Permian players are running hot after a third, strong IPO this year, and more may be in store.Parsley Energy Inc. (NYSE: PE) is the company of the hour. After six years proving up and acquiring land in the Midland Basin, the company went public.
In part, the company planned to use proceeds from a stock offering to grab several thousand acres in the Permian.
The company’s success has been galvanizing and bodes well for “the wide swath of Permian players seeking additional investor funding to enact their development plans,” said Ethan Bellamy, a senior analyst at Baird Energy. “This is the third Permian-focused IPO this year, following RSP Permian Inc. (NYSE: RSPP) and EP Energy Corp. (NYSE: EPE).”
The company’s IPO made Bryan Sheffield, president, chairman and CEO, an instantly wealthy man. The company’s $18.50 per share offering was quickly eclipsed, and on June 4, traded at $24.94.
Sheffield grew up the son and grandson of oilmen in Midland, Texas, and moved north after college to seek riches in the Chicago options pits. After a few years clerking at the Chicago Mercantile Exchange and trading interest rates for First Continental Trading Inc., Sheffield returned to Texas -- and found his fortune.
Since his oil and natural gas company sold shares in an IPO on May 22, the company has soared more than 29%, making the 36-year-old one of the youngest billionaires in the U.S., according to the Bloomberg Billionaires Index.
“Exciting times for Parsley Energy,” Sheffield said in an email.
The company has about 112,000 net acres and stakes in 555 wells in the Permian Basin, a large oil and gas deposit in north-central Texas, according to a company fact sheet. It had sales of $143 million in 2013, about 80% from oil.
Before its IPO, the company disclosed it had entered an April 10 agreement for an option to purchase 4,867 net acres, primarily in the company’s Midland Basin core area for $132.8 million. The company expects to exercise its option and planned to use net proceeds from its IPO to fund the purchase of the assets.
On May 1, 2014, the company also completed a purchase and sale transaction, acquiring 1,997 net acres in the Midland Basin core area. The assets include 6.3 net wells with average production, for the month ended April 30, of 861 net barrels of oil per day.
The company said it would pay $165.3 million.
Sheffield owns more than 15% of the company after selling 1.8 million shares in the IPO. He owns another 22.7 million units that are convertible into common stock, according to the company’s prospectus filed with the U.S. Securities and Exchange Commission.
Parsley Energy will pay him and the company’s other pre-IPO owners 85% of the tax savings the business received as a result of the offering. If the company terminated this tax-receivable agreement today, Sheffield would be paid about $122 million, according to the prospectus.
Brad Smith, a spokesman for Parsley, said the regulatory quiet period precluded Sheffield from commenting further.
Parsley is one of 28 energy IPOs to be held this year, according to data compiled by Bloomberg. The group has gained 22% since their pricing, trailing only the communications sector as the best-performing in the market.
The spate of energy IPOs reflects the brightening sentiment for the sector, according to Jonathan Waghorn, manager of the Guinness Atkinson Global Energy Fund.
“We went through a 34-month bear market until basically about three months ago,” Waghorn said by phone from London.
Since February, the MSCI Global Energy Index has rallied more than 16% as anticipated increases in oil coming from OPEC producers, such as Iran and Libya, hasn’t materialized.
“There is a sentiment change in the market that says even with the U.S. oil shale bonanza of excess supply, maybe we’re not going back to $50 oil,” Waghorn said.Waghorn’s fund doesn’t own shares of Parsley Energy.
“In the Permian, specifically, reserves and resources estimates are continually getting revised higher,” Andrew Cosgrove, an energy industry analyst with Bloomberg Industries in Princeton, N.J., said by phone. “Horizontal drilling is in the early innings in the Permian.”
Parsley has identified 1,681 locations on its property suitable for horizontal drilling, about a third of the potential wells it has identified, the company said in its prospectus. Improvements in horizontal drilling technology have revived oil production prospects in fields across the U.S. including the Permian, Cosgrove said.
Sheffield left Chicago to enter the oil business in 2006. He struck a deal with his grandfather, Joe M. Parsley, to take control of more than 100 wells Parsley retained when the business he co-founded, Parker & Parsley, merged with another company to form Pioneer Natural Resources Co. (NYSE: PXD) in 1997, according to regulatory filings.
The billionaire’s father, Scott D. Sheffield, has served as Pioneer’s chairman and CEO since 1997. The Irving, Texas-based company owns about a one-third interest in Joe Parsley’s old wells. The younger Sheffield joined Pioneer for an annual salary of less than $60,000 in 2006, and started overseeing oil properties, according to SEC filings.
Sheffield left two years later to start Midland, Texas- based Parsley Energy. Its first assets were 109 wells obtained from his grandfather, who now owns 6.5% of the public entity, including convertible units, according to the Parsley prospectus filed Tuesday with the SEC.
Parsley accumulated more than $450 million in loans from its founding through March 2014 to increase its acreage and wells beyond its initial assets. Higher sales followed the rise in wells. In 2011, the company had under $11 million in sales before tripling in 2012 and again in 2013.