Under new chairman, president and chief executive officer James L. Payne, Nuevo Energy Co. has made significant strides in the past 18 months as it restructures, cleans up the balance sheet and changes its asset mix. "We've taken some $152 million of costs out of the business," chief financial officer Janet Clark said at the recent RBC Capital Markets energy-investment conference in Houston. Payne was CEO of Santa Fe Snyder when it was acquired by Devon Energy in 2000, retired as Devon vice chairman in 2001, and later joined Nuevo to take it in a new direction. Clark, who was CFO at Santa Fe, joined him at Nuevo. Together, they and a new E&P team have reduced costs by $63 million and reduced capital spending by $89 million. This generated $61 million of free cash flow last year and $32 million in the first quarter of 2003 alone. Under Payne, Houston-based Nuevo is allocating capital only to higher-return projects, one reason its capital program fell from $159 million in 2001 to $61 million in 2002 (excluding acquisitions). The company based its 2003 budget on $22 oil and $3.50 gas. Nuevo has redeemed $160 million of high-interest, senior subordinated notes this year and is reducing bank debt. Also, it settled litigation with ExxonMobil for $16.5 million. It hasn't hurt that Nuevo is one of the few independents to be oil-weighted during a time of high oil prices. Its 2003 production will be about 83% oil, and more than 80% of that will come from fields onshore and offshore California, where it is the largest independent producer of oil and gas. But the company is trying to add more gas to the mix, Clark said. That's why it has sold $97 million of noncore assets in the past two years, and closed $100 million in acquisitions. The most important deal occurred in September 2002 when it acquired Athanor Resources and its main asset, the Pakenham Field in the Val Verde Basin of West Texas. The transaction brought 86 billion cu. ft. equivalent of proved gas reserves to the company portfolio and a lot of upside from multiple pay zones. Nuevo will drill nine wells there this year and so far, said Clark, the results have exceeded initial valuation of the deal, with production having increased 26% since the acquisition closed. Nuevo also receives significant cash flow from its interest in the Yombo Field offshore Congo. Guidance for this year's third quarter is for production to range from 4.4- to 4.6 million BOE, down from 4.8 million in the second quarter. TCW Asset Group, Yorktown Partners LLC and Franklin Resources are major shareholders in the firm, each owning 8.9% or more of common. Are shareholders happy? The stock price has grown from $10.10 per share when Payne joined the company to about $18 recently, near a 52-week high of about $20. -Leslie Haines