Estate sells stake
in gas operation
for $160 mil

Bishop Holding Corp. posts
a $70 million gain on an
investment once considered risky

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By Rick Daysog
rdaysog@starbulletin.com

The Kamehameha Schools sold its controversial investment in a Texas-based methane gas operator today for about $160 million.

Bishop Holding Corp., the trust's for-profit unit, signed an agreement this morning to sell Kukui Inc. to the Southern Ute Indian Tribe., according to people familiar with the deal.

The deal is part of the $6 billion trust's strategy to divest itself of the speculative investments that it acquired during the late 1980s and 1990s and invest in more liquid, blue-chip holdings that better suit the trust's core educational mission.

The $160 million price tag allows the estate to post a $70 million profit on an investment that critics had written off years ago as one of its biggest money-losing holdings, people familiar with the deal said.

Dennis Fern, Kukui's president, had no immediate comment this morning. An estate spokesman could not be reached.

Representatives of the Southern Ute Tribe, who are in Honolulu this week, could not be reached.

The Southern Ute Tribe owns the fee interest to much of the land on which Kukui's drilling properties are located.

In the deal, the tribe will acquire the drilling rights and the leases owned by Kukui and will merge Kukui's assets into its operating company. No land was involved in the sale.

Kukui, formerly known as McKenzie Methane Inc., operates 150 coal bed methane wells in Alabama, Colorado, New Mexico and Texas.

Led by former trustee Matsuo Takabuki, the estate initially acquired a minority stake in the oil and gas operator during the 1980s. At the time it was run by the McKenzie family of Houston.

The Kamehameha Schools took over the venture after McKenzie was forced into bankruptcy protection in 1989.

The estate initially posted an $85 million loss on the venture when McKenzie went into bankruptcy protection. It recorded another $40 million capital loss in 1996.

At the direction of Fern and former trustee Oswald Stender, the estate later restructured Kukui and the company has since become profitable and has acquired additional oil and gas properties.

The Kukui investment also received notoriety when the bankruptcy proceedings revealed that former Kamehameha Schools trustees Takabuki, Myron "Pinky" Thompson, William Richardson and several former staffers invested more than $2 million in McKenzie Methane.

The personal investment was cited by critics as a conflict of interest while others argued that the deal was unsuitable for a charitable trust.