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Summary

  • Oil and natural gas company focused on the acquisition, development and exploitation of unconventional oil and natural gas reserves in the Permian Basin.
  • As of December 31, 2013, PE's total estimated proved reserves were approximately 54.8 MMBoe, of which approximately 43% were classified as proved developed reserves.
  • At 428 times annualized earnings for Q1 '14, PE seems expensive, except 43% of reserves are 'proved developed reserves'.

Based in Midland, TX, Parsley Energy (NYSE:PE) scheduled a $724 million IPO on the NYSE with a market capitalization of $1.31 billion at a price range midpoint of $16.50 for Friday, May 23, 2014.

The full IPO calendar is available at IPOpremium.

SEC Documents
Manager, Joint managers: Credit Suisse, Goldman Sachs, J.P. Morgan, Wells Fargo Securities

Co-Managers: Morgan Stanley, Raymond James, Tudor, Pickering, Holt, RBC Capital Markets, Global Hunter Securities, Macquarie Capital, Scotiabank Howard Weil, Simmons, Stephens

End of lockup (180 days): Wednesday, November 19, 2014

End of 25-day quiet period: Tuesday, June 17, 2014

Summary
PE is an independent oil and natural gas company focused on the acquisition, development and exploitation of unconventional oil and natural gas reserves in the Permian Basin.

PE itself was formed in December 2013, see 'formation' below.

As of December 31, 2013, PE's total estimated proved reserves were approximately 54.8 MMBoe, of which approximately 43% were classified as proved developed reserves.

At 428 times annualized earnings for Q1 '14, PE seems expensive, except 43% of reserves are 'proved developed reserves.'

Notice the price-to-tangible book value (3.1) is less than price-to-book value (3.8). That only happens when a company has internal accounting inconsistencies.

As of the date of this report, PE's website is not operational. http://www.parsleyenergy.com/

17% of the IPO is from selling shareholders.

Valuation

Glossary

Valuation Ratios

Mrkt

Price /

Price /

Price /

Price /

% offered

annualizing Q1 '14

Cap (MM)

Sls

Erngs

BkVlue

TanBV

in IPO

Parsley Energy

$2,310

9.2

427.8

3.8

3.1

31%

Notice the price-to-tangible book value (3.1) is less than price-to-book value (3.8). That only happens when a company has internal accounting inconsistencies.

Conclusion
The rating on PE is neutral plus. 43% of reserves are 'proved developed reserves.'

PE is a sector play for institutions who like to participate in the Permian Basin.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above.

Business

PE is an independent oil and natural gas company focused on the acquisition, development and exploitation of unconventional oil and natural gas reserves in the Permian Basin.

Formation
PE was formed in December 2013 and does not have historical financial operating results.

For purposes of the IPO the accounting predecessors are Parsley LLC and its predecessors.

Parsley LLC was formed in June 2013 to engage in the acquisition, development, exploration and exploitation of oil and natural gas reserves in the Permian Basin.

Concurrent with the formation of Parsley LLC all of the interest holders in Parsley LP, PEM and PEO exchanged their interests in each such entity for interests in Parsley LLC (the "Exchange"). The Exchange was treated as a reorganization of entities under common control.

Permian Basin

The Permian Basin is located in West Texas and Southeastern New Mexico and is comprised of three primary sub-areas: the Midland Basin, the Central Basin Platform and the Delaware Basin.

These areas are characterized by high oil and liquids-rich natural gas content, multiple vertical and horizontal target horizons, extensive production histories, long-lived reserves and historically high drilling success rates.

PE's properties are primarily located in the Midland and Delaware Basins and its activities have historically been focused on the vertical development of the Spraberry, Wolfberry and Wolftoka Trends of the Midland Basin.

PE's vertical wells in the area are drilled into stacked pay zones that include the Spraberry, Wolfcamp, Upper Pennsylvanian (Cline), Strawn, Atoka and Mississippian formations. PE intends to supplement its vertical development drilling activity with horizontal wells targeting various stacked pay intervals in the Spraberry, Wolfcamp, Upper Pennsylvanian (Cline) and Atoka shales.

History

PE began operations in August 2008 when it acquired operator rights to wells producing from the Spraberry Trend in the Midland Basin from Joe Parsley, a co-founder of Parker and Parsley Petroleum Company.

As of March 31, 2014, PE continues to operate 98 gross (2.4 net) of these wells.

Excluding those legacy 98 gross wells, as of March 31, 2014, on a pro forma basis, PE had an average working interest of 59% in 457 gross producing wells. In total, PE has interests in 555 gross (271 net) producing wells, on a pro forma basis, all of which are in the Midland Basin and 99% of which PE operate.

Properties & drilling

Since its inception, on a pro forma basis, PE has leased or acquired 111,644 net acres in the Permian Basin, approximately 89,344 of which is in the Midland Basin.

Since PE commenced its drilling program in November 2009, PE has operated up to 10 rigs simultaneously and averaged 9 operated rigs for the 12 months ended March 31, 2014.

Driven primarily by its large-scale drilling program in the core of the Midland Basin, PE has grown its net average daily production to 12,852 Boe/d for the month ended April 30, 2014, on a pro forma basis, a substantial majority of which is organic growth from wells PE has drilled.

PE is currently operating nine vertical drilling rigs and two horizontal drilling rigs and expects to operate eight vertical rigs and increase to five horizontal rigs by the first quarter of 2015.

Estimated reserves

As of December 31, 2013, PE's total estimated proved reserves were approximately 54.8 MMBoe, of which approximately 43% were classified as proved developed reserves.

Competition

The oil and natural gas industry is intensely competitive, and PE competes with other companies that have greater resources.

Many of these companies not only explore for and produce oil and natural gas, but also carry on midstream and refining operations and market petroleum and other products on a regional, national or worldwide basis.

These companies may be able to pay more for productive oil and natural gas properties and exploratory prospects or to define, evaluate, bid for and purchase a greater number of properties and prospects than PE's financial or human resources permit.

In addition, these companies may have a greater ability to continue exploration activities during periods of low oil and natural gas market prices. PE's larger or more integrated competitors may be able to absorb the burden of existing, and any changes to, federal, state and local laws and regulations more easily than PE can, which would adversely affect its competitive position.

5% stockholders

NGP X US Holdings, L.P. 14.3%

Diamond K Interests, LP 8.1%

Use of proceeds

PE expects to net $563 million from its IPO. Proceeds are allocated as follows:

to Parsley LLC in exchange for PE Units. Parsley LLC will use ((i)) approximately $6.7 million to make a cash payment in settlement of the Preferred Return, (ii) $165.3 million to reduce amounts drawn under Parsley LLC's revolving credit facility, ((iii)) $132.8 million to fund the OGX Acquisition and related fees and expenses and (iv) any remaining net proceeds to fund a portion of PE's exploration and development program.

In the event the acquisition of the OGX Acquisition does not close, PE would use the net proceeds for general corporate purposes, including to fund a portion of its exploration and development program.

Disclaimer: This PE IPO report is based on a reading and analysis of PE's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Source: IPO Preview: Parsley Energy