This Year I Reviewed Three IPOs Of Note. What follows is a "That Was Then, Since Then, and So What Now?" look at the three.

• New PRB CBM [Powder River Basin Coalbed Methane] player formed out of Carrizo Oil & Gas Inc. (CRZO), Gastar Exploration Ltd. (GST) and Marathon Oil Corp. (MRO) assets and spare change from Credit Suisse.
• Large primarily undeveloped leasehold (308,000 net acres) mostly in the Powder but with about 10% in the Green River Basin. 5,000 locations identified.
• 25.9 Bcf proved reserves (which is up from about 20 Bcf as of YE06, largely due to gas prices).
• Lost 5.5% on opening day (May 15th). I wonder why?
• Massive premium to NAV [Net Asset Value].
• 28.9 million outstanding post-deal X $9/share + working capital gets you TEV [Total Enterprise Value] of around $225 million.
• I get an NAV of just over half that if I'm fairly generous with the value of their in ground reserves and undeveloped acreage.
• Steep cash flow multiple relative to peers, despite the fact that PRB here is lower R/P [Ratio of Proven Reserves] than a lot of the gassy "long reserve life" players.
• You get to wait the usual 30 days for Street coverage.
• Once this seasons a bit it'll be a good, though thinly-traded proxy for Rockies natural gas, replacing the old Evergreen Resources as the purest of the pure gas plays.
• Verdict: I'm waiting for the coverage to start, and then waiting some more. They plan to drill 200 to 400 wells per year, which should yield decent reserve growth, but hasn't in the past. They also own rights on a majority of their acreage to explore for conventional oil and gas at deeper depths than the coal formations. This one is worth watching.

Since Then:

• October 15 PINN agreed to be acquired by Quest Resources at the then equivalent price of $6.55 per share (exchange ratio of 0.6584 X $10 for QRCP stock). So I was right to wait.
• Also in the intervening span since the IPO, PINN has announced a couple of "nothing to write home about" quarters with down revenue (due to low Rockies gas prices) and increased LOE (both absolute and on a per unit basis due to high number of wells in the portfolio that are not yet productive (presumably dewatering).

So What Now?

• The trade-able vehicle following the merger is Quest Resources (QRCP).
  
• Quest is a Cherokee Basin (Kansas/NE Oklahoma) CBM operator who now owns a slug of Powder River Basin acreage and production.
• QRCP has 500,000 net acres in the CBM Cherokee play so this is another low cost gas manufacturing op. Nothing sexy but it is cheap and a consistent, low risk grower.
• very low F&D ($1.42 3 year average)
• long reserve life: 13+ years
• 2,300 remaining locations in the Cherokee
• grew 40% organically through first 9 months of 2007
  
• This is the area that NFX recently exited.
• The Street (3 analysts) have taken estimates to $2.13 since the merger with PINN was announced but the range is broad ($1.50 to $2.48). The aveage puts them at 3.3x cashflow (range of 2.9x to 4.7x). The 3.3 is very low for the cost structure and long reserve life.
• The stock has fallen since the Merger announcement as people obviously dislike the $205 million price tag implied by the stock deal for PINN's 20.3 Bcf. As in you paid what???!!! $10 / Mcfe!!!
• I will wait to act until I see the year end results and planned capital program for 2008.
  

That Was Then: May 17th, 2007: Large and In Charge. This is a totally different animal than yesterday’s look at (PINN).