Fresh Oomph For Box Energy?

Of late, shares of Box Energy, trading at 14 in March, have been, well, losing power. Some 50% of its market capitalization has evaporated, with the price down to 7. "The stock is either quicksand--or a great steal," says a Texas investment manager. "We think it's definitely the latter." Several other oil-patch bargain-hunters agree.

What has Box got to entice these pros? "A lot of oil and gas," says investment manager Arnold Schmeidler, who has been snapping up shares. He thinks the company is misunderstood.

A factor that drove the stock down was the recent bankruptcy filing by privately owned Box Brothers Holding, which controls 57% of Box Energy. (The Box brothers are sons of founder Cloyce Box.) The worry was that the filing could result in a change of control. Box Energy President Thomas Box, an executor of his father's estate, insists that control won't change.

"Doesn't matter," says Schmeidler. For one thing, Box Energy's assets are worth more than current stock price, he says. Box Energy, with partners Marathon Oil and Amerada Hess, has a lucrative oil-and-gas-lease property off Louisiana. The natural-gas output jumped from 25 million cubic feet a day last year to 60 million. Box's share is marketed under a contract expiring in 2002, whereby prices rise 10% a year. As a result, second-quarter gas sales jumped to $13.6 million, up from $4.3 million a year ago. And six-month cash flow from operations swelled to $8.2 million vs. $5.6 million a year ago. Schmeidler sees cash flow of $2.50 a share this year, so he expects "the stock to hit the $20-a-share range."

What of fears that the Box family might lose control? Schmeidler says if its stake went on the block, likely buyers would be Marathon and Amerada Hess--even better for the stock.


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