07/01/96 KELLEY OIL FINDS ITS WHITE KNIGHT

KELLEY OIL FINDS ITS WHITE KNIGHT

Three years ago, Kelley Oil & Gas (KOGC) was a high-flying stock trading in the 30s--and a favorite target of the short-sellers, who saw it as a badly managed company with dwindling reserves, huge debt, and soaring costs. Oil investor Alan Gaines was one of those who shorted the stock--as it fell to 6 in early 1995. By December that year, Kelley had plunged as low as 1, and the Houston oil-and-gas exploration company came close to filing for bankruptcy. Now, some pros, including Gaines, are bullish. The stock has rebounded to nearly 3. What's going on?
``The picture has changed--very much for the better,'' notes Gaines, president of Gaines Berland, which specializes in energy plays. The best thing that has happened to Kelley is John Bookout, president of Contour Production, who in February bought 48 million newly issued shares at 1 apiece, representing 49.8% of Kelley's voting stock. Founder David Kelley was ousted, and Bookout was named chairman, president, and CEO.
Bookout has a rich background in the industry: He was president and CEO of Shell Oil from 1976 to 1988, when he retired. ``Bookout brings an entirely new dimension of executive expertise, financing capability, and acquisition deals,'' says Gaines. He expects Bookout to expand reserves in Louisiana, pursue acquisitions, and beef up the balance sheet. Already, Bookout has cut losses in the first quarter to 8 cents a share, down from 28 cents last year, with cash flow turning positive.
Gaines figures cash flow next year will jump to 32 cents a share, up from an estimated 12 cents in 1996 and negative 78 cents in 1995. Last year, Kelley had a loss of $1.65 a share. Gaines expects the loss will narrow to 22 cents in 1996 and to 5 cents in 1997. The stock, he says, should hit 6 this year and 10 in 1997.

BY GENE G. MARCIAL