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Tom Brown Inc.: surviving in the oil and gas industry.


This case was developed through the use of secondary research material. The case has a difficulty level of five and is appropriate to be analyzed and discussed by advanced undergraduate and graduate students in a strategic management class.

The case allows the instructor the flexibility of concentrating on one strategic issue, or as a means of examining the entire strategic management process. The major focus within the strategic analysis as well as excellent stand alone modules is in the area of legal/political influence, economic, and as a means of discussing owner succession.

The instructor should allow approximately one class period for each element addressed. Using a cooperative learning cooperative learning Education theory A student-centered teaching strategy in which heterogeneous groups of students work to achieve a common academic goal–eg, completing a case study or a evaluating a QC problem. See Problem-based learning, Socratic method.  method, student groups should require about two hours of outside research on each element researched. The case also provides an impetus to explore a critical industry in our world economy, yet one that has received minimal attention in most course coverage.

CASE SYNOPSIS A summary; a brief statement, less than the whole.

A synopsis is a condensation of something—for example, a synopsis of a trial record.

This case is a library, popular press and internet case which examines Tom Brown Inc. The review of annual reports, trade journals, government documents and proposed and enacted regulations must be accomplished carefully. While most students have a general understanding of the oil and gas industry, few have the current knowledge to compare this industry against more traditional production operations. A review of these resources should lead students in determining the future of the company and the current CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. , Tom Brown.


Company Mission

"Tom Brown, Inc. is an independent energy company engaged in the exploration for, and the development, acquisition, production, and marketing of natural gas, natural gas liquids, and crude oil primarily in the gas-prone basins of the North American North American

named after North America.

North American blastomycosis
see North American blastomycosis.

North American cattle tick
see boophilusannulatus.
 Rocky Mountains Rocky Mountains, major mountain system of W North America and easternmost belt of the North American cordillera, extending more than 3,000 mi (4,800 km) from central N.Mex. to NW Alaska; Mt. Elbert (14,431 ft/4,399 m) in Colorado is the highest peak.  and Texas."

The corporate mission of TBI TBI 1. Thyroxine-binding index 2. Total body irradiation  should be located by the students on the corporation's website. A review of the mission clearly demonstrates that the company has a well focused mission statement. Further investigation of TBI's direction within that document allows the identification of several internal goals and directions. Each of the below goals reinforces the company's desire to build value per share:

* Exploring undiscovered reserves

* Acquiring and exploiting oil and gas properties

* Enhancing value by optimizing production, actively marketing and processing natural gas and focusing on cost containment cost containment,
n the features of a dental benefits program or of the administration of the program designed to reduce or eliminate certain charges to the plan.

* Aggressively managing and holding a dominant land position in its core areas

* Maintaining a strong balance sheet

Review of these goals should provide discussion on consistency with the mission. Knowledge of the actual results indicates, for the most part, that TBI has created a well developed direction for the company. Some discussion may arise regarding whether the above goals are truly goals or are they strategies the company is pursuing.


Threats to Entry

The natural gas production industry sells a relatively undifferentiated undifferentiated /un·dif·fer·en·ti·at·ed/ (un-dif?er-en´she-at-ed) anaplastic.

Having no special structure or function; primitive; embryonic.
 commodity. There is no proprietary product difference or brand identity associated with natural gas. Many projects have fairly low capital requirements Capital requirements

Financing required for the operation of a business, composed of long-term and working capital plus fixed assets.
 for domestic natural gas production. In addition, there are no switching costs for purchasers of natural gas.

One barrier that a new start-up would encounter could be access to distribution channels in certain gas rich areas--the Rocky Mountains for example. Not only is there a lack of pipeline capacity existing in the region, but individual gathering systems within that region also lack abundance. Individual operators can build gathering systems, but these systems make project economics much less attractive.

Perhaps the biggest deterrent for potential competitors within the natural gas industry is the fact that existing firms have absolute cost advantages with respect to the exploration and development of new reserves. Because the domestic natural gas market must now develop low quality reserves, competitors often lack the knowledge base to know which properties may have reserves and how exactly to go about developing those reserves.

