and KCS Energy (1256%). 2 o The Company also trades at a significant discount to many of its industry peers, evidencing in our opinion the market's lack of faith in management. The Company currently trades at a total enterprise value to 2007 estimated EBITDA multiple of approximately 2.8x, compared to multiples of approximately 4.1x for KCS Energy, 4.2x for Forest Oil and 5.0x for St. Mary. Moreover, while the Company trades at approximately $2.30/Mcfe, KCS Energy trades at approximately $3.49/Mcfe, St. Mary trades at approximately $3.69/Mcfe and Forest Oil trades at approximately $2.81/Mcfe. o High F&D costs, poor hedging strategies and inefficiency in reserve replacement, or to put it another way, management failure, is largely responsible we believe for the market discount ascribed to the Company. Despite these failures, we note that compensation has continued to grow at a healthy pace. Chairman, CEO & President Hargett's total compensation (excluding options) rose 544% from 2003 to 2005 and such compensation rose 259% for the other top four officers combined during this period. Further increasing the disconnect between management and shareholder interests, the most recent filings show that officers and directors as a group own only one-half of one percent of the Company's shares. The good news is that the Board still has the opportunity to deliver value for shareholders. While we believe that some discount to the stock is in many ways justified given management's lack of credibility, we also believe based on expected strong onshore organic growth that the stock is significantly undervalued. As we have described in our conversations with management, the Company can take advantage of this undervaluation by using the proceeds of the recent disposition and its under-leveraged balance sheet to pursue an immediate repurchase of a significant portion of its shares through a Dutch auction. Assuming that the Company utilizes the remaining net proceeds from the Gulf of Mexico sale together with $158 million of additional leverage (the amount already paid down on the Company's revolving credit agreement with the sale proceeds and which the Company can quickly begin to pay down given its expected cash flows) and repurchases its shares at a 15% premium to the current market price, it could purchase approximately 11 million shares. We believe an immediate purchase of this size would result in accretion to 2007 EPS of more than 40%. Putting the Company's capital to work in this manner is the right approach given the significant benefit to the Company's shareholders, and very importantly, entails none of the execution risk associated with acquisitions. We also firmly believe that there is no stronger signal that the Board can send to the market of its belief that the stock is currently undervalued. You should note that we have taken into account the tax benefits of using the sale proceeds to pursue further acquisitions and still firmly believe that such share repurchases are more likely to deliver a superior return for shareholders. Even assuming tax savings of approximately $110 million from using the proceeds of the sale to pursue acquisitions (an assumption which we have verified with management), for an acquisition to be more accretive than a share repurchase the Company must find targets valued at under 3.0x 3 EBITDA and under $2.50/Mcfe (the multiples at which the Company trades adjusted for this tax benefit). These assets also could not contain an inordinately high percentage of proved undeveloped reserves, the presence of which would add significant costs and thus effectively raise the multiple paid by the Company. And of course the Company would have to execute such transactions without running into unforeseen difficulties, which is unlikely in today's highly competitive onshore acquisition environment. In other words, pursuing acquisitions solely to obtain the tax benefits is entirely nonsensical, given that a greater ultimate benefit will indisputably accrue to shareholders from a share repurchase. Allowing the proceeds of the Gulf of Mexico sale to be squandered on misguided and value-destroying measures however would only compound the Company's already grievous mistakes. While we are hopeful that the Board will make the right decision for shareholders, it has to date demonstrated a startling indifference to its fiduciary duty to pursue all avenues to maximize shareholder value. You should note that we will not hesitate to hold individual directors responsible for any failure to abide by such duties. This brings us to a final point. A public company is to be run to deliver the maximum value for its shareholders, not as a vehicle for the pursuit of the whims of its management. Given the Company's performance viewed in comparison to its peers and given industry trends toward consolidation, we believe the Board must as part of its pursuit of value maximization undertake a prompt and thorough exploration of strategic alternatives, including potentially a sale of the Company. Having spoken to numerous industry experts and potential acquirors, we are confident that such a process would attract many interested parties at a substantial premium to the current stock price. Our first approach is always to attempt to work constructively with management to share ideas regarding how to deliver value for shareholders. Where a company's leadership fails to share our passion for this pursuit, however, we have no choice but to take the necessary actions to bring about change. Given your unwillingness to undertake a legitimate analysis of the strategy we have outlined here or to offer assurances that the Company will not waste