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Bill Barrett IPO Raises $325M for Rockies Exploration

Bill Barrett IPO Raises $325M for Rockies Exploration

In one of the energy sector's biggest initial public offerings (IPOs) this year, Bill Barrett Corp., the three-year-old Denver-based exploration and production (E&P) company, raised $325 million -- more than expected -- on Thursday after the oil and natural gas company's shares priced above the expected range.

The stock was one of the biggest gainers on the New York Stock Exchange Friday, with shares up almost 20% to close near $30/share. Barrett's IPO on Thursday priced 13 million shares at $25/share -- above the expected $20-23/share range that the company had originally expected, according to the underwriter Goldman Sachs.

Barrett, whose production currently is about 90% natural gas, filed its intent to go public earlier this year after finding success in its short run of operation. It was formed in 2002 by longtime Denver oil man Bill Barrett, 76, and a team of his former Barrett Resources Corp. executives, including his son and brother-in-law. Barrett Resources Corp., founded in 1980, was sold to Williams in 2001 for $2.8 billion (see NGI, May 14, 2001).

Renaissance Capital, which runs the IPO Plus Fund, noted that Barrett's peer group, which includes Ultra Petroleum, Quicksilver Resources, Patina Oil & Gas and Western Gas Resources, has outperformed the market over the past quarter. On a valuation basis, it said that the company's proposed IPO price is only 10 times trailing cash flow, a large discount to the peer group, which now trades at about 20 times.

"While the company's operating history is limited, in the hands of experienced management and in a strong market for natural gas, the company should do well. The nepotistic structure of the firm is a turnoff, but given the ongoing strength in energy stocks and a low relative valuation, we think this Rocky Mountain gas drilling IPO will rock."

At the end of 2003, Barrett estimated the value of its future net cash flows, before income tax, of its estimated proved reserves at about $520 million. That was based on prices of $5.58/MMBtu and $32.55/bbl for oil. In 2003, the company drilled 187 gross wells, and this year, it was expected to drill 327 gross wells.

At the end of 3Q2004, Barrett had approximately 945,000 undeveloped acres for potential drilling. The company also identified 1,577 drilling locations across its properties at the end of 2003, which it estimates will provide five years worth of drilling inventory.

With the public company, Barrett wants to duplicate some of the magic of Barrett Resources. If all goes to plan, the company will offer 12 million shares at $20-23/share through underwriters led by Goldman Sachs. It also can sell 1.8 million extra shares, or an added 15%, through investment banks.

Barrett will be listed on the New York Stock Exchange Symbol as "BBG." Proceeds from the offering will be used to repay debt and look for new assets, the company said. According to the filing, Barrett currently has properties in the Wind River and Powder River basins of Wyoming; the Uinta Basin in Utah; the Williston Basin in North Dakota, South Dakota, and Montana; and the Denver-Julesberg Basin in Colorado, Kansas and Nebraska.

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