AN INTERVIEW WITH THE PRESIDENT OF HOWARD WEIL: Meeting challenges head-on and overcoming obstacles

JEFF PARKER: One of our goals, which we have already accomplished, is re-entry into the corporate finance business. This is an area in which we have been involved historically, and we added a team of experienced individuals in early 2005. The issuing energy companies appreciate our distribution capability and the fact that we “touch” so many buy side portfolio managers and analysts.

When a company is going public or files a secondary offering, our team gets phone calls looking for “Howard Weil approval.” We have known the companies and the individuals in the industry and are well positioned to give that advice.

We were pleased to be included in numerous underwritings in the year of our re-entry [into the corporate finance business]. We will increase our research universe in existing areas as well as new but related sectors. Our clients are interested in our thoughts across the entire energy spectrum. We have other ideas that we will pursue, but the events of the recent past and a desire to make sure that we are performing effectively place those opportunities slightly beyond our current thinking.

OGFJ: Your business is focused on the energy industry. Do you have any plans to diversify?

JEFF PARKER: We will continue to broaden our coverage of companies in the energy space, adding more coverage and expanding our universe. But we will remain focused on the energy area. We do not think that we can be all things to all people, and over the years our clients continue to seek our advice in an area that has been our bailiwick for 35 years. We are often asked if we will add coverage in alternative energy, in the tanker business, and in energy technology. So the short answer to that is “we talk about it.” While we are not averse to increasing our coverage, we are looking at opportunities at this time. We plan to stay with our core competency in the energy sector.

OGFJ: Howard Weil has three main areas of concentration - equity research, institutional sales, and equity trading. How does your expertise in each of these areas contribute to the success of the others?

JEFF PARKER: Everyone at Howard Weil is an energy expert. We all specialize in oil and gas-related activities with traders and salesmen having a depth of knowledge that is similar to that of a research analyst at many firms. This is all that we do and all that we discuss on a daily basis.

There is a huge opportunity for an exchange of information between research, sales, and trading - sort of a cross-pollination, so there is a vetting of the rumor du jour on one side of the room while on the other side of the room others are focusing on the long-term investment merits of a sub sector or group of companies. Working together as a team to perform research and to discuss and disseminate ideas to our clients has been very beneficial to their needs.

OGFJ: How has the current up-cycle in oil and gas affected your business?

JEFF PARKER: Our business has been quite good, and we have just completed a record year. Certainly Howard Weil has been a beneficiary of the multi-year upswing in energy, but this record year occurred during a period in which we faced some of the greatest challenges in our careers and in our lives.

In June 2005, we were told that our broker dealer was being swapped from Legg Mason to Citigroup, and this triggered four months of internal discussions regarding our outlook and what the future would hold. It was an easy time to lose focus.

At the end of August, Hurricane Katrina ravaged Louisiana and destroyed so much of New Orleans, the home city of Howard Weil. We implemented our disaster recovery plan, moved our entire business to our Houston office during the week before Katrina made landfall, and we watched from Houston as the weeklong nightmare unfolded before the eyes of the world.

We again focused on our business because it was there that we could make a difference, and our clients were in need of understanding the local as well as global impact that the storm would have on the energy markets. We immediately recognized that we could not return to New Orleans for some time. But, as we watched events in New Orleans unfold from our Houston offices that first morning after Katrina surged ashore, we all decided that our goal would be to return to New Orleans in time to decorate our Christmas trees.

Roughly 20% of our employees lost their housing in New Orleans and none of us were able to return for some time, so we began the search for housing and schools for our children in Houston. I must say the city was very hospitable. Many schools offered free tuition for our children, and our landlord in the Phoenix Tower provided additional office space at no charge. We were able to buy new computers at cost. Houstonians were very welcoming to us, which we will never forget.

At the same time all this was going on, we continued to publish our research, disseminated the ideas, and had an all-time record in trading activity at our disaster recovery site. We continued to travel with energy companies to visit our clients, while we thought through the ramifications of a possible employee buyout, which seemed more attractive to us than the tremendous cultural change of being absorbed by Citigroup.

Finally, we were able to arrive at terms for an employee purchase of Howard Weil during October, and we closed on that transaction on Dec. 1, 2005. So, it was quite a year!

OGFJ: The Howard Weil Energy Conference, which started in 1971, has become one of the premier events in the industry. To what do you attribute this success?

