ATP OIL & GAS CORP ATPG
June 05, 2010 - 11:36pm EST by
reaux1318
2010 2011
Price: 9.19 EPS $0.00 $2.00
Shares Out. (in M): 51 P/E 0.0x 4.6x
Market Cap (in $M): 470 P/FCF 0.0x 0.0x
Net Debt (in $M): 1,950 EBIT 0 0
TEV ($): 2,420 TEV/EBIT 0.0x 0.0x

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Description

ATP Oil & Gas Corporation (Ticker: ATPG)

For those who believe in buying when there’s blood in the streets, few areas today would seem to be “bloodier” than businesses associated with deepwater drilling in the Gulf of Mexico. We think one opportunity that has arisen from the carnage is that of ATP Oil and Gas Co. (ATPG), whose stock we believe is worth $20-$40 per share (2x-4x the current price) despite its 60% plunge over the past two months.

In our opinion, ATPG’s current share price values all of the company’s proven and probable Gulf of Mexico (GOM) deepwater reserves at a 65% haircut assuming $70 oil and $5 natural gas. These draconian assumptions needed to justify the currently depressed stock price indicate that the downside in ATPG shares is well protected no matter how long the GOM deepwater drilling moratorium lasts, and it is important to note that the company has net assets other than those specific deepwater GOM reserves.

Since ¼ of U.S. oil production comes from deepwater GOM, we firmly believe the necessity of tapping domestic oil resources will eventually open deepwater GOM for drilling again, thereby not permanently impairing a significant amount of the $4 billion of ATPG’s pre-tax proven and probable oil and gas reserves in the area. In the meantime, we estimate ATPG is currently break-even and has over $350 million in cash and available credit with no major debt maturities until 2015. In the event the deepwater GOM drilling moratorium is lifted, the potential upside in ATPG shares is extraordinary.

Company Overview

ATPG is an oil and gas development and production company (rarely does exploration) that utilizes a hub model to gain economies of scale for its own leases and those of third parties nearby. As such, ATPG invests major capex into a central infrastructure (including platform) near a cluster of its own leases and then proceeds to buy or develop other attractive reserves in the same vicinity at attractive prices. The company has a consistent history of growing proven and probable reserves (at a 20% CAGR over the past five years). ATPG operates 99% of all of its proven reserves (on a PV-10 basis) which allows the company control of development timing and correlated costs.

ATPG owns two re-usable floating platforms worth approximately $984 million ($834 million net of GE Finance’s 49% SPV ownership): ATP Innovator is currently used at the Gomez Hub and ATP Titan is currently used at the Telemark Hub (both in the GOM). A third platform called Octabuoy will have a total installed cost of $600 million ($150 million already invested with $99 million deferred), is nearly 60% complete, and is intended for placement at the Cheviot Hub (North Sea) in 2012. These floating platforms are re-usable and have useful lives exceeding 40 years in water depths from 300’ to 9,500’. As an example, ATPG estimates that only 30% of the useful life of the ATP Titan platform would be used under its current plans in the GOM.

Why is ATPG so Cheap?

We think it is fairly obvious that the unmitigated disaster that is the BP oil spill and the desperate moratorium imposed by scrambling politicians have led to excessive pessimism priced into ATPG’s shares. We think a temporary moratorium to ensure safety makes sense, but the market seems to be worried (in ATPG’s case at least) that there is an extremely high likelihood that deepwater Gulf of Mexico drilling is forever banned. This pessimism is compounded by somewhat misleading trailing financial statements (due to a recent doubling of production and major debt refinancing), $16+ million in insider sales around $20 per share (before the BP spill), and a spotty record of operational disappointments and equity dilution over the past few years (please see two previous VIC write ups).

As a result of the GOM deep water moratorium, ATPG must delay three wells slated for the second half of 2010 (MC941#4, MC942#2, MC305#2) while it can continue completion of two wells (MC941#3, MC754#1). Thus, April’s daily production of 27k BOEPD (double 4Q09 production) should be relatively stable for the remainder of the year (achieving 9+ million BOE in total production).

