Deals May Strain On Refco News;

Rising costs spark wave of gas/oil IPOs

Fri Apr 28, 2006 3:48 PM ET

By Justin Grant

NEW YORK, April 28 (Reuters) - The historically high price of oil has spawned unprecedented gains for gas and oil companies making initial public offerings.

For the first time on record, the sector leads the way in IPO volume, with seven companies raising $3.1 billion in U.S. Securities and Exchange-registered deals this year, according to Dealogic, which has tracked these numbers since 1993.

This trend will likely continue as worldwide demand for energy continues to escalate, analysts said this week.

"It's going to drive the market for the rest of the year and several years to come," said Tom Taulli, IPO analyst and author of "Investing in IPOs," of Newport Coast, California.

"It's not just the U.S. It's India and China. It's a global phenomenon and a worldwide comeback in terms of economic growth. That's a lot of energy that will be needed. ... There's some fundamental long-term changes in the market."

Ten more companies are looking to raise an estimated $2.5 billion in IPOs later this year, according to Dealogic. The technology sector is potentially the second-most valuable, but worth considerably less, with 13 companies filing to raise about $1.5 billion.

"As much as people are getting somewhat nauseous over the frequency of these deals and their quantity, they can't escape the fundamental decree of supply and demand," said David Menlow, president of IPOFinancial.com, an independent research firm based in Millburn, New Jersey.

"The big arrogance quotient in this is the oil companies know they've got a captive audience. In the oil business, profit is defined as all you can get. People are going to complain, but they're still going to buy gas."

The companies that have priced so far have done well, with all seven pricing at, or above the midpoint of their forecast range. Their shares have risen an average of 21.4 percent, since debuting, according to Dealogic.

Complete Production Services Inc.'s (CPX.N: Quote, Profile, Research) offering raised a higher-than-expected $624 million on April 20. Its shares priced at $24, the top of its forecast range. They rose more than 12 percent in their first day of trading and were at $26.45 in late afternoon trade Friday on the New York Stock Exchange.

DELEK IN FOCUS

Oil refiner Delek US Holdings plans to float 10 million shares in an IPO on May 3 and is looking to raise $136.8 million. The company is a unit of Israeli conglomerate Delek Group (DELKG.TA: Quote, Profile, Research).

DK US owns a refinery in Tyler, Texas, and operates 349 retail fuel and convenience stores under the brand names MAPCO Express, East Coast and Discount Food Mart. It sells gasoline under its own brand as well as under brands of BP, Exxon, Shell and Chevron, according to the filing.

While higher gasoline prices may seem to benefit gas companies, they could eat into Delek's convenience store sales, said Francis Gaskins, president of IPO Desktop, an independent research firm based in Marina del Rey, California.

"When the price goes up and people drive less, it may affect traffic on the road, which is not a positive for their convenience store sales," Gaskins said. "It contributes a large part of their gross margins."

RECORD GASOLINE

U.S. retail gasoline prices surpassed the $3 mark this week in parts of the country, and some forecasters predict pump costs will rise during the summer driving season.

The record price is $3.07 a gallon, reached after Hurricane Katrina disrupted fuel supplies last September.

Pump prices rose this month because of higher crude costs and concerns about supply disruptions as oil refineries switch to blending ethanol with cleaner-burning summer gasoline.

Those worries eased this week though, on signs of a possible relaxation of new clean burning gasoline regulations.

"We're expecting gas prices to come down and we don't think this ethanol situation is a big deal," said Brian Kuzma, an oil analyst at RBC Capital Markets in Houston.

Unless there is a "major news event" out of Iran or Nigeria, Kuzma said he doesn't think prices will continue to flirt with the 1980 inflation-adjusted peak of $82 a barrel.

"It's possible," Kuzma said," but it would take a major supply disruption."