JEFF PARKER: It certainly helped that Howard Weil was the first Wall Street firm to have a conference of any kind, much less the first firm to have an energy conference. It also helps to have the conference in New Orleans, a city that people enjoy visiting and also a city that “captures” the participants. If we had the conference in, say, Houston, the energy capital of the world, people would be more inclined to make their presentation and return to their office. At night, they would go home to their families. Since most conference participants don’t live in New Orleans, they tend to stay and listen to other presentations and socialize with other participants in the evening. This is a valuable benefit of having the conference in New Orleans.

Our conference is also a CEO conference, and we expect the chief executives to make the presentations. The CEOs usually bring along their management teams, so how better to determine whether you want to invest with these people? Our buy side attendees and presenting companies recognize the benefits of listening to presentations but also walk the halls with other management teams. There is tremendous opportunity for cross pollination. We wish that we could capture a fee from every M&A discussion that occurs in the hallways.

The Howard Weil Energy Conference is one of the rites of spring. While we certainly look forward to the conference, industry participants recognize the benefits of seeing so many buy side portfolio managers in one location. Conversely, the buy side has the opportunity to hear and visit with more than 160 management teams at one location. There is the opportunity to hear a presentation, attend a breakout session, visit with management on a one-on-one basis, have dinner with many companies, and to get to look into the eyes of the CEO in which you are investing while in casual surroundings.

OGFJ: Was there ever any doubt you would hold the conference in New Orleans in 2006?

JEFF PARKER: Yes, there was some doubt. New Orleans has been strained by the lack of labor in the service industry. There is no housing. Our immediate worry was that the hotels would be housing all of the FEMA workers, that the restaurants would not be open, and that the wait staff and world-renowned chefs would be displaced from the city.

We reached out to our contacts throughout New Orleans, recognized that we could indeed have the conference in the city, and further realized the importance of bringing one of the first large conferences back to New Orleans. The conference is unique, and so is the city of New Orleans. New Orleans is probably the best possible place for us to hold our annual gathering.

OGFJ: You have expanded your office in Houston, which as you say is the “energy capital of the world.” How committed are you to staying in New Orleans?

JEFF PARKER: We are very committed to New Orleans and our headquarters will remain in New Orleans. This is where we have our homes, our families, our children’s schools, and our roots. We are able to function well from the top of the Energy Centre, and we are able to focus on the rebuilding of New Orleans, a feat that will take an army of individuals many years to accomplish. But we have learned much during these past months, and most importantly, we needed a larger footprint in Houston, a city that lives and breathes oil and gas. We have already added people and office space, recognizing the benefits of being located in the energy hub. Two of our research groups are based in Houston, and we also have an institutional sales presence in the city. Houston reached out to us and to others in many ways. We will always be grateful to our friends in Houston, and we will have an ever-increasing presence there.

OGFJ: Do you plan to open any additional offices in, say, Dallas or Denver? How about overseas?

JEFF PARKER: We do not plan on opening additional offices at this time. We have had offices in Boston and in New York in the past. Managing multiple offices and remaining highly coordinated is a challenge. We are most efficient with our present locations, and while we certainly realize the value of covering Dallas, Denver, and overseas markets, we feel that we are well positioned to do this with our present platform.

OGFJ: With all the disruptions of the past year, what lessons were learned from all this, and how well did your business continuity plan work?

JEFF PARKER: Our business continuity plan worked well. We never missed a day of trading during Hurricane Katrina or during Hurricane Rita. I attribute our success to having a good plan, to acting quickly, and having a great group of employees with a “can do” attitude. You must be ahead of the curve when these storms approach or you will not be able to move your people or make the contingency planning required to close operations in a city one afternoon and open in another city the next morning. Your phones ring, your electronic connectivity is established, and only you know what city you are operating in that day.

On a Wednesday afternoon as Rita approached Houston and much of the city was evacuated, we scrambled after the close to catch a plane to New York, and on Thursday morning we opened in NYFIX’s offices and traded from Stamford, Conn. So our business continuity plan worked well, but we did not know that we would need a back-up plan to our back-up plan. Our customers did not ask whether we were in New Orleans, Houston, or Stamford.

It is nice to have 2005 behind us, and we are ready for the challenges of the future. I fully recognize, after what we have faced during the past 12 months, that our team is more than capable of meeting obstacles, solving problems, and delivering money-making ideas to the buy side. We very much look forward to hosting the 34th annual Howard Weil Energy Conference in New Orleans (March 19-23). OGFJ