NSE is one of 12 IPOs scheduled for the week of May 7 (Full IPO calendar here).
Manager, Joint Managers: BMO Capital; KeyBanc.
NSE is an exploration & production company with 90% of revenue from natural gas, 65 times 2011 earnings.
NSE is an acquisition created entity that is heavily dependent on natural gas and gas sales. It seems expensive at 65 times adjusted, fully taxed 2011 earnings.
NSE was formed on July 12, 2011, to acquire and develop oil and natural gas properties. On August 12, 2011, NSE acquired assets in exchange for 21.2 million shares of common stock and $60.0 million in cash. At the time of the acquisition NSE became a party to agreements by which New Dominion will continue as the contract operator of those properties.
As of December 31, 2011, the estimated proved reserves on the properties were 23.8 MMBoe. 34% were classified as proved developed reserves and 63% were comprised of oil and natural gas liquids.
Based on net production from the properties for the year ended December 31, 2011, the total proved reserves associated with the properties had a reserve to production ratio of 17.5 years. The producing properties are solely in the Hunton formation in east-central Oklahoma.
Revenues from oil and natural gas operations were $50 million for the year ended December 31, 2011, an increase of $8.3 million, or 20%, compared to the year ended December 31, 2010. 2011 revenue segments were the following: 70% from natural gas liquids sales, 20% from natural gas sales and 10% from oil sales.
During the three months ended March 31, 2012, the contract operator continued to execute the drilling program, spudding (the very start of drilling on a new) on 11 wells, six of which have been completed and are currently producing.
NSE estimates that the average daily production during the first two months of 2012 was 3,659 Boe/d. NSE further estimates that capital expenditures during the first two months of 2012 were 6.3 million, which is in line with the current 2012 capital expenditure budget of $53.8 million.
Income taxes were $10 million in 2011 compared to none in 2010. NSE became a taxable entity in 2011 and recognized significant deferred taxes primarily related to the differences in book and tax basis of oil and gas properties. NSE anticipates future income taxes to be recognized at the applicable income tax rates then in effect.
NSE estimates that stock-based compensation will be $12 million in the quarter in which the company completes an IPO.
NSE estimates that general and administrative expenses (excluding non-cash compensation expense) will be $6.4 million in the twelve months following consummation the IPO.
As a result of the transaction by which NSE acquired the Scintilla Assets, the David J. Chernicky Trust became the principal stockholder. Following the completion of the IPO, David J. Chernicky Trust and its affiliates will own 61% of the outstanding shares of NSE's common stock.
USE OF PROCEEDS
NSE expects to net $90.3 million from the IPO. IPO funds are allocated to the following:
- Repay debt, $68.5 million
- Drilling, completion, and infrastructure, $15.6 million
- Leasehold acquisition, $2 million
- Miscellaneous (office equipment, IT infrastructure, personnel), $200,000