Newborn Energy Companies

By Eric Fox | June 10, 2011 AAA

The search for increased shareholder value has led to many restructurings in the energy industry over the last year as companies look to boost share prices. Here's a look at two new energy companies that have recently separated from the parent company through a spin off or initial public offering (IPO).

TUTORIAL: IPO Basics: Introduction

Canada Anyone?
Lone Pine Resources
(NYSE:LPR) came out of Forest Oil (NYSE:FST) in an initial public offering in late May 2011. The offering was a disappointment as the stock was priced at $13 per share, far below the expected range of $18 to $20 per share that was discussed prior to the deal. (For related reading, see The Murky Waters Of The IPO Market.)

Lone Pine Resources owns the Canadian exploration and production assets of Forest Oil, which got into Canada through the purchase of Canadian Forest Oil Ltd. in 1996. The management of Forest Oil decided on the reorganization as it felt that the market would value the two companies more efficiently if each was a pure play on its respective geographies.

Lone Pine Resources reported proved reserves of approximately 376 Bcfe of as of 12/31/2010, with 71% of these proved reserves composed of natural gas. Lone Pine Resources has assets in Alberta, British Columbia, Quebec and the Northwest Territories. One area that Lone Pine Resources is involved with is the Utica Shale in Quebec, where the company has 274,000 net acres.

The Utica Shale is a massive deposit of rock that underlies some of the same area as the better known Marcellus Shale. This formation extends from Canada down into New York, Pennsylvania, Ohio and many other states. The potential of the play is not known yet, but it has attracted many operators including Range Resources (NYSE:RRC), Chesapeake Energy (NYSE:CHK) and CONSOL Energy (NYSE:CNX) (For related reading, see Unearth Profits In Oil Exploration And Production.)

Forest Oil still owns approximately 80% of Lone Pine Resources and expects to spin out the balance of this company to shareholders sometime in the second half of 2011. Lone Pine Resources has continued to do poorly since the offering and is trading at $11.95 per share as of June 9, 2011.

Midstream
Tesoro Logistics LP
(NYSE:TLLP) was part of parent company Tesoro (NYSE:TSO) and was the subject of an initial public offering in April 2011. Tesoro sold 14.95 million units or 48% of the company to the public at a price of $21 per share.

Tesoro Logistics LP owns various assets in the United States, including a crude oil pipeline gathering system that collects oil from various spots in North Dakota and Montana and transports it to the Tesoro Mandan refinery. The company also owns a trucking fleet that handles 23,000 barrels per day in the region. Tesoro Logistics LP owns eight refined product terminals scattered across the western United States and storage assets in Utah.

Investors in Tesoro Logistics LP have done well since the initial public offering, as the stock is currently up to $24.25 as of 6/9/2011.

The Bottom Line
Two new energy companies have come into being over the last month through initial public offerings as managements look for some way to increase shareholder value. (Find out how companies can save or boost their public offering price with these options. For more, see Greenshoe Options: An IPO's Best Friend.)

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