Oil and Gas Companies Undervalued?

April 6, 2005

Energy Partners Ltd (Market Cap: $1 billion) and Range Resources (Market Cap: $2 billion) filed executive severance plan descriptions at the end of last week that read as if they are worried about a change in control. Both stocks have more than doubled over the past year, but management may be feeling vulnerable given all the M&A activity in the oil patch.

RRC shareholders are scheduled to vote in May on a large increase in the number of authorized shares that could be used to thwart an unfriendly deal; the severance agreements replace earlier plans and not only include executives but apparently, most regular employees (6 months salary + half the average bonus for the last 2 years).

EPL already has a takeover defense in place and the founder and Chief Executive with 7.9% of the voting stock is very much in command. The CEO with stock worth roughly $50 million (after subtracting out 886,000 shares that have been sold forward) and with a salary and bonus of $1 million in 2004 gets three times as much if he is out of a job as a result of a change in control.

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