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RSP Permian (NYSE:RSPP), an independent oil and natural gas exploration and production firm, plans to raise $400 million in its upcoming IPO on Friday, January 17th. See S-1 here.

The Dallas,Texas-based firm intends to use the bulk of the IPO proceeds to repay debt. The firm will offer 20.0 million shares, including 54% insider shares, at an expected price range of $19-$21 per share. If the IPO can hit the midpoint of that range at $20 per share, RSPP will command a market value of $1.5 billion.

· RSPP filed on November 12, 2013

· Lead Underwriters: Barclays Capital Inc., J.P. Morgan Securities LLC

· Underwriters: Citigroup Global Markets Inc., Comerica Securities Inc., Jefferies LLC, Johnson Rice and Co LLC, Raymond James and Associates Inc., RBC Capital Markets LLC, Scotia Capital Markets, Simmons and Co International, Stephens Inc., Tudor, Pickering, Holt & Co Securities Inc., UBS Investment Bank.


RSPP is an independent oil and natural gas exploration and production firm, focused on the acquisition, development, and production of unconventional oil and associated liquids-rich natural gas properties in the Permian Basin in West Texas.

The firm's land is primarily located in the Midland Basin, a sub-Basin of the Permian Basin. RSPP shifted its efforts towards drilling horizontal wells in the last year-rather than the vertical Wolfberry wells it previously drilled and operated. The company has now participated in drilling 32 horizontal wells, 14 of which it operates. The firm currently operates a pair of horizontal rigs and a single vertical rig-though it plans to expand to eight horizontal rigs by the end of 2017 and four vertical rigs by the end of 2015.

RSPP has identified 1,169 horizontal drilling locations and 812 vertical drilling locations on its property. For the three months ended September 30, 2013, RSPP's net daily production was 8,155 Boe/d, including about 70% oil, 14% natural gas, and 16% NGLs.


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

Revenue: $86,663,000.00

Net Income: $44,762,000.00

Total Assets: $559,953,000.00

Total Liabilities: $191,048,000.00

Stockholders' Equity: $2,852,000.00

Business Description

Oil and natural gas exploration and production is highly competitive. RSPP must compete with numerous other E&P firms, many of which have significantly greater financial, technical, and personnel resources. RSPP's competitors include ConocoPhillips (NYSE:COP), BHP Billiton Limited (NYSE:BHP), Anadarko Petroleum Corporation (NYSE:APC), Chevron Corporation (NYSE:CVX), Apache Corporation (NYSE:APA), and El Paso Corporation.


Co-founder and CEO Steven Gray has been with RSPP since 2010. Mr. Gray has previously co-founded and led a pair of oil and gas E&P firms, including Pecos Production Company, which also operated in the Permian Basin; and Vista Energy Resources. He also previously worked for 11 years as a petroleum engineer with Bettis, Boyle, and Stovall Inc. and Texas Oil & Gas Corp. He holds a BS in Petroleum Engineering from Texas Tech University.

Conclusion for Investors

We rate RSPP a buy in the price range of $19 to $20 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. Both AR and ATHL have been big winners since going public last year.

We believe the deal is multiple times over subscribed which is very positive.

The E&P firm is certainly putting up impressive revenue and income figures, though the 54% insider shares included in the offering are discouraging. Nonetheless, finding oil in the Permian Basin is like finding a needle in a haystack composed entirely of needles-so we don't foresee the firm failing to produce anytime in the near future.

If the firm can keep up with its plan to expand its rig force, it should be able to continue to expand production and revenues for years to come.

We are concerned that oil prices seem to be moving lower which will not help oil and gas exploration firms.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in RSPP, over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.