Oklahoma companies' IPOs stampeding toward Wall Street

By Don Mecoy

Published: July 29, 2007

Oklahoma companies are making a run to Wall Street. A dozen state-based companies have gone public over the past 30 months, and another eight energy businesses are poised to make stock offerings.

The flurry of initial public offerings came after four years when no Oklahoma company went public, and a handful of publicly traded businesses ran from Wall Street, going private to avoid rising regulatory costs.

Make no mistake, this IPO stampede is fueled by energy. Eight of the 12 recent IPOs were launched by energy companies, and all of the planned stock offerings are in the business of finding, storing or moving oil and gas.

Tulsa money manager Fred Russell said the companies are responding to investors, who have snapped up energy stocks.

"There is tremendous demand for anything that has the e-word in it — energy,” Russell said. "Even if energy prices continue high and the stock prices go higher, you can't fault these executives for selling some equity at such robust levels.”

Stock offerings are a way for the company to cash in when valuations are at or near peak levels, said Russell, head of Fredric E. Russell Investment Co.

Bob Rader, senior vice president of Capital West Securities, said the spate of new public companies shows no signs of slowing.

"I'm sitting right here looking at the Kerr-McGee building, and SandRidge (Energy) will be there before long,” Rader said. "I don't have any reason to believe it's going to go away. These guys with their management skills build good companies. They're Oklahomans and they want to stay here.”

Oklahoma-based stock offerings have raised more than $2 billion since February 2005, and that represents money moving from the nation's centers of wealth into the Sooner State, Rader said.

The new capital also raises the standards of employees working at the companies headquartered in the state, and can ripple across to other professions, Rader said.

A New York-based underwriter recently called Rader when a local company was issuing a secondary stock offering worth hundreds of millions of dollars to gauge Rader's interest in participating in the underwriting.

Rader told the caller he would poll his brokers to see how much stock they thought they could deal.

"Now I have a question for you,” Rader recalls the caller saying. "Who are you?”

The chief executive officer of the Oklahoma company had required that Rader's local firm be allowed to join in the underwriting.

"I told him we're a friend of the family,” Rader said.

Securities attorney Bruce Day said he wishes that the local launches into the public markets created the same kind of opportunities for state-based law firms.

"In prior energy market booms, a very substantial portion of the securities practice going public were being performed by local law firms — an overwhelming portion of it,” Day said.

"At this time, a large portion of that same practice that was being directed to local firms is going to firms outside the state.”

The local securities law work related to initial public offerings has dried up, Day said.

Recent transactions may have been driven more by institutional investors than local entrepreneurs.

This is not to say that Day is discouraged.

"The capital is being controlled by local issuers. That's what you want and that's what you want funded,” he said.

"You want to wish them the very best. I want them all to do well.”

Insiders, institutional investors and the very wealthy get the biggest share of initial public offerings, which tend to go up on the first day of trading.

That, combined with the sometimes seductive language of company prospectus reports, can lure gullible investors to plunge on new issues, Russell said. That may be particularly true for the current red-hot energy market, he said.

"IPOs can be very exciting — very sexy,” Russell said.

"The SEC allows companies in their prospectus to emphasize competitive advantages. An investor thinking about an IPO should look at the numbers and see if the numbers speak as powerfully for the thesis as some of the words do.”

Russell's portfolio doesn't include any positions on Oklahoma energy companies, although he has invested in the red-hot sector that has produced much of the activity.

"Companies like to sell stock after an extraordinary period,” Russell said.

"Whether this can be repeated is the $64 million question.”

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