No doubt about it, 2004 was an incredible time to be a chief executive officer. Who can argue with stock prices that doubled, big production increases or incredible value creation through some headline-grabbing merger? High oil and gas prices helped most CEOs deliver many happy returns to shareholders last year. Yet, James C. Flores, the chairman, president and chief executive officer of Plains Exploration & Production Co. (NYSE: PXP) in Houston, did more. Flores also is a member of the board and equity partner in Vulcan Energy Corp. (formerly known as Plains Resources). Last year Flores was as busy as a one-armed duck hunter. He engineered a $945-million all-stock acquisition of Nuevo Energy Co., adding 194 million barrels of oil equivalent (BOE) of domestic reserves to PXP. He severed the remaining business and administrative ties between PXP and its former parent, Plains Resources, and amid some controversy, took the latter private and renamed it Vulcan Energy Corp. In so doing, he attracted new software capital to the oil patch through his partnership with Microsoft co-founder Paul Allen's private-equity vehicle, Vulcan Capital, which acquired Plains Resources to take it private last summer. Finally, because PXP assumed $254 million of Nuevo debt and issued 36.5 million new PXP shares, Flores closed a series of financial transactions. He amended bank lines, did exchange offers, closed a private placement to clean up PXP's balance sheet and restructured its hedging program. To top it off, PXP somehow found time to complete its move to office space in downtown Houston formerly occupied by Pennzoil and Hugh Liedtke. Flores looks back on the list of achievements for the companies he headed in 2004 and says he should have cloned himself. "When I look in the rearview mirror it's quite a reflection. It's scary when you put it all together," the affable Louisiana native jokes. "Obviously, all these accomplishments required a tremendous amount of support and effort from partners, employees, directors and advisors, so I'd like to thank them all." When asked what his vision is for 2005, he says simply, "Rest-at least for a while." Those who know him best would say that is highly unlikely. "I've known Jim for a long time and he has always demonstrated intellectual curiosity and a creative thought process, but the thing that really distinguishes him in my mind is his drive," says D. Martin Phillips of EnCap Investments LLC. Phillips was at one time on Plains Resources' board of directors. "During the Vulcan deal and the total restructuring there were multiple, complicated legal and tax roadblocks...but Jim just wouldn't be denied. I was very impressed with the whole process, which unlocked a lot of shareholder value. He brings a real high energy level to companies and transactions that is second to none." Raymond James analyst Jeff Mobley initiated coverage recently with a Strong Buy, saying PXP is one of the few oil-focused pure plays in the independent sector. He projects production growth of 23% this year, pro forma the Nuevo assets acquired and the recent sale of noncore assets. That follows a 2004 growth rate of an estimated 88%. Analyst Larry Busnardo also is impressed, saying PXP has changed from a value story to growth. "From a management viewpoint Flores is very solid," says Busnardo, who covers E&P for Petrie Parkman & Co., which advised the firm. "His history speaks for itself." Indeed. Flores has quite a track record of value creation. The landman co-founded Flores & Rucks in 1992, grew it and renamed it Ocean Energy. The latter merged with two other E&P firms to create a top-tier independent that was eventually sold to Devon Energy in 2003 for $5.3 billion. He had remained vice chairman of Ocean until January 2001, then left to be a private investor for a few months. But by May 2001 he was back in the game, coming out of "retirement" against the wishes of his wife, Cherie, and at the urging of one of his mentors, Lod Cook, ex-Arco chairman, to invest in and join Plains Resources and thus, its subsidiary, Plains E&P, as chairman and CEO. In 2002 he separated PXP from its parent, Plains Resources. Then, the company's mostly oil assets were onshore and offshore California and in Illinois. Production was about 25,000 BOE a day. Now the company's reserves have risen to about 425 million BOE, pro forma the Nuevo deal, and production is more than 70,000 BOE per day. Back to the track record. In 2003, Flores began growing PXP by acquiring 3Tec Energy Corp. for $313 million in cash and stock, plus $90 million to retire debt. The deal added onshore, long-lived gas properties to PXP's existing California assets. A breakout year 2004 was the year of tremendous growth and change-but it was a very trying year, in Flores' words. He and the staff were juggling a series of complicated transactions under way nearly simultaneously. What's more, they were doing so against the backdrop of shareholder lawsuits fighting the Plains Resources going-private deal. "When you get sued simply for creating more value for shareholders than they were getting from the market, it makes you question if it's worth it," Flores says. "Also, having to comply with the stringent new reporting requirements of the Sarbanes-Oxley Act was actually not as difficult as we had thought, since we were under even more scrutiny for 18 months in obtaining the letter ruling from the various governing agencies for the spinout of PXP." It began when Flores, then-chairman of Plains Resources, and president and CEO John Raymond, in collaboration with Allen's Vulcan Capital, announced their intent to take Plains Resources private in a $333-million buyout. The deal went through several iterations as another investor