Despite the drawbacks of regulatory demands and increased investor scrutiny, more private oil and gas companies are making the move to public markets, and the momentum is expected into 2007. Filing costs, upfront paperwork and the lengthy route to traditional initial public offering are helping 144A private placement and reverse mergers emerge as faster, slightly less-expensive, platforms to public trading. A number of energy companies opted for a traditional IPO this year. Lafayette, Louisiana-based Superior Offshore International Inc. filed to raise $200 million; Plano, Texas-based producer Ascent Energy Inc. filed for $200 million; and Dallas-based E&P company Exco Resources Inc. priced one for proceeds of almost $650 million. "Companies no longer go public simply because they've outgrown the private-equity markets," says Wil VanLoh, managing partner of Houston-based private-equity firm Quantum Energy Partners. Instead, many see the potential for a higher share valuation, and for future liquidation or exit. Yet some companies are simply not well positioned for a successful traditional IPO. The straight IPO is expensive because of the registration and marketing process, says Keith Behrens, managing director of Dallas- and Houston-based Energy Capital Solutions. And, there must be confidence that market conditions aren't going to deteriorate, he says. "All of the vehicles leave you at the mercy of the market, but the reverse merger and the 144A take some of the risk out of a deal not closing because they can be done so quickly. Still, all three will leave you with a security subject to market volatility." VanLoh says, "When a company decides to do a traditional IPO, it's not so much about faith in the markets, because commodity prices in oil and gas stay volatile. And the attention span of investors is dependant on market temperature. For more on this, see the December issue of Oil and Gas Investor. For a subscription, call 713-260-6441.

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