We think Mr. Market’s pessimism is entirely overblown since 1/3 of the nation’s domestic oil production is from the GOM and 80% of that GOM production is from deepwater GOM activities. Ultimately, we believe it is a question of “when?” rather than “if?” drilling is allowed to proceed in the deepwater to stabilize and/or grow what is currently ¼ of total U.S. oil production. That said, however, deepwater GOM drilling being allowed again is NOT necessary to have ample downside protection in the stock at this price.

Valuation using NAV

ATPG has 212 million BOE (58% oil) of proven and probable reserves (62% in deepwater GOM, 32% in North Sea, and 6% in GOM shelf) valued at a pre-tax PV-10 of $4.4 billion at $70 oil and $5 natural gas. These proven and probable reserves have been growing at a 20% CAGR over the past five years and we expect them to continue growing (although we assume no additions to 2P reserves for the valuation below). In addition, ATPG owns three floating platforms and related infrastructure worth approximately $1 billion net of GE’s $150mm minority interest. The company’s total long-term obligations (net of cash) are approximately $1.95 billion (after adjusting for the April financing). There are 51 million shares outstanding (and an additional 6.3 million shares in dilution if the $140 million preferred is converted at $22 per share). ATPG’s current after-tax NAV including proven and possible reserves at $70 oil and $5 natural gas is approximately $36 per share:

ASSET

VALUE

 

NOTE

ATP Innovator

$150 mm

 

Net of $150mm 49% GE Interest

ATP Titan

$680 mm

 

 

Octabuoy

$150 mm

 

 

Total Infrastructure

$0.98 B

 

 

 

 

 

 

 

GOM Deepwater Estimated Pre-Tax 2P

$3.3 B

 

 

GOM Shelf Estimated Pre-Tax 2P

$250 mm

 

 

North Sea Estimated Pre-Tax 2P

$850 mm

 

 

 

- 30% Tax Haircut on Production

(-$1.32 B)

 

PV-10 tables range from 10% - 30%

Total After-Tax 2P

$3.08 B

 

 

 

 

 

 

 

Total Assets

$4.06 B

 

 

 

 

 

 

 

 

Subtract Net Debt

(-$1.25 B)

 

After adjusting for April financing

 

Subtract Other liabilities

(-$690 mm)

 

Vendor NRIs, asset retirement costs

 

 

 

 

 

Total Common Equity Value

$2.12 B

 

 

Per Share

$36

 

Preferred convert and options dilute to 58mm shares

 

The valuation assuming $70 oil and $5 natural gas is rather conservative since futures prices are still well above that level (and ATPG hedges a lot of its annual production). Prices for oil and gas are off about 4%-7% from the YE 2009 price deck, but using those prices, the after-tax 2P values would go to $4.5 billion (for a total NAV of $60+ per share), and values are presently closer to that than $70/$5. Slide 12 of the Company’s April presentation has these numbers.

This analysis also tells us the draconian discount currently priced into the stock: ATPG’s equity is conservatively worth over $2 billion, yet its market cap is less than $500 mm; therefore, applying the $1.5+ billion discount entirely to the after-tax deepwater GOM 2P of $2.3 billion implies a 65% discount. We believe this is far too harsh for what could very well be just a temporary delay to development plans.

While we aren’t sure how long the moratorium might last nor how much the new standards might increase costs, we are highly confident this haircut is too steep. Just as doing nothing was not politically feasible, however, it could be political suicide to either permanently ban deepwater drilling or make the process cost-prohibitive (under which scenarios they would likely need to compensate companies some value for their leases and capital investment – after all, even Venezuela compensated companies for nationalized assets). Just read these articles to see the brewing moratorium backlash:

http://www.nola.com/opinions/index.ssf/2010/06/louisiana_deserves_answers_mr.html

http://www.nytimes.com/2010/06/05/us/05gulfecon.html

Entrada

The above haircut on deepwater GOM reserves is actually understated since ATPG recently spent $0.3 million acquiring GOM leases for a project near a Conoco field whose previous operators had booked over 30 million BOE in proven reserves and over 50 million BOE in proven and probable reserves. Thus, we think this is low hanging fruit that is likely to add to ATPG’s proven and probable reserves by year-end.

