With the cold winter months setting in and overseas manufacturers continuing to drive the price of power higher, initial public offerings from two energy companies next week seem fortuitously timed. Coal miner Foundation Coal Holdings Inc and oil and gas company Bill Barrett Corp are both slated to go public next week, and could raise as much as $725 million combined.
Experts said both could benefit from rising commodity prices, as demand for power grows in China and India as reserves shrink in North America.
"People are placing bets on expectations for increasing energy demand across the board," said Curtis Trimble, an analyst with Ferris Baker Watts Inc. "If you reflect back in four to six quarters from now, energy-levered stocks will have out-performed, markedly, equity markets as a whole."
Bill Barrett, based in Denver, focuses on natural gas exploration in the Rocky Mountain region, regarded by experts as a promising area.
Most of "the growth in gas supplies is going to come out of the Rockies," said Raymond Deacon, an analyst with Harris Nesbitt. "Until now there hasn't been the pipeline capacity or the technology to exploit the Rockies' resources."
Most power generation facilities currently built in the United States are natural gas-fired, which experts believe will maintain that fuel's importance over the next several years, spurring interest in exploration and production companies.
"There is very little excess supply of natural gas," Deacon said. "It's a very tight market because demand is growing and supplies are fairly limited."
Barrett had approximately 945,000 undeveloped acres for potential drilling as of September 30, according to the company's prospectus.
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.
Barrett filed to sell 12 million shares between $20 and $23 per share. The offering, expected to price on Thursday, could result in a market capitalisation of approximately $868 million, according to market research firm Dealogic.
The underwriters, led by Goldman Sachs & Co, JPMorgan and Lehman Brothers, have the option to purchase an additional 1.8 million shares to cover over-allotments, according to a regulatory filing.
Barrett's shares will trade on the New York Stock Exchange under the symbol "BBG".
Ironically, the high price of natural gas may also be advantageous for the week's other big IPO - Foundation Coal.
The needs from competing coal-powered electricity facilities and increased demand for metallurgic coal from steel producers has benefited the mining industry and could boost Foundation's offering, analysts said.
Based in Linthicum Heights, Maryland, Foundation produces and processes coal for both electric power companies and steel manufacturers.
Further driving interest in the sector is the need for "the United States to become more energy self-reliant," said Greg Stevenson, an analyst with Ragen MacKenzie. "Coal is going to play an integral part in that energy policy."
Foundation's IPO, expected to price on Wednesday, could raise nearly $450 million.
The company filed for an offering of 23.61 million shares at a price range of $17 to $19 per share.
Morgan Stanley and Citigroup, the lead underwriters for the offering, have the option to purchase approximately 3.5 million shares to cover over-allotments, according to the prospectus.
Foundation's shares will trade on the NYSE under the symbol "FCL".
Six other offerings are expected next week and could raise another $440 million.
Healthcare companies Symmetry Medical Inc, which provides implants to orthopedic device manufacturers, eye disease treatment company OccuLogix Inc, and Adeza Biomedical Corp, a maker of women's health products, are expected to price offerings.
IPOs are also expected from HouseValues Inc, which generates marketing leads for real estate agents, housing developer Comstock Homebuilding Companies Inc, and Las Vegas-based bank holding company Community Bancorp.