IPO Report: EP Energy (EPE)

EP Energy ($EPE) is a shale oil driller focused on four core areas: the Eagle Ford Shale (South Texas), the Wolfcamp Shale (Permian Basin in West Texas), the Altamont field in the Uinta Basin in northeastern Utah, and the Haynesville Shale (North Louisiana).

Four other companies are scheduled to raise over $2 billion this week. The full IPO calendar can be found at IPOpremium.

EPE scheduled a $1 billion IPO with a market capitalization of $6.2 billion at a price range midpoint of $25 for Friday, January 17, 2014, on the NYSE

The SEC filings can be access here SEC Documents

The Manager & Joint managers are Credit Suisse, J.P. Morgan, Citi, Goldman Sachs, Morgan Stanley, Deutsche Bank, UBS Investment Bank, BMO Capital Markets, RBC Capital Markets, and Wells Fargo Securities.

The Co-Managers are Evercore Partners, Tudor, Pickering, Holt & Co., Barclays, Jefferies & Co., BofA Merrill Lynch, BBVA, Nomura Securities, Scotiabank/Howard Weil, Societe Generale, TD Securities, Capital One Securities, CIBC, SunTrust Robinson Humphrey, ING, Mizuho Securities, SMBCNikko, Stephens Inc., Lebenthal, and Topeka Capital Markets.

Recommendation

Although EPE will likely be priced below range, our conclusion is positive. EPE has 5,200 potential drilling locations. Book value is less than than ATHL and AR, both of which IPO’d in the last half of 2013.  Both, however, are further along in their business development process.

However, "oil moving lower: Analysts"

Business

EPE is an independent exploration and production company engaged in the acquisition and development of unconventional onshore oil and natural gas properties in the United States.

EPE is focused on the development of its low-risk drilling inventory located in four core areas: the Eagle Ford Shale (South Texas), the Wolfcamp Shale (Permian Basin in West Texas), the Altamont field in the Uinta Basin in northeastern Utah and the Haynesville Shale (North Louisiana).

In its core areas, EPE has identified about 5,200 drilling locations (including 916 drilling locations to which EPE has attributed proved undeveloped reserves as of September 30, 2013), of which approximately 96% are oil wells.

At current activity levels, this represents approximately 24 years of drilling inventory. As of September 30, 2013, EPE had proved reserves of 513 MMBoe (54% oil and 67% liquids) and for the three months ended September 30, 2013, EPE had average net daily production of 88,149 Boe/d (45% oil and 54% liquids).

Management team

The majority of EPE’s senior management team has worked together for over a decade at prominent oil and gas companies that have included El Paso Corporation, ConocoPhillips, and Burlington Resources. EPE believes its management's experience in both acquiring resource-rich leasehold positions and efficiently developing those

Competition

EPE’s competitors include major and independent oil and natural gas companies, as well as financial services companies and investors

Pre-IPO 5% stockholders

Apollo Funds, 54%1

Riverstone, 15%

Access, 15%

KNOC, 15%

Use of proceeds

EPE expects to net $947 million from its IPO. Proceeds are allocated as follows:

To redeem all of the outstanding 8.125%/8.875% senior PIK toggle notes due 2017 issued by EPE’s subsidiaries, EPE Holdings LLC and EP Energy Bondco Inc., and pay the redemption premium and the accrued and unpaid interest on the notes, (ii) to repay outstanding borrowings under the RBL Facility, (iii) to pay a fee of $94 million under the amended and restated management fee agreement with certain affiliates of EPE’s Sponsors and (iv) for general corporate purposes.