Tom Brown, Inc. Business Information, Profile, and History

Company Perspectives:

Tom Brown, Inc., is an independent energy company engaged in the domestic exploration for, and the acquisition, development, production, and marketing of, natural gas, crude oil, and natural gas liquids with core areas of activity in the Rocky Mountains and Texas. Tom Brown focuses it operations in areas where it has developed significant geologic expertise and established critical mass through the strategic accumulation of large, continuous acreage positions. The Company's principal exploration, development, and production activities are conducted in the Rocky Mountains and Texas, including the Wind River and Green River Basins of Wyoming; the Piceance and Paradox Basins of Colorado and Utah; and the Val Verde and Permian Basins of Texas.

History of Tom Brown, Inc.

Tom Brown, Inc., is one of the leading independent oil and gas firms in the United States. Headquartered in Denver, Colorado, Tom Brown primarily performs the following oil- and gas-related services: exploration for, and acquisition, development, and production of, natural gas and crude oil; marketing, discovering, gathering, processing, and selling of natural gas; and drilling of gas and oil wells. Tom Brown performs exploration and development primarily of gas-prone basins of the Rocky Mountains. The company leases a substantial quantity of land in key basins and owns a drilling company that provides services to its consulting division. In 1999, Tom Brown produced 130 million cubic feet per day (Mcfd) of oil and natural gas liquids, while the company's proved reserves totaled 524 billion cubic feet of gas equivalent (Bcfe).

1950s Origins

Tom Brown, Inc. traces its origins to the 1955 founding of the Scarber-Brown Drilling Company. Prior to that time, founder Tom Brown was working as salesman of wellheads, the structures built atop oil wells. During a fishing expedition to the Brazos River in north-central Texas, Brown reportedly mentioned to some clients from the Walker-Near Rig Manufacturing Company that he wished he could own his own drilling rig. They took his remark seriously, made some contacts, and a week later Brown was heading up his own one-rig drilling operation, known as the Scarber-Brown Drilling Co. Brown's one employee at that time was Joe Roper, from Henrietta, Texas, who had been working on oil rigs since he was a teenager.

While Brown took responsibility for procuring business, Roper oversaw the drilling projects. The combined expertise and complementary styles of Brown and Roper proved a successful formula. Among their first projects was drilling in the Permian Basin of West Texas and southeastern New Mexico. Brown was particularly adept at explaining the oil drilling process to potential investors from Wall Street as well as to interested corporate investors. Once Brown and Roper had funding, analysts noted, they used it efficiently and effectively. In fact, the two are considered major influences on the economic development of the Permian Basin area.

In a 1999 article in the Midland Reporter-Telegram, Joe Liberty, a Midland, Texas, stockbroker, and Ted Collins, president of Collins & Ware, each recalled Tom Brown's and Joe Roper's pioneer spirit in the early years of Texas oil exploration. 'They were nuts and bolts oil men,' said Liberty, 'They were true pioneers, and probably did more in the early days to create jobs and energize the Permian Basin oil industry than an other oil company. Brown was instrumental in obtaining capital for the drilling crew.' Collins agreed, 'They helped pave the way and bring hundreds of millions of dollars to the Permian Basin over the past 40 years. There is no doubt that they paved the way for much of what is happening today in the Permian Basin today. They were true pioneers.'

In 1959, Tom Brown bought out the Scarber interests in Scarber-Brown Drilling and made Joe Roper a full partner, rechristening the concern Tom Brown Drilling Company. By this time they had added another rig to their operations, and they continued to drill, usually successfully, in the West Texan Permian basin. In 1968, the company went public by merging with Gold Metals Consolidated Mining Company, the 'corporate shell' of a company founded in the 1930s, based in Nevada. In 1971, the company shortened its name to Tom Brown, Inc., reflecting its intentions of expanding beyond drilling activities into exploration and production. In the 1970s, the company began exploration and drilling in the Rocky Mountain region, which would later become its primary base of operations.