group, Leucadia, also bid to take over Plains Resources. Some shareholders sued to block one deal or the other. Today, after the separation of the two companies and going private, Plains Resources (now Vulcan Energy) is primarily a midstream company run by Raymond. Its chief asset is a major interest in Plains All American Pipeline LP (NYSE: PAA), which in turn is headed by Greg Armstrong. Flores remains a director and partner in Vulcan Energy, but he focuses 100% of his effort on running publicly held PXP. Why take Plains Resources private? "This was a natural evolution of the strategy hatched by Greg Armstrong in 2001, by separating hismidstream business PAA from the production business, which became the base of today's PXP," Flores explains. "As you recall, before the December 2002 spinout of PXP, Plains Resources was a combination of pipeline and E&P." These hybrids often do not receive full value from E&P analysts, who prefer to model pure plays. The separation of pipeline and E&P was meant to unlock embedded shareholder value in Plains Resources. It worked. Plains Resources was trading at $12 or $13 per share early in the process, but when taken private by July 2004, it came off the tape at $17.25, a clear win for its shareholders, and in less than a year. "We felt we could get the benefit of access to capital through Vulcan Energy, and Vulcan Capital and Paul Allen thought it would be strategic to enter the midstream energy business, as it's evident that energy infrastructure is becoming more and more critical to this country as demand for petroleum products rises." Vulcan Capital entered the picture through mutual contacts between Flores and Allen. "This approach by Vulcan collided with an analysis Raymond had spearheaded already, that indicated we could enhance shareholder value if we found someone who also recognized that value-and Paul Allen's Vulcan Capital arm, headed by David Capobianco, did just that," Flores says. "The going-private transaction was interesting-before anybody else does it they should call me and I'll give them some sobering advice. We are very happy with the asset we [Vulcan] bought, but the process of disclosure and dealing with the legal and arbitrage community was extraordinary. I had done a lot of M&A before, but not this way." The Nuevo deal Meanwhile, although dealing with meetings and documentation on the going-private deal, Flores and his team also were in the process of acquiring Nuevo, the Houston independent that had assets in the U.S and Congo. "In February, in my 'spare time,' we struck a deal to acquire Nuevo in a stock deal. It created a lot of synergies because we consolidated both our California operations, resulting in 69% stock-price appreciation in 2004. Now we are in a dominant oil resource position in California," Flores says. PXP is the fourth-largest producer in the San Joaquin Valley and ranks second in the Los Angeles Basin. It is fifth behind the majors and Occidental Petroleum for total California production. Says Busnardo: "He's done an excellent job of bringing together two companies working in the same areas of California and cutting overhead. It's a much larger growth vehicle after that deal." After the merger, Flores still had plenty on his plate. He began to restructure Nuevo's debt, restructure its unfavorable hedge positions and sell noncore assets. PXP completed a private placement under Rule 144A of $250 million of 10-year senior unsecured notes at 7.125%. Proceeds plus borrowings under the firm's credit facility were used to purchase all $150 million of Nuevo's 9.375% senior subordinated notes and to redeem its 5.75% convertible subordinated debentures. In September, Flores announced divestitures to shed the noncore assets and get the newly merged company in shape for the future. Nuevo's old Congo assets were sold. In December, PXP concluded its sale of some noncore properties offshore California, in South Texas and New Mexico, for $153 million. Today, PXP is focused on California, the Gulf Coast, West Texas and East Texas, but onshore California will deliver most of its production. With its purchase of Nuevo, PXP is one of the purest plays on crude oil among the independents. Management thinks oil will be as scarce, and as needed, as natural gas. Overall the company plans to drill up to 280 wells this year. The board has set 2005's capex budget at $325 million, a 50% increase from last year. Most of the budget is aimed onshore California, primarily in its Inglewood Field north of Los Angeles International Airport (LAX). In 2004, PXP used the first application of 3-D seismic in the L.A. Basin onshore, to show the viability of deeper formations in Inglewood. It plans to drill about 30 wells there this year. Last fall, it completed is first development well on the Rocky Point structure offshore, which it drilled directionally from a platform on its Point Arguello Unit. Rocky Point generates a pretax internal return in excess of 100% and Plains owns 52.6%, and operates. Some 20% to 25% of the 2005 budget will be spent on the Rocky Point discovery, applying for permit approvals at its very large Tranquillon Ridge development offshore in the Pernedales Unit, and possibly on some new prospects in the Gulf of Mexico. Says Flores: "Our 2005 base plan is simple and low beta because currently, it only includes development projects in our forecast. Just by developing our current assets, PXP could increase reserves and production 50% in the next three to five years. "To keep everything straight, you spend a lot of time with the teams on all sides and with all organizations. You find out how good your management, employees and friends are. We are very proud of what we've done. The future is brighter than ever."