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Oil and Gas IPO Opportunity

EP Energy Corp. (NYSE:EPE), an independent oil and gas exploration and production company, with principal offices in Houston, Texas, plans to raise $1.0 billion in its upcoming IPO on Friday, January 17th.

EPE intends to use the proceeds of the IPO to repay debt, as well as for general corporate purposes. The firm will offer 40.0 million shares at an expected price range of $23-$27 per share. If the IPO can hit the midpoint of that range at $25 per share, EPE will command a market value of $6.2 billion. See S-1 here.

EPE filed on September 4, 2013.
Lead Underwriters: Credit Suisse Securities, J.P. Morgan Securities
Underwriters: Barclays Capital, BBVA Securities, BMO Capital Markets, BofA Merrill Lynch, Capital One Securities, CIBC World Markets, Citigroup Global Markets, Deutsche Bank Securities, Evercore Group, Goldman Sachs., ING Financial Markets, Jefferies, Lebenthal & Co, Mizuho Securities, Morgan Stanley, Nomura Securities International, RBC Capital Markets, Scotia Capital Markets, SG Americas Securities, SMBC Nikko Securities America, Stephens Inc., SunTrust Robinson Humphrey Inc., TD Securities, Topeka Capital Markets, Tudor, Pickering, Holt & Co Securities, UBS Investment Bank, Wells Fargo Securities.

Summary

EPE is an independent exploration and production company, focused on acquiring and developing unconventional onshore oil and natural gas properties in the United States. The firm's efforts are concentrated on the development of low-risk drilling inventory in its four core areas, including the Eagle Ford Shale in South Texas, the Wolfcamp Shale in the Permian Basin in West Texas, the Altamont field in the Uinta Basin in northeastern Utah, and the Haynesville Shale in North Louisiana.

EPE has large, contiguous leasehold positions in each of these areas, totaling 441,000 net acres. EPE has identified some 5200 drilling locations within these four areas, including 916 locations, to which the firm has attributed proved undeveloped reserves, representing 24 years of drilling inventory at current rates. As of September 30, 2013, the firm had proven reserves of 513 MMBoe and averaged net daily production of 88,149 Boe/d for the three months ended September 30, 2013.

Valuation

EPE offers the following figures in its S-1 balance sheet for the nine months ended September 2013:

Revenue: $1,242,000,000.00
Net Income: $397,000,000.00
Total Assets: $7,992,000,000.00
Total Liabilities: $5,140,000,000.00
Stockholders' Equity: $2,852,000.00

Business

Oil and natural gas exploration is an extremely competitive business. EPE must compete with large and intermediate exploration firms in the search for and acquisition of leases, properties, and reserves, as well as equipment and personnel. Competitors include ConocoPhillips (NYSE:COP), Anadarko Petroleum Corporation (NYSE:APC), Shell Oil, Exxon Mobil Corporation (NYSE:XOM), and Apache Corporation (NYSE:APA).

Management

President, CEO and Chairman Brent J. Smolik has been with EPE, or its predecessor company, since 2006. He previously served as President of ConocoPhillips Canada and as President of Burlington Resources Canada, prior to the merger of Burlington and ConocoPhillips. He also worked in various engineering and asset management positions for Burlington, including Chief Engineer. Mr. Smolik serves on the boards of the American Exploration and Production Council and America's Natural Gas Alliance. He holds a Bachelor of Science in Petroleum Engineering from Texas A&M University.

What Should Energy Investors Do With This IPO

We rate EPE a buy in the price range of $23 to $25 based on our evaluation of comparable companies like Athlon (NYSE:ATHL) and Antero Resources(NYSE:AR) which are both up substantially since their IPOs. See our prior articles on AR here and here.

This firm is very profitable and making money hand over fist and doing so in a highly efficient manner: its net income was equivalent to nearly a third of its revenue for the nine months ended September 2013. We are always attracted to IPOs where the company is focused on the bottom line and making money for its shareholders.

The fact that the company has abundant drilling inventory and significant proven reserves leads us to believe that EPE will maintain its operations well into the future. Also, this oil and gas company focuses on shale drilling in the Texas , Utah and Louisiana states that are very promising and proven.

Its excellent management team lead by Mr.Smovik, featuring numerous officers with extensive experience with major oil and gas firms like ConocoPhillips and BP (and EPE itself), is one of the best in the shale oil drilling business.

Source: EP Energy Drills For Millions In Upcoming IPO