this opportunity to deliver for its shareholders, you have forced us to speak out publicly. Furthermore, should the Board continue down the same aimless path, we are quite confident that a majority of our fellow shareholders would support our efforts to bring about change, including at next year's Annual Meeting. You may contact us at (415) 989-7770 should you wish to discuss this matter further. Sincerely, /s/Barry Rosenstein - ------------------------------ Barry Rosenstein JANA Partners LLC Managing Partner BR/CP/AR 4 EX-99 3 exhibitb.txt EXHIBIT B FOR IMMEDIATE RELEASE For more information contact JANA Partners LLC at (212) 692-7696 JANA PARTNERS CALLS UPON HOUSTON EXPLORATION'S BOARD TO CONDUCT PROMPT SHARE REPURCHASE AND TO BEGIN EXPLORATION OF STRATEGIC ALTERNATIVES NEW YORK, NEW YORK - APRIL 17, 2006 - JANA Partners LLC ("JANA") today called upon the Board of Directors of The Houston Exploration Company ("Houston Exploration" or the "Company") (NYSE - THX) to put the proceeds of a recently announced asset sale to work for shareholders through the prompt repurchase of a substantial portion of the Company's outstanding shares. JANA is a $5 billion hedge fund with offices in New York and San Francisco and is the beneficial owner of approximately 9% of the outstanding shares of Houston Exploration. Houston Exploration announced on April 10, 2006 that it had agreed to sell certain Gulf of Mexico offshore assets for $590 million. The Company has indicated that it may use much of the proceeds to pursue new acquisitions and repay debt. JANA Managing Partner Barry Rosenstein however stated in a letter sent today to the Company's Board of Directors that such actions would be far less beneficial to shareholders than a substantial share repurchase, and in fact would likely destroy value given the risks associated with such acquisitions and the Company's history of underperformance. "As one of the Company's largest investors, we have a substantial interest in seeing its leadership commit to a clear, determined path to delivering maximum value for all shareholders," Mr. Rosenstein wrote. "We have therefore spent a significant amount of time analyzing the various options available to the Company and have made every effort to work constructively with management in discussing our analysis. As you know, we believe this analysis leaves no doubt that using the proceeds of the recent Gulf of Mexico asset sale and the strength of the Company's balance sheet to institute an immediate share repurchase is the option that creates the most value for shareholders." Mr. Rosenstein also wrote that, given the Company's historical underperformance and industry dynamics, the Board should at the same time explore strategic alternatives, including a sale of the Company. He expressed confidence that such a process would attract many interested parties at a substantial premium to the current stock price. Mr. Rosenstein expressed astonishment that management had not shown legitimate interest in exploring the benefits of a substantial share repurchase. "Particularly where management has failed to deliver for shareholders," Mr. Rosenstein wrote, "we would expect them to show some semblance of curiosity about how they might generate increased value. Instead, the response to the detailed quantitative analysis we have shared with management has been the analytical equivalent of a shoulder shrug." Mr. Rosenstein wrote that such a "lack of curiosity would be more defensible if the Company's leadership had a record of value creation upon which to rest." He noted however that, among other indicators of underperformance, Houston Exploration's stock had risen less than 1% since the start of 2005, while competitors St. Mary Land & Exploration Co., KCS Energy Inc., Forest Oil Corp. and Newfield Exploration Co. had seen their shares rise approximately 108%, 94%, 82% and 48%, respectively, during this period. Mr. Rosenstein also stated his belief that management failures such as high finding and development costs, poor hedging strategies and inefficiency in reserve replacement had led the market to ascribe a significant discount to the Company relative to its peers. Mr. Rosenstein went on to state that the Company had offered no real evidence that new acquisitions would be anywhere near as accretive as repurchasing its currently undervalued stock, a move which he estimated would increase 2007 earnings per share by over 40%. Likewise, Mr. Rosenstein noted that additional debt repayment would be of no real value given the strength of the Company's balance sheet and the minimal benefit to shareholders of such repayments. "No credible justifications have been offered for this strategy of essentially continuing to drill away at a dry hole," Mr. Rosenstein wrote. "Of course, we are not the only ones disturbed by the Company's stated intentions, as the market's reaction demonstrates," Mr. Rosenstein continued. "Your 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." "Given your unwillingness to undertake a legitimate analysis of the strategy we have outlined here or to offer assurances that the Company will not waste this opportunity to deliver for its shareholders, you have forced us to speak out publicly," Mr. Rosenstein wrote in closing. "Furthermore, should the Board continue down the same aimless path, we are quite confident that a majority of our fellow shareholders would support our efforts to bring about change, including at next year's Annual Meeting." BACKGROUND JANA Partners LLC, a Delaware limited liability company, holds the Company's common stock in various accounts under its management and control. *** 2 -----END PRIVACY-ENHANCED MESSAGE-----