January 16, 1992
Penny stock looks to gain the pounds
HOUSTON-based Adair International Oil and Gas seemed destined to fulfill the worst fears of penny stock investors on Houston's NASDAQ exchange last year. It was weighed down by non-performing international assets with oil prices headed towards historic lows. Then Steve Hill replaced Earl Roberts as president on 1 October, pushing through a radical salvage plan that he claims has already prompted a turnaround and could serve as a model for reviving the fortunes of struggling US independents. The first thing I did was cut all international travel and stop all overseas phone calls. I took all company officers off-salary, including myself, except the book keeper and one office secretary, he says. Then I recruited a top reservoir engineer to focus on the substance of new acquisitions with ongoing production and a positive upside. Adair's shares had plummeted to 1.5 cents last September from $1.87 at the turn of the year as market-makers went short on the stock and investors howled for blood. They have since climbed closer to 10 cents and Hill says he is looking for 50 cents by the first quarter and up to a dollar by mid-year. Confidence is already returning, he claims. Last week saw a fresh $15 million credit facility approved by the South West Bank of Texas along with a $500,000 line of credit from Houston's Coastal Banc to clear operating costs. I couldn't go to the likes of Chase and the bigger banks because they just weren't interested, so I targeted the smaller institutions which could think local, Hill says. New Orleans investment banker Howard Weil has agreed that in July, after six months of positive cash flow and good financials, it will float a $25 million bond issue to buy back stock. Part of that will be used to settle debt incurred from the aggressive acquisitions programmer Hill launched after taking over. How can a small company like Adair International, driven down by low oil prices and given up for dead, be revived in the current climate? The simple answer, the head man says, is by focusing on the bottom line, addressing short-term needs and relentlessly expanding shareholder value. Hill's central strategy has been to acquire a series of proven producing properties from the majors with good cash flow in the $5 million to $20 million range, all of which could muster a net $200,000 a month after expenses and with no overheads. I'm buying oil in the ground at less than $4 a barrel and gas in the ground at less than $1 per thousand cubic feet, giving Adair the bankable margin required, he explains. Currently we have 138 producing wells, up from 28 when I took over. Fresh assets in Michigan will shortly be transferred from Kerr-McGee, joining core producing acreage in Texas, Louisiana and Oklahoma. Adair has just signed a ground-breaking agreement for a gas-to-wire project in Montana with the Blackfoot Native American peoples (see facing page). A substantial stake in a large number of Exxon-operated producers has now been inked with the final deal just awaiting the transfer of funds. Previously, the only bright spot on Adair's horizon had been in war-torn Colombia where the proven Chimichagua gas field lay idle waiting for funds. Hill says the company has just secured an alliance with Helsinki-based developer Wartsila to launch a $65 million project to generate 50 megawatts for the local electricity grid, financed by the Finnish government. Under the deal, Adair will retain 80% of the field plus 40% carried interest in the Wartsila-operated plant. Elsewhere, non-producing concessions in Yemen and Paraguay drained some $1.5 million from the company's coffers in travel and engineering consultancy fees with no cash flow to show for it. A farm-out of the Yemeni acreage to Unocal is now imminent.
