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Don't Slam the Door on DOR (Dynamic Offshore Resources)

posted Jan 31, 2012, 2:10 AM by Jeff Davies   [ updated Feb 1, 2012, 4:50 PM ]
One of two E&P IPO's in the hopper this week, Dynamic Offshore Resources (ticker: DOR) is a Riverstone/Carlyle-controlled, primarily Gulf of Mexico shelf independent.  Some degree of skepticism is warranted on sponsor sell-downs, but the valuation doesn't appear stretched versus peers at $18, the midpoint of talk in the S-1.  Going just from the S-1, without meeting management and hearing the strategy first hand, numbers are all I have and they say it looks slightly cheap on a few metrics (EV/reserves, EV/flowing , EV/EBITDAX) and quite cheap on a couple (EV/PD Reserves, EV/PV-10).  I am curious what happened to their cash costs in 2009, which went materially higher (nearly double the 2011 rate).  Together with dropping prices, the cash margin really got squeezed, much more than peers.  SGY and WTI seem to be the best comps and they have better and more consistent cash flow margins so I would think DOR should trade at a minor discount on cash flow metrics.  Somewhat offsetting that is Dynamic has a largely un-leveraged balance sheet pro forma for the equity deal, so it may be best positioned to grow through acquisitions, continuing its roll-up strategy.  Valuations show some upside, with accretive leveraged acquisitions likely, presumably oil-focused.  The discount to PV-10 seems excessive versus peers and by itself could limit downside.  Of course it comes with unique operating risks as a Gulf producer, but the door shouldn't be shut on the DOR IPO.   

EDIT:  THE DOORS WERE SHUT, THE IPO HAS BEEN PULLED. WHAT A BAD TIME TO GET CUTE WITH A TITLE (1/31/12)
SECOND EDIT:  DOR BOUGHT BY SANDRIDGE FOR $1.275 BILLION (2/1/12)

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(click image for comp sheet)




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