Another component influencing the treat of new entrants is the expected retaliation RETALIATION. The act by which a nation or individual treats another in the same manner that the latter has treated them. For example, if a nation should lay a very heavy tariff on American goods, the United States would be justified in return in laying heavy duties on the manufactures and  of existing firms within the industry. Expected retaliation in the natural gas production industry only exists with respect to employment wars between companies. With the departure of many of the major oil companies from the U.S. exploration and development market, most firms are on a relatively equal platform in this regard.

Threats of Substitute Products

There are many other energy sources across the country that could be substituted for natural gas. These substitute forms of energy include coal, nuclear, hydro, heating oil, solar, and wind-generated. Considering that a firm's greatest concern with substitute products is their potential to set the price ceiling for your product. This consideration excludes solar, heating oil and wind-generated power as major concerns.

On the other hand, hydroelectricity is a very cheap form of energy that is definitely substituted for natural gas where possible. However, the total amount of power generated by this means is already at maximum capacity and accounts for only a small percentage of the nation's needs. The cleanest and cheapest form of energy generation in the world is that of nuclear power. Per megawatt meg·a·watt  
n. Abbr. MW
One million watts.

 of electricity produced, no other form of energy generation compares with respect to cost or amount of pollution generated. Due to the public's reaction to "nuclear" power plants, the nations move to this supply has been extremely limited in recent years with no new plants coming on line for several years.

Power of Buyers

Unlike many commodities, natural gas purchases are typically not at the discretion of the final end user. The price, as discussed in the case, is driven primarily on the basis of supply versus demand.

An element in the channel of distribution for this product does have a considerable influence on price in certain regions--the owners of the pipelines. When there is limited capacity with respect to the movement of the gas, the pipeline owners have considerable leverage and can charge a premium for its movement.

Power of Suppliers

In the oilfield, products and services are highly differentiated. There are such a large number of applications that must be catered to that a myriad of sub-sectors have arisen in the industry. Because each sub-sector contains only a handful of firms that are also differentiated within their peer groups, competition is low and these firms are able to charge a premium. Furthermore, limited knowledge with respect to the specialty products and services reduces the power of the exploration companies. To illustrate this point, below are a few of the specialty sub-sectors:

Drilling--drilling rigs that powers the drilling operations

Bits--bits that can cut and drill away rock

Mud--drilling fluids that provide pressure control

MWD--equipment that measures bottom-hole characteristics

Directional Drilling--hole guidance and directional drilling Directional drilling (sometimes known as slant drilling outside the oil industry) is the science of drilling non-vertical wells. Directional drilling can be broken down into three main groups: Oilfield Directional Drilling, Utility Installation Directional Drilling (commonly  heads

Logging--measurement instruments of rock characteristics

Communication--relay information from remote rig locations

Casing and Liners--liners for the hole to ensure wellbore integrity

Cementing--cementing for pressure isolation and corrosion control

Down-hole tools--tools to correct remote problems

Wellheads--surface control equipment

Safety--various safety equipment items

These are only a few of the sub-sectors--there are numerous others.

There is one other supplier that may exert even more power over independent exploration and production companies. That supplier is land owners. Gas rich land masses are in short supply.

Rivalry of Existing Firms

In terms of the competitiveness of the industry, most experts would classify the industry as only relatively competitive. There is exceptional growth, few large players, fixed cost as a percentage of value added Value Added

The enhancement a company gives its product or service before offering the product to customers.

This can either increase the products price or value.
 is low and exit barriers are generally low.

For students it will be difficult to accumulate a great deal of information relating to relating to relate prepconcernant

relating to relate prepbezüglich +gen, mit Bezug auf +acc 
 each of TBI's direct competitors. This is not a major concern for the analysis. A few of these firms include: Apache Apache (əpăch`ē), Native North Americans of the Southwest composed of six culturally related groups. They speak a language that has various dialects and belongs to the Athabascan branch of the Nadene linguistic stock (see Native American , EOG EOG electro-olfactogram.



electro-oculogram; electro-olfactogram.

EOG Electrooculogram, see there
, Evergreen, Forest, Newfield and Pogo,

After analyzing the above five forces, students should come to the general conclusion that the industry is potentially very attractive. There are some protective barriers to entry, buyers are not powerful, there are limited substitute products, and the industry is relatively mild in terms of competition.