Early 1980s Challenges

In the early 1980s, the rapidly expanding company experienced a dip in its financial picture. It had purchased a drilling tool company called Encore Corp., and the new subsidiary promptly began losing money. Moreover, Tom Brown was debt-laden, and, in order to pay down some of this debt, it was forced to sell many of its assets. Encore was jettisoned to the Hughes Tool Company, while some of Tom Brown's interests in oil fields were sold off as well. Finally, a restructuring of the company was necessary. Donald L. Evans was brought in to manage Tom Brown, while founder Tom Brown continued an active role as a member of the company's board.

The company then spun off its drilling operations into the newly created TMBR Drilling, which was managed by Brown and Roper. Challenges continued in the mid-1980s, when oil prices crashed, and the drilling industry in particular suffered. Rather than exiting that segment of the industry, however, the TMBR merged with the Sharp Drilling Company, an operating unit of Pioneer Natural Gas. Sharp brought some 52 rigs to the merger, many of which were fitted to drill gas wells. When the oil market righted itself, TMBR/Sharp Drilling Inc., became an independent company, its shares trading on the NASDAQ Exchange, with Brown as CEO and Roper as president. It would eventually become one of the largest drilling companies in the Permian Basin area.

The Late 1980s--90s Growth Through Acquisition

From the mid-1980s on, Tom Brown Inc. was strictly a production and exploration company. Toward that end, from 1986 to 1990, Tom Brown acquired substantial interests in central Wyoming's Wind River Basin. In March 1994, the Eastern Shoshone and Northern Arapaho tribes signed a lease option agreement with Tom Brown for 400,000 acres in the centrally located Wind River Indian Reservation in Wyoming. Under terms of the agreement, Tom Brown agreed to pay the tribe for leasing each time it explored one of the four blocks included in the lease. The lease option agreement brought Tom Brown's interest in the Wind River Basin to approximately one million gross acres. Tom Brown had also already been operating the Muddy Ridge and Pavillion fields in the Wind River Basin on the Windy River Reservation.

Using a technique that was new to the industry in 1994, Tom Brown began performing three-dimensional seismic testing. With the three-dimensional equipment, drillers 'shot' more than 100 square miles in each block. During the same 'shoot,' Tom Brown would drill one exploratory well in each block. The company looked for relatively small geological structures using the more advanced three-dimensional seismic testing techniques. Previously, drillers used two-dimensional seismic equipment that limited the detail that was shown. According to CEO Don Evans, during its exploratory activities within the Wind River Basin on the reservation, Tom Brown was able to 'look at all of the producing horizons' or formations.

In December 1996, Tom Brown finalized a major acquisition when it bought Presidio Oil Co., which had filed for bankruptcy court protection in Delaware. Tom Brown acquired Presidio for approximately $202 million in cash, stock, and assumed liabilities. By the end of 1996, Tom Brown's assets totaled $406 million; the company's assets the previous year had totaled $164 million.

In January 1998, Tom Brown acquired complete rights to W.E. Sauer Companies, LLC, of Casper, Wyoming. The $8.1 million acquisition included five drilling rigs. In July 1999, Tom Brown acquired the Rocky Mountain oil and gas assets of Unocal Corporation. It paid a total purchase price of $68.5 million--5.8 million shares of common stock and $5 million in cash. The assets in the Paradox Basin of southwestern Colorado and southeastern Utah enhanced Tom Brown's existing 163,000 net undeveloped acres there.

This was one of many 1999 acquisitions made by Tom Brown. The company purchased certain Rocky Mountain assets in Wyoming from an undisclosed seller in September 1999. For $7.7 million, this deal included 9.7 Bcfe of proved reserves and 34,000 net acres in the Greater Green River Basin in Wyoming. In October 1999, Tom Brown acquired Genesis Gas and Oil, LLC, assets in the Piceance Basin in western Colorado for $35.5 million. This acquisition increased Tom Brown's acreage position in the basin to 68 percent in 500 potential development locations.

