Elephant Oil Readies $7 Million U.S. IPO

A Quick Take On Elephant Oil Corp.

Elephant Oil Corp. (ELEP) has filed to raise $6.875 million in an IPO of its common stock, according to an S-1/A registration statement.

The firm operates as an independent oil and gas exploration and production company.

Given the stage of company development and ultra-high risk profile, I'll pass on the IPO.

Elephant Oil Overview

Houston, Texas-based Elephant Oil Corp. was founded to acquire exploration licenses in Benin and Namibia to extract hydrocarbon-based energy sources.

Management is headed by Founder and CEO, Matthew Lofgran, who has been with the firm since its inception in 2013 and was previously CEO of Nostra Terra Oil & Gas Company plc.

The company has a 100% licensed interest in Benin for more than 1.1 million acres in a low-density tropical forest. The exploration period has terminated, and management is in negotiations for an extension of the expired license.

The firm also has an agreement with Namibia for a 70% interest in a block of more than 2.8 million acres in a brushland environment. The exploration period will terminate in August 2029.

As of December 31, 2022, Elephant Oil has booked a fair market value investment of $8.6 million in equity and debt from investors.

Elephant Oil's Market

According to a 2019 market research report by JD Supra, the oil and gas industry in Benin has historically been limited.

The most recent discovery of note was in 2013 when South Atlantic Petroleum discovered an 87 million barrel field.

Since then, the government of Benin has enacted a new petroleum code and model production sharing agreement.

Also, the new code pertains to upstream operations and not to storage or transportation operations.

Elephant Oil's Financial Performance

The company's recent financial results indicate no revenue and material SG&A expense associated with its development efforts.

Below are relevant financial results derived from the firm's registration statement:

(Source - SEC)

As of December 31, 2022, Elephant Oil had $25,436 in cash and $4.4 million in total liabilities.

Elephant Oil's IPO Details

Elephant Oil intends to raise $6.875 million in gross proceeds from an IPO of its common stock, offering approximately 1.5 million shares at a proposed midpoint price of $4.50 per share.

No existing shareholders have indicated an interest in purchasing shares at the IPO price.

The company is also registering for sale 784,106 shares from potential selling shareholders.

Assuming a successful IPO, the company's enterprise value at IPO would approximate $66.2 million, excluding the effects of underwriter over-allotment options.

The float to outstanding shares ratio (excluding underwriter over-allotments) will be approximately 10.51%. A figure under 10% is generally considered a 'low float' stock, which can be subject to significant price volatility.

Management says it will use the net proceeds from the IPO as follows:

approximately $3.7 million to mobilize a drilling rig to Benin, to commence exploration and drilling activities as well as additional surveys on Block B, and to pay license fees in Benin;

approximately $0.3 million for initial surveys and license fees in Namibia

approximately $0.2 million for further expansion of portfolio or further exploration activity of existing assets; and

approximately $0.1 million for working capital and selling, general and administrative purposes.

(Source - SEC)

Management's presentation of the company roadshow is available here until the IPO is completed.

Regarding outstanding legal proceedings, management says the company is not subject to any material legal proceedings.

The sole listed bookrunner of the IPO is Spartan Capital Securities.

Commentary About Elephant Oil's IPO

ELEP is seeking U.S. public capital market investment to fund the start of drilling activities in Benin.

The firm's financials show no revenue to date and some SG&A costs.

The firm currently plans to pay no dividends and to retain any future earnings for reinvestment back into the firm's growth and operational requirements.

The market opportunity for oil and gas products in the country of Benin is considered low based on its historical activity.

Spartan Capital Securities is the sole underwriter, and the only IPO led by the firm over the last 12-month period has generated a return of negative (86.8%) since its IPO. This is a bottom-tier performance for all major underwriters during the period.

Risks to the company's outlook as a public company include its tiny capitalization, lack of revenue history, and speculative nature.

As for valuation expectations, management is asking investors to pay an Enterprise Value/Revenue multiple of approximately $66 million, despite no revenue history.

Given the stage of company development and ultra-high risk profile, I'll pass on the IPO.

Expected IPO Pricing Date: To be announced.

Gain Insight and actionable information on U.S. IPOs with IPO Edge research.

Members of IPO Edge get the latest IPO research, news, and industry analysis.

Get started with a free trial!