The case provides numerous opportunities for the students to explore the influence of the general environment on firms. While good discussions can be generated regarding the influence of the social, global and technological forces, the areas that need the most attention from the students are natural, economic and legal and political issues.


Students should be prepared to recognize not only existing regulations, but also the potential for future re-regulation of the industry. Students should also be cognizant of the political climate relating to foreign producers. At a minimum, students should address the issues in the following paragraphs.

While forthcoming legislation and changes in governmental regulations are difficult to predict, firms operating in the natural gas industry need to be aware of proposed changes and steer their strategic plans to capitalize on Cap´i`tal`ize on`   

v. t. 1. To turn (an opportunity) to one's advantage; to take advantage of (a situation); to profit from; as, to capitalize on an opponent's mistakes s>.
 legislative activity and minimize the negative impact of regulatory actions. Both the President and Congress see the need for a change in U.S. energy policy. The U.S.'s dependence on foreign oil has adverse economic and geopolitical ge·o·pol·i·tics  
n. (used with a sing. verb)
1. The study of the relationship among politics and geography, demography, and economics, especially with respect to the foreign policy of a nation.

 consequences. Both government and industry view natural gas as an economic alternative to fuel oil and a clean fuel source for the generation of electricity.

A growing use of natural gas is in the generation of electricity. Coal, while being the most plentiful energy source in the U.S. and the primary fuel source for electric generation, has a number of environmental issues as it relates to air quality. Air quality regulatory activity has become more stringent and costly every year. Emissions from coal plants have been regulated since the Clean Air Act of 1992. The President has proposed an update of the Clean Air Act that would call for even more stringent requirements on the emissions of Nitrogen Oxide Noun 1. nitrogen oxide - any of several oxides of nitrogen formed by the action of nitric acid on oxidizable materials; present in car exhausts
pollutant - waste matter that contaminates the water or air or soil
 (NOx) and Sulfur Dioxide sulfur dioxide, chemical compound, SO2, a colorless gas with a pungent, suffocating odor. It is readily soluble in cold water, sparingly soluble in hot water, and soluble in alcohol, acetic acid, and sulfuric acid.  (SO2). Even without legislative reform, the EPA EPA eicosapentaenoic acid.

eicosapentaenoic acid

EPA, See acid, eicosapentaenoic.

 and the various states through the Clean Air Interstate Rule are likely to require lower emissions of NOx and SO2. Regulatory proposals are also in place for control of mercury emissions and well as fine particulate matter particulate matter
n. Abbr. PM
Material suspended in the air in the form of minute solid particles or liquid droplets, especially when considered as an atmospheric pollutant.

Noun 1.

Pending legislation targets an increase in both domestic production as well as natural gas imports. A revision of the Energy Policy Act of 1992 is currently under consideration at the federal level. Legislative provisions being discussed include opening up the Alaskan North Slope North Slope, Alaska: see Alaska North Slope.  to oil and natural gas exploration and the construction of a natural gas pipeline from Alaska to the lower forty-eight states. Proposed incentives include low interest loans and loan guarantees as well as accelerated depreciation Accelerated Depreciation

Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years of the life of an asset.

The straight-line depreciation method spreads the cost evenly over the life of an asset.
 for the pipeline owners. Proposed activities to promote additional exploration include royalty relief for oil and gas production in the deep waters "Deep Waters" is a short story by P. G. Wodehouse, which first appeared in the United States in the March 25 1910 issue of Collier's Weekly, and in the United Kingdom in the June 1910 issue of the Strand.  of the Gulf of Mexico Noun 1. Gulf of Mexico - an arm of the Atlantic to the south of the United States and to the east of Mexico
Golfo de Mexico

Atlantic, Atlantic Ocean - the 2nd largest ocean; separates North and South America on the west from Europe and Africa on the east
 and the opening up of additional areas in the deep Gulf and off the Florida coast. Other areas for exploration are also being discussed including the Outer Continental Shelf In the federal United States, the Outer Continental Shelf (OCS) consists of the submerged lands, subsoil, and seabed, lying between the seaward extent of the States' jurisdiction and the seaward extent of Federal jurisdiction.  and additional Federal Lands in the Rock Mountains. While these legislative activities will eventually put some downward pressure on natural gas prices, they also offer new opportunities for TBI.