In June 2000, Tom Brown acquired an estimated 22 Bcfe in the Pavillion field, located in the Wind River Basin of Wyoming. The company paid $16.2 million to an undisclosed seller for this working interest. Tom Brown then operated the Pavillion field, which had a current net daily production of approximately eight million cubic feet of equivalent gas. This acquisition brought Tom Brown's interest in the Pavillion field to 90 percent, up from approximately 50 percent. 'This acquisition consolidates our interest in an area in which the Company has a long history of success. We continue to believe that our commitment to the Rocky Mountain gas basins has positioned us well for the future and we are aggressively adding to that position as appropriate opportunities are defined,' stated Jim Lightner, Tom Brown's president.

In addition to it presences in Texas and Colorado, Tom Brown also began exploring acreage in several midwestern and western states. By the end of 1999, Tom Brown had expanded to include interests in the following states: Colorado, Kansas, Louisiana, Michigan, Mississippi, Montana, Nebraska, New Mexico, North Dakota, Oklahoma, Texas, Utah, West Virginia, and Wyoming. Moreover, the company was exploring numerous basins throughout the United States. Still, the company's focus remained on the basins in Colorado.

Tom Brown's marketing operations were handled by a wholly owned subsidiary called Retex, Inc., based in Midland, Texas. In addition, in 1995, Wildhorse Energy Partners, LLC, was created by Tom Brown and KNE, a marketing partner of Tom Brown. Tom Brown owned a 45 percent stake in Wildhorse, which performed gas gathering and processing functions in the Rocky Mountains. An additional subsidiary, Sauer Drilling Company, provided drilling services to oil and gas operators in the central Rocky Mountains and drilling for Tom Brown company-wide.

The Late 1990s and Beyond

In 1999, Tom Brown moved its corporate headquarters to Denver, Colorado, from Midland, where it had been situated from its inception in 1955. In a December 1999 Denver Rocky Mountain News article, CFO Dan Blanchard remarked, 'We are principally an oil and gas exploration and production company. We have probably 70 to 80 percent of our gas reserves located here in Wyoming, Colorado and Utah. We are really a Rockies company, so Denver was a logical fit in terms of location and corporate headquarters.' The company's end of the year 1999 total assets totaled $536 million, up from $441 million at the end of 1998.

In December 1999, company founders Brown and Roper (gradually retiring from the business though Brown remained on the board), were recognized for their contributions to the Permian Basin economy when they received the Hearst Newspapers, Reporter-Telegram Lifetime Achievement Award. As the company entered a new century, its leadership included Don Evans as chairman and CEO; James D. Lightner as president and director; and Thomas W. Dyk as executive vice-president and chief operating officer. The company's board of directors once included presidential-hopeful George W. Bush, and CEO Evans served as a top advisor in Bush's 2000 campaign.

As the company grew, so did its market share. Elaborating on the company's future in its annual report, CEO Evans noted, 'The strategy we put in place over ten years ago is really beginning to bear fruit in today's high commodity price environment. Our large undeveloped land position and exploration portfolio, combined with our multi-year development drilling inventory, has Tom Brown well positioned for the months and years ahead.'

Principal Subsidiaries: Retex, Inc.; Sauer Drilling Co.; Tom Brown Resources Ltd. (Canada); Wildhorse Energy Partners, LLC (45%).

Principal Competitors: Barrett Resources Corp.; Basin Exploration, Inc.; KCS Energy Inc.; Prima Energy Corp.; BP Amoco plc; Dominion Resources, Inc.

Chronology

• Key Dates:

• 1955: Tom Brown sets up the Scarber-Brown Drilling Company in Midland, Texas.
• 1959: Company changes name to Tom Brown Drilling Company.
• 1968: Company goes public.
• 1971: Company shortens name to Tom Brown, Inc.
• 1999: Tom Brown relocates its headquarters and executive offices to Denver, Colorado.
• 2000: Founders Brown and Roper receive Hearst Newspapers Midland Reporter-Telegram Lifetime Achievement Award.