Tuesday, July 25, 2006

Houston Exploration (THX) Holder Sandell Discloses 5% Stake, Urges Sale

In a 13D filing on Houston Exploration Co. (NYSE: THX) Sandell discloses a 5.04% stake in the company. In a letter sent to the company, the firm expressed their view that the most efficient way to maximize shareholder value is through a sale of the company. The group also said the company should not use any of the proceeds it received from the Gulf of Mexico asset sales or the use of its significantly under-levered balance sheet to acquire any additional onshore reserves. Instead, the group advocates that the company deploy its overcapitalized balance sheet to undertake a Dutch tender at a meaningful premium to the current stock price.

A copy of the letter disclosed in the filing:

July 25, 2006


Board of Directors

The Houston Exploration Company

1100 Louisiana Street

Suite 2000Houston, TX 77002


Mr. William Hargett

Chairman, President and Chief Executive Officer

Dear Sirs:Sandell Asset Management Corp. ("Sandell") and the private investment fundsadvised by Sandell (the "Sandell Funds" or we) are the beneficial owners of1,405,840 shares of common stock of The Houston Exploration Company ("THX" orthe "Company"), representing approximately 5.04% of THX's outstanding shares.We are writing to follow up on our meeting with senior management onThursday, July 13, 2006. Like you, we continue to believe that the Company'sassets remain significantly undervalued and are encouraged by the Board'sdecision to engage Lehman Brothers to explore strategic alternatives. However,among the options that are being considered, we want to reiterate unequivocallyour view that given the large disparity between public market trading andstrategic transaction valuations, the most efficient way to maximize and realizeshareholder value is through a sale of the Company.

During our meeting, management took great effort to lay out details of theCompany's onshore operations and highlighted the unrecognized value enhancingopportunities of various projects particularly those associated with THX'sproperties in the Rockies. All of that reinforces our view that the Company is ahighly attractive acquisition target. We believe the complexity of the variousresource plays also makes it more likely that the value of these assets would bebetter recognized by strategic and financial buyers, rather than in the public markets.

We also want to register our strong opposition to any deployment ofproceeds from THX's recent Gulf of Mexico asset sales or the use of thesignificantly underlevered balance sheet(1), to acquire additional onshorereserves. In our opinion, such a move not only runs counter to the sizeablefuture high-impact drilling inventory THX already owns (as highlighted inmanagement's presentation), it is also fraught with execution risks. The Company's stock currently trades around $61.87(2) which from the Board'sperspective obviously reflects a substantial discount to fair value given yourrecent decision to reject a fully financed $62.00 cash offer. In this regard,rather than making additional onshore acquisitions, shareholder interests aremuch better served by using the overcapitalized balance sheet to undertake aDutch tender at a meaningful premium for THX's undervalued stock in conjunctionwith a sale of the Company immediately thereafter.

As a major institutional shareholder, we expect our views to be givenserious consideration by the Board. We believe that a majority of shareholderswould support our call to the Board to undertake an auction process to sell theCompany in order to maximize shareholder value. As we have stated before, timeis of the essence and it is neither prudent nor responsible of the Board to takea protracted strategic review of alternatives.

We remain available to discuss the issues raised in this letter and willcontinue to monitor the actions of the Company and the Board. The absence of anydecisive measures to deliver value would only necessitate action by shareholdersat the next Annual Meeting.

Very truly yours,


/s/ Thomas E. Sandell

Thomas E. Sandell

Chief Executive Officer


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