Both the President and Congress view Liquefied Natural Gas liquefied natural gas: see under natural gas.
Liquefied natural gas (LNG)

A product of natural gas which consists primarily of methane. Its properties are those of liquid methane, slightly modified by minor constituents.
 (LNG LNG (liquefied natural gas): see under natural gas. ) as a solution to the U.S. dwindling dwin·dle  
v. dwin·dled, dwin·dling, dwin·dles

To become gradually less until little remains.
To cause to dwindle. See Synonyms at decrease.
 natural gas supply. However, the U.S. has limited importing and re-gasification facilities for LNG. A number of companies have attempted to build LNG import stations but have not been successful due to environmental and safety concerns; especially, after the September 11 terrorist attacks. Currently, the approval and permitting of importing facilities are up to the individual states. Current provisions would move this approval and monitoring authority to the federal level. Approval of import facilities are proposed to fall under the jurisdiction of the Federal Energy Regulatory Commission The Federal Energy Regulatory Commission (FERC) is the United States federal agency with jurisdiction over electricity sales, wholesale electric rates, hydroelectric licensing, natural gas pricing, and oil pipeline rates.  (FERC FERC Federal Energy Regulatory Commission
FERC FEMA Emergency Response Capability
) with safety issues to be addressed by the Department of Homeland Security Noun 1. Department of Homeland Security - the federal department that administers all matters relating to homeland security
Homeland Security

executive department - a federal department in the executive branch of the government of the United States

The California energy crisis and a general shortage of electricity in the U.S. have prompted a number of provisions to expand the use of nuclear and coal. No nuclear reactors have been constructed in the U.S. since the mid 1970's. Current provisions include cost off-sets and tax credits for new nuclear plants. Coal, while environmentally unfriendly, is plentiful. Many see coal gasification gas·i·fy  
tr. & intr.v. gas·i·fied, gas·i·fy·ing, gas·i·fies
To convert into or become gas.

 as an environmentally friendly Environmentally friendly, also referred to as nature friendly, is a term used to refer to goods and services considered to inflict minimal harm on the environment.[1]  method of producing electricity. The Department of Energy is encouraged to foster the development of this technology and provide cost-offsets and tax credits to support its development.

Natural gas production from the Rocky Mountain States Rocky Mountain States

A region of the western United States including Colorado, Idaho, Montana, Nevada, Utah, and Wyoming.
 has been hampered by a lack of pipelines and storage facilities. Tariffs for natural gas transportation and storage fall under the jurisdiction of FERC. These tariffs fail to provide the economic incentives for new pipelines and storage facilities in the West. FERC is currently reviewing provisions to permit natural gas companies to provide storage facilities at market-based rates if FERC believes the company can not exert excessive market power.


* Increased environmental and safety regulations

* Increased social concern driving further pocketed legal roadblocks such as in Colorado

* Regulation restricting expansion due to potential environmental damages


* Increased regulation forcing larger companies out

* Legal restrictions being lifted in certain international markets


The case clearly demonstrates the influence of two major economic issues on the natural gas industry. Supply and demand is probably no more apparent in any other industry. Also the relationship of Economic Growth as measured by GDP GDP (guanosine diphosphate): see guanine.  is made very clear in this case.


* Unpredictable patterns of supply and demand

* Downturn in the economy


* Economic upturns

* Price increases bring new exploration


The very nature of the commodity presents both challenges and opportunities for the industry. While natural gas is a limited resource, there is still potentially a very large market to explore. The greatest concern students should identify is the diverse and isolated locations of many of the gas rich locations. In addition, gas consumption is increasing at a faster pace in the U.S. than in other areas rich in natural gas.


Firms in the oil and gas industry have had very little written about there day-to-day operations in the popular press. This is also true regarding the leaders within those firms. While studying Tom Brown would be a case in itself, access to large amounts of information about him is limited. The same is true about the individual functional areas within the firm. Students will be limited primarily to looking at the raw numbers and drawing conclusions based upon these financial statements.

