IPO Preview: Lone Pine Resources

May.24.11 | About: Lone Pine (LPRI)

Based in Calgary, Canada, Lone Pine Resources (LPR) is scheduling a $285 million IPO with a market capitalization of $1.6 billion at a price range mid-point of $19 for Thursday, May 26. The full IPO calendar includes seven others totaling $3.25 billion.

LPR is an oil and gas exploration and production company in Canada, a spinoff from Forest Oil Corporation (NYSE:FST) which has a market cap of $3.54 billion.

Comparing the March 2011 quarter with the March 2010 quarter for LPL:

  • Sales were down a little to $36 million from $37 million.
  • Net income fell to loss of $1 million from a profit of $15 million.

The price to tangible book value for LPR and its parent are the same (3.2). Compared with two other Canadian oil and gas exploration and production companies, LRP wants a significant premium in terms of price to book value.

The parent is spinning off 39% of its book value ($532mm/$1345mm) and only 11% of its 2010 earnings, $24mm of $227mm.

LPE will have a market cap of $1.6 billion compared to a market cap of $3.54 billion for FST, which will still own 82% of the LPE.

LPR Valuation Metrics

To justify a P/E of 67 for the year ended December 2011, LPR better develop more proven reserves and produce more sales sooner than later. Also, FST’s stock is down 14% in the past month. In general, it’s safer to buy spinoffs when the parent’s stock is on an upswing.

LPR is an independent oil and gas exploration, development, and production company with operations in Canada within the provinces of Alberta, British Columbia, and Quebec and the Northwest Territories. LPR is currently a wholly-owned subsidiary of Forest Oil Corporation. LPR’s predecessor, Canadian Forest Oil Ltd., was acquired by Forest in 1996. As of December 31, 2010, LPR had 376 Bcfe of estimated proved reserves, of which 71% was natural gas and 29% was oil and natural gas liquids, or NGLs. FST is NYSE listed with a market capitalization of of $3.38 billion. FST will retain 70 million shares, which are all shares except those sold in the IPO. In the last month, FST has declined over 16% from $36.53 to $30.36.

The level of activity in the Canadian oil and gas industry is influenced by seasonal weather patterns. Wet weather and spring thaw may make the ground unstable. Drilling generally stops in the winter.

From sale of 15 million shares, LPR is expected to net LPR $263 million. The IPO proceeds are allocated to repay intercompany debt to Forest.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.