These IPOs Deserve a Second Glance

It's been a great year for investors; the S&P 500 is up about 16.5% to date. But, a more detailed look reveals that the 16.5% growth pales in comparison to the returns of some newly public energy companies.

Shale gas boom fuels IPOs
America's shale gas boom is prompting many ripple effects throughout our economy. For one, the Energy Information Administration recently reported that America will be the largest energy producer in the world by year end, even above Russia and Saudi Arabia. Additionally, many venture capitalists or private equity firms that invested in U.S. exploration and production companies now want to take their investments public—enabling the firms to use the cash to pay down debt, grow operations, or make payments to original investors.

Explore opportunities, produce value
As seen in the below graph, Jones Energy  (NYSE: JONE  ) , Antero Resources  (NYSE: AR  ) , and Apollo Global Management's majority-owned Athlon Energy (UNKNOWN: ATHL.DL  ) , are all exceeding analyst and market expectations.

Source: Yahoo! Finance

In fact, since its IPO last Wednesday, Antero Resources (not accurately depicted in image) is already up 23%.  The firm operates within the Marcellus and Utica Shales in the Appalachian basin and is growing rapidly. While its natural gas sales comprise about 98% of its revenue, Antero just started selling natural gas liquids (NGL) while its oil sales grew 779% from 2011 to 2012.  Moreover, its natural gas production grew 93% and its oil production grew 963% in the same time period.  

By growing its capital expenditures year over year, the firm was able to position itself to benefit from the shale gas boom.

Athlon and Jones echo similar perspectives. Last quarter, Jones, which operates in Texas and Oklahoma, grew its total production up 37% from the first quarter of 2012 while increasing its revenue 106%. In the same time period, west-Texas-focused Athlon increased its daily production volume 68% while growing its revenue 82%.

The exciting news for investors is that the cash generated from the IPO for each of the above companies will help them repay debt, expand reserves, grow operating sites, and increase the bottom line.  

Unique business propeller
Another unforeseen benefit, especially for new exploration and production companies, is production forecasts, even from competitors. For example, the Wall Street Journal reported that Pioneer Natural Resources (NYSE: PXD  ) increased its production forecast a day prior to Athlon's IPO, a measure that undoubtedly boosted Athlon's new share price. Pioneer is a direct competitor of Athlon but is much larger by its operating locations, market cap, and other measures.

Beginning with their IPO dates, Pioneer's growth is not as impressive as the aforementioned drilling companies. However, when compared to competitors its own size, Pioneer steals the show.

Source: Yahoo! Finance

Even though firms like Range Resources and Chesapeake Energy were the first discover shale gas within the Appalachian region and benefit as a result, their growth pales to that of Pioneer. Interestingly, instead of redirecting its assets to the eastern U.S. like Chesapeake and Range, Pioneer dug its feet deeper into its own territory. In part, its stock price appreciation is evidence that investors liked the decision.

Bottom line
Investors are excited about new energy IPOs; after all, exploration and production companies are drilling for massive returns. But, when all the dust settles, I'm interested to see which firms will be left standing. Hopefully, you'll share in the growth story.

A transforming industry
Record oil and natural gas production is revolutionizing the United States' energy position, thereby leading to more energy IPOs. Finding the right plays while historic amounts of capital expenditures are flooding the industry is tricky, but it will pad your investment nest egg. To save you time and effort, the Motley Fool is offering a comprehensive look at three energy companies set to soar during this transformation in the energy industry. To find out which three companies you can grow with, check out the special free report, "3 Stocks for the American Energy Bonanza." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 

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Related Tickers

9/26/2016 4:02 PM
AR $26.57 Up +0.23 +0.87%
Antero Resources CAPS Rating: **
ATHL.DL $58.40 Down +0.00 +0.00%
Athlon Energy CAPS Rating: No stars
JONE $3.02 Up +0.07 +2.37%
Jones Energy CAPS Rating: No stars
PXD $174.57 Down -0.96 -0.55%
Pioneer Natural Re… CAPS Rating: **