Financial Analysis

The analysis begins with the comparison of the firm's key performance ratios to those of its competitors. For this analysis, a random selection of independent natural gas producers with domestic operations was chosen as an industry peer group. Among those were Apache, EOG, Evergreen, Forest, Newfield, and Pogo.

Return on Revenue (ROR ROR Ruby on Rails
ROR Rate Of Return
ROR Reach Out and Read (national pediatric literacy program)
ROR Rotate Right
ROR Revolutions On Request (artist group; Finland)
ROR Rise of Rome
)--this performance ratio indicates the company's profit margin on every dollar of revenue. Lower ROR percentages indicate that the company is spending more money in the acquisition, development, or production of its reserves, or that current operations carry a high level of fixed costs fixed costs, the costs that do not change to meet fluctuations in enrollment or in use of services (e.g., salaries, rent, business license fees, and depreciation).
 compared to existing production rates. In either case, companies with lower ROR live with cost disadvantages compared to their peers. TBI was in the middle of the pact compared to its peers in this category.

Return on Assets Return on assets (ROA)

Indicator of profitability. Determined by dividing net income for the past 12 months by total average assets. Result is shown as a percentage. ROA can be decomposed into return on sales (net income/sales) multiplied by asset utilization (sales/assets).
 (ROA)--this performance ratio indicates the company's ability to utilize its asset base to generate net income. Some companies may be extremely efficient at generating income from revenue (high ROR), but not utilize their full asset base to maximize those revenues (low ROA). Companies with the highest ROA are growing at the fastest rates as a direct result of differentiating their operations and establishing cost advantages with respect to "finding costs." TBI was a leader in this area within its peer group. The increase natural gas prices realized between 1999 and 2001 enabled the firm to benefit from its strategic plays and large production base existing within the Rockies.

Return on Equity (ROE)--this performance ratio indicates the company's ability to deliver earnings to its stockholders. This ratio is directly dependent on the firm's ROA in combination with its capital structure and cost of debt. Given a ROA higher than the cost of debt, an increased capitalization ratio results in a higher ROE. Likewise, given a ROA less than the cost of debt, increased capitalization ratio results in lower ROE. ROE for TBI is at the bottom of its peer group. This is true for each of the years under study. This is especially alarming given that TBI increased its ROA performance. The obvious reason for the difference between ROA and ROE is the amount of leverage assumed by TBI versus its peers. This should have become obvious to the students as they studied Table 1 within the case.

Capitalization Ratio--this ratio is a measure of the firm's long-term debt compared to its total capital base. The capitalization ratio is a simple measurement of financial leverage. TBI carried a debt percentage significantly below that of its peers--10-15% versus 35-40%. While the impetus to do this is admirable (Tom Brown's individual aversion a·ver·sion
1. A fixed, intense dislike; repugnance, as of crowds.

2. A feeling of extreme repugnance accompanied by avoidance or rejection.
 to the risk associated with debt), it is obvious that it places TBI at risk as a target for a takeover.


While numerous issues are facing the company, a few of these are explored below.

Critical Issue # 1

THREAT--the cyclical cyclical

Of or relating to a variable, such as housing starts, car sales, or the price of a certain stock, that is subject to regular or irregular up-and-down movements.
 nature of the natural gas industry adds a large component of market risk into the equation, which can lead to decreased cash flows and the mistiming mis·time  
tr.v. mis·timed, mis·tim·ing, mis·times
To time inaccurately or inappropriately; misjudge the timing of: The basketball team mistimed the final play and lost the game.
 of projects.

WEAKNESSES--the company has historically assumed market risk in its business operations--opting not to hedge gas production. The combination of assuming the risk associated with developing unconventional gas sources (operational risk) as well as market risk has been detrimental to the company's prior financial performances.

Within TBI's operations, there is a major inconsistency in·con·sis·ten·cy  
n. pl. in·con·sis·ten·cies
1. The state or quality of being inconsistent.

2. Something inconsistent: many inconsistencies in your proposal.
 between the business unit level strategy and functional level strategies. The business unit level strategy dictates that the company will achieve superior financial results by employing its technical staff and its land position to find and develop a production/reserve base at a cost significantly lower than its competitors. While the company has been successful in its attempts to realize this objective, the company's financial results have been sub-par in some areas. While mitigating risk and outperforming the market in terms of operational excellence, TBI has given back many of these gains by assuming a large degree of market risk in its operations. This was evident in 2002, as TBI production and reserves increased at acceptable levels, while net income plummeted to a negative $8.2 million. As can be inferred, TBI did not hedge any of its production prior to the start of the year.

Critical Issue # 2

OPPORTUNITY--Major oil producers and some large independents are exiting the high-cost environment in North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere.  in search of low-cost reserves found abroad. Therefore, existing domestic properties will continue to be sold to independents.

STRENGTH--TBI has a proven track record of successfully evaluating and subsequently negotiating the purchase of those properties. The company's current capital structure would allow for easy financing of such deals.

Over the past decade, TBI has been able to acquire properties at prices significantly lower than its finding costs. Many of the acquired properties have also led to very successful, low-cost development projects. Therefore, the availability of additional sales-block properties can only be beneficial.

Critical Issue # 3

THREAT--With its large composition of gas reserves and strategic positioning, larger competitors may make hostile-takeover bids to acquire the TBI's reserves for a fraction of their real value.

WEAKNESS--TBI's capital structure, with its low levels of debt, invites an action. The company's historically low Return on Equity (due primarily to unfavorable leverage positions) might have the shares undervalued--further enticing potential acquirers.

Although short-term shareholder value may increase as a result of such a transaction, it probably would not be beneficial to stockholders in the long term. Because of the low capitalization ratio historically employed by the company, the Return of Equity has been artificially reduced. This reduction in ROE negatively impacts the price of the stock. Therefore, a hostile acquirer, instead of the previous shareholders, would benefit form this "hidden value". In addition, there is a very real possibility that the value of natural gas (and thus TBI shares) will significantly increase in the near future. A hostile takeover Hostile Takeover

A takeover attempt that is strongly resisted by the target firm.

Hostile takeovers are usually bad news, as the employee moral of the target firm can quickly turn to animosity against the acquiring firm.
 would strip existing shareholders of this future value.


Department of Energy, Annual Energy Forecast 2002.

Department of Energy,

Department of Energy,

EIA (Electronic Industries Alliance, Arlington, VA, A membership organization founded in 1924 as the Radio Manufacturing Association. It sets standards for consumer products and electronic components.  Data,

Energy Information Administration/International Energy Outlook 2002, 2003.


Newfield Exploration, Inc. 10K (2002).

Office of Management and Budget The Office of Management and Budget (OMB), formerly the Bureau of the Budget, is an agency of the federal government that evaluates, formulates, and coordinates management procedures and program objectives within and among departments and agencies of the Executive Branch. ,

Tom Brown, Inc. 2002 Annual Report.

Tom Brown, Inc. 10K (1994, 1995, 1996, 1997, 1998, 1999, 2000, 2001, 2002).

"Worldwide Natural Gas Supply and Demand and the Outlook for Global LNG Trade." Energy Information Administration, Natural Gas Monthly, August 1997.

William T. Jackson William T. Jackson (1876-1933) was an American politician. He served as mayor of Toledo, Ohio between 1928 and 1931. External links
  • Find-A-Grave profile for William T. Jackson
, University of South Florida

 at St. Petersburg

Mary Jo Jackson, University of South Florida at St. Petersburg

Larry A. Johnson, Dalton State College Dalton State College is one of six state colleges in the University System of Georgia. It is located in Dalton, Georgia.

The institution was founded as Dalton Junior College in July of 1963 and opened in September of 1967 offering associate degrees.
Table 1:  Tom Brown Inc. Activity: 1992-2002

Year   Investment        Divestment     Source of Funds      Amount

1992                     Willingston                        ($7.0 M)
       Arkoma              Basin (ND,                        $1.6 M
         Basin (AR)        Montana)
       Wyoming's Wind                                        $3.4 M
1993   Wind River                                            $2.2 M
                                        Stock Issuance     ($38.6 M)
       Val Verde                                             $1.6 M
         Basin of
         South West
1995   Presidio Oil &                   Bank Loan           $56.0 M
         Gas Index                                         ($56.0 M)
                                        Renegotiated       ($65.0 M)
                                          bank loan         $56.0 M
                         Arkoma                             ($9.0 M)
                                        Stock Issuance     ($47.0 M)
                                          and paid loan     $65.0 M
1996   K. N.                                               $36.25 M
                                        Stock Issuance     ($25.0 M)
                                        Stock Issuance    ($11.25 M)
       Finalized                                           $206.6 M
         purchase of
1997                                    ND Properties        ($11 M)
                                        Stock Issuance      ($121 M)
       Genesis Gas                                            $35 M
         & Oil
       Interenergy                                          $23.4 M
1998   Sauer Drilling                                        $8.1 M
1999   Relocation                                            $2.1 M
         to CO
       Unocal Rocky                                         $60.9 M
                                        Stock Issuance     ($55.9 M)
       Greater Green                                         $7.7 M
         River Basin
         of WY
                         DJ Basin of                        ($2.3 M)
2000   Wind River                                           $15.2 M
2001   Stellarton                                           $94.8 M
         Energy Inc.
                                        Canadian Loan      ($94.8 M)
       Don Evans (CEO)                                       $1.5 M
         resigned to
         become Sec.
         of Commerce
         and receives
         bonus and
         stock option
         charge of
         $3.8 M
                         Oklahoma                          ($24.5 M)
                         Wildhorse                           ($24 M)
       Deep Valley                                             $8 M

2002                     Wyoming                            ($7.2 M)
                         Louisiana                          ($2.0 M)
                         Colorado                           ($1.6 M)
       Green River                                          $14.9 M

($ thousand)

                                            2002         2001
Current Assets
Cash & Equivalents                        13,555       15,196
Accounts Receivable                       47,414       63,745
Inventories                                1,808        1,689
Other                                      3,988        2,332
  Total Current Assets                    66,765       82,962
Property & Equipment, at cost
Gas and Oil Properties                   959,807      849,628
Gather & Process & Plant                 101,054       89,343
Other                                     35,930       33,689
  Depreciation                          -320,306     -234,134
  Net P&E                                776,485      738,526
Other Assets
Deferred Income Taxes, net                     0            0
Goodwill, net                                  0       18,125
Other Assets                               7,702        5,362
  Net Other Assets                         7,702       23,487
Total Assets                             850,952      844,975
Current Liabilities
Accounts Payable                          42,773       59,172
Accrued Expenses                          21,993       12,512
Fair Value of Derivative                  10,886            0
  Total Current Liabilities               75,652       71,684
Bank Debt                                133,172      120,570
Deferred Income Tax                       73,967       75,194
Other Non-Current Liabilities              4,543        2,299
Total Liabilities                        287,334      269,747
Stockholder's Equity
Convertible Perferred Stock                    0            0
Common Stock, ($0.10 par value)            3,926        3,913
Additional Paid-in Capital               537,449      534,790
Retained Earnings                         29,678       37,855
Accumulated Other Comp. Loss              -7,435       -1,330
Total Stockholder's Equity               563,618      575,228
Equity & Liabilities                     850,952      844,975

                                             200         1999
Current Assets
Cash & Equivalents                        17,534       12,510
Accounts Receivable                       95,878       53,646
Inventories                                  521          829
Other                                      2,307        1,625
  Total Current Assets                   116,240       68,609
Property & Equipment, at cost
Gas and Oil Properties                   575,991      470,461
Gather & Process & Plant                  81,873       71,657
Other                                     28,746       23,027
  Depreciation                          -176,848     -133,342
  Net P&E                                509,762      431,803
Other Assets
Deferred Income Taxes, net                     0       28,625
Goodwill, net                                  0            0
Other Assets                               3,533       35,887
  Net Other Assets                         3,533       64,512
Total Assets                             629,535      564,924
Current Liabilities
Accounts Payable                          55,982       39,489
Accrued Expenses                          22,119        9,763
Fair Value of Derivative                       0            0
  Total Current Liabilities               78,101       49,252
Bank Debt                                 54,000       81,000
Deferred Income Tax                        5,475            0
Other Non-Current Liabilities              3,066        3,950
Total Liabilities                        140,642      134,202
Stockholder's Equity
Convertible Perferred Stock                    0          100
Common Stock, ($0.10 par value)            3,835        3,531
Additional Paid-in Capital               516,911      495,817
Retained Earnings                        -31,648      -97,351
Accumulated Other Comp. Loss                -205            0
Total Stockholder's Equity               488,893      402,097
Equity & Liabilities                     629,535      536,299

Table 3: TOM BROWN, INC. INCOME STATEMENT ($ thousands)

                                            2002         2001
Oil, Gas & Liquid Sales                  194,276      274,031
Gathering & Processing                    20,467       23,245
Marketing & Trading                        5,276        1,891
Drilling                                  14,347       14,828
Gain on Sale of Property                   4,114       10,078
Change in Derivative Fair Value           -2,406          897
Loss on Marketable Securities               -600            0
Interest Income & Other                      171        1,345
  Total Revenues                         235,645      326,324
Costs and Expenses
Gas and Oil Production                    32,151       32,060
Taxes on gas & oil                        16,621       21,020
Gathering & Processing Costs               6,918       10,855
Drilling                                  13,763       11,851
Exploration Costs                         22,824       34,195
Impairment of Leasehold Costs              5,564        5,236
General & Administrative                  18,413       22,742
Depreciation, Depletion, & Amor.          91,307       74,371
Bad Debts                                  5,222        1,043
Interest Expense & Other                   9,726        7,347
  Total costs and expenses               222,509      220,720
Income Before Taxes & Cumm.
Effect of Change in Acct. Principle       13,136      105,604
Income Tax Provision:
Current                                      229        1,200
Deferred                                   2,981       36,927
Cumm. Effect of Change in Acct.          -18,103        2,026
Net Income                                -8,177       69,503
Preferred Stock Dividends                      0            0
N.I. Attributable to Common Stock         -8,177       69,503
Weighted Average # of Shares out.
Basic                                     39,217       38,943
Diluted                                   40,327       40,227
Net Income/Share (Basic)                   -0.21         1.78
Net Income/Share (Diluted)                  -0.2         1.73
Earnings/Share (Basic)                      0.25         1.73
Earnings/Share (Diluted)                    0.25         1.68

                                            2000         1999
Oil, Gas & Liquid Sales                  216,968      104,431
Gathering & Processing                    18,283       11,968
Marketing & Trading                        5,841         -786
Drilling                                  11,472        5,645
Gain on Sale of Property                       0        1,265
Change in Derivative Fair Value                0            0
Loss on Marketable Securities                  0            0
Interest Income & Other                    1,346          888
  Total Revenues                         253,910      123,411
Costs and Expenses
Gas and Oil Production                    25,488       18,446
Taxes on gas & oil                        22,105        9,934
Gathering & Processing Costs               7,212        5,853
Drilling                                   9,715        5,237
Exploration Costs                         11,001       10,013
Impairment of Leasehold Costs              3,900        3,600
General & Administrative                  11,614        9,203
Depreciation, Depletion, & Amor.          50,417       44,215
Bad Debts                                    133          n/a
Interest Expense & Other                   5,967        5,860
  Total costs and expenses               147,552      112,361
Income Before Taxes & Cumm.
Effect of Change in Acct. Principle      106,358       11,050
Income Tax Provision:
Current                                    1,968          903
Deferred                                  37,812        3,390
Cumm. Effect of Change in Acct.                0            0
Net Income                                66,578        6,757
Preferred Stock Dividends                    875        1,750
N.I. Attributable to Common Stock         65,703        5,007
Weighted Average # of Shares out.
Basic                                     36,664       32,228
Diluted                                   37,897       32,466
Net Income/Share (Basic)                    1.79         0.16
Net Income/Share (Diluted)                  1.73         0.15
Earnings/Share (Basic)                      1.82         0.21
Earnings/Share (Diluted)                    1.76         0.21

** Note: Earnings/Share strips out the cumulative effect
of accounting change.
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Title Annotation:CASE NOTES
Author:Jackson, William T.; Jackson, Mary Jo; Johnson, Larry A.
Publication:Journal of the International Academy for Case Studies
Article Type:Case study
Date:Nov 1, 2008
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