Energy Firms Seek IPO Fuel

From Shale to Biomass, Energy on the Agenda .

By LYNN COWAN

Two ends of the energy-industry spectrum will be represented in the U.S. IPO market this week: field-equipment company Stewart & Stevenson Inc. and renewable-fuel maker KiOr Inc.

Houston-based Stewart & Stevenson, a century-old company that specializes in equipment and services used to extract oil and gas from unconventional deposits such as shale, is aiming to raise as much as $256 million through a listing on the New York Stock Exchange under the symbol SNS. KiOR, which has developed a technology that can convert wood chips into crude oil, is seeking $210 million with a Nasdaq listing under KIOR.

As different as the two companies' businesses are, both listings carry an element of risk at a time when broad market volatility is stifling investors' appetites for many non-Internet IPOs.

The biggest risk for Stewart & Stevenson is another economic downturn or a drop in energy prices. Its sales rose 25% to $861 million in its fiscal year that ended Jan. 31, but still haven't recovered to levels before the last global economic downturn, when it booked $1.2 billion of sales in the year ended Jan. 31, 2009. But they appear to be picking up more speed; sales were up 68% to $271 million in the three months that ended April 30, compared to the same period a year earlier.

Although the company produced an operating profit of $10.6 million in its last fiscal year, interest payments dragged its bottom line into the red, and it reported a net loss of $10 million, down from $24 million a year earlier. In the first quarter of the current fiscal year, it had net income of $13.8 million compared to a net loss of $4.7 million a year earlier.

Stewart & Stevenson has a healthy backlog of orders: $412 million, as of April 30, compared to $260 million on May 1, 2010. However, the company warns that its customers have tended to delay capital equipment projects, including maintenance and upgrades, during industry downturns. Another economic downturn or any decline in oil and gas prices could hurt its business, it says in its prospectus.

KiOR's business is innovative, but carries a high level of risk. It's developed a way to make crude oil out of biomass like wood chips, and the resulting product can be processed on standard refinery equipment, then transported using existing infrastructure such as pipelines. Unlike many alternative fuels, its end products are gas and diesel blendstocks rather than alcohols, ethanol or biodiesel. That means the energy density of one gallon of its product equates to 1.7 gallons of ethanol.

But KiOr, a four-year old company based in Pasadena, Texas, is still considered a development-stage firm and doesn't intend to launch commercial production of its fuel until the second half of 2012. It is still performing motor-vehicle fuel tests as it looks toward registering its products with the U.S. Environmental Protection Agency, and plans to seek certification for use in jet fuel. So far, it hasn't generated any revenue and has never been profitable.

Part of the IPO proceeds will help finance the building of a standard commercial production facility in Newton, Miss. Hunt Refining Co., Catchlight Energy LLC and a unit of FedEx Inc. recently agreed to purchase blendstocks from that plant, and KiOr is in negotiations with them and other potential customers for future purchases of its fuel.

Write to Lynn Cowan at lynn.cowan@dowjones.com