Production Growth and Cash Flows

ATPG just released updated guidance for 2010 production of between 9 million and 10 million BOE, which is down from pre-moratorium guidance of 12 million BOE, but up from 5.9 million BOE in 2009. In fact, daily production as of April had already doubled from 4Q09, hitting 27k BOEPD. Before the moratorium, ATPG was guiding for daily production to hit 50k BOEPD in early 2011 and enter 2012 at around 75k BOEPD. At 75k BOEPD, we believe ATPG would be generating around $10 per share in CFO with most major capex expenditures behind it. Once ATPG’s Telemark #4 well is completed by 3Q (not subject to moratorium), this daily production number should climb even further. We believe ATPG will be profitable at these production numbers since ATPG earned $1 per share in 2007 at similar production levels (adjusted for a higher share count now).

The company also updated its capex guidance for 2010 to be around $500 +/- $25 million for the full year. It is important to note that $240 million of this was already spent in 1Q ($77 of which was non-cash vendor financing) and $140 million of the total is non-cash vendor financed. Thus, ATPG is only due to spend another $200 million in cash capex for the remainder of 2010, far below its $370 million in liquidity as of end of 1Q (when adjusting for April’s financing).

Liquidity

In a stroke of luck, the day before the BP oil disaster ATPG closed a $1.5 billion note due in 2015 at 12% interest. These funds paid off existing bank loans and provided a net $131 million in cash to the company to go along with its $140 million in cash on hand at end of 1Q (the $45 million of restricted cash was largely freed up subsequent to quarter-end, explanation is given in the Q). In addition, ATPG closed a $100 million Senior Secured First Lien revolving credit facility from which it has not drawn. Just as ATPG was able to finance half of its ATP Innovator platform, we believe it is possible they will be able to finance up to half of their ATP Titan platform, potentially freeing up to $340 million in additional cash in the next year. Our confidence is bolstered by management’s comments on the May 6th conference call (two weeks after the spill): “We continue in negotiations with [the ATP Titan financing], and I have not heard any pushback from the entities that we are talking with on that. So it does not appear that there would be any direct or indirect impact as a result of the conditions in the Gulf…At this particular point - I do not want to count chickens before they hatch - but, as I see it, I do see it moving forward.”

In a highly unlikely worst-case scenario of a permanent deepwater moratorium in the GOM, it’s possible that ATPG could sell its partially completed Octabuoy platform and move its ATP Titan platform to its leased acreage in the North Sea (assuming current GOM production had tapered off), sell/lease its ATP Titan platform and proceed with current North Sea Octabuoy plans, or just move ATP Titan to a new hub somewhere else in the world. We have confidence these platforms have retained most of their value since GE was willing to buy 49% of ATP Innovator at cost two years after its in service date.

Insider Ownership

ATPG’s management owns 13% of the company’s shares outstanding. Management sold $16+ million worth of shares in January of this year, however. Two directors bought 2.5k shares on the open market a few days ago. To us, this respectable ownership and the large margin of safety in the share price offset management’s having been accused of over-promotion in the past.

Oil Price Risk

ATPG hedges some of its production, but you can hedge out the rest of the oil and natural gas price exposure if you wish. ATPG has crude swap contracts valued at over $400 million and natural gas swap contracts valued at over $50 million as of April, representing approximately 2/3 of 2010 production.

Disclosures: We and funds we manage own shares of ATPG and disclaim any responsibility to update our ownership status. Please do your own due diligence as we have lost money before and ATPG’s shares may lose value.

Catalyst

 Major Catalysts

1) 2Q financials showing good liquidity and ramping revenues

2) Financing 49% of the ATP Titan for as much as $340 million

3) Entrada reserve estimates increasing 2P reserves by a double-digit percentage

4) Clarification or lifting of the GOM moratorium.
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    Description

    ATP Oil & Gas Corporation (Ticker: ATPG)

    For those who believe in buying when there’s blood in the streets, few areas today would seem to be “bloodier” than businesses associated with deepwater drilling in the Gulf of Mexico. We think one opportunity that has arisen from the carnage is that of ATP Oil and Gas Co. (ATPG), whose stock we believe is worth $20-$40 per share (2x-4x the current price) despite its 60% plunge over the past two months.

    In our opinion, ATPG’s current share price values all of the company’s proven and probable Gulf of Mexico (GOM) deepwater reserves at a 65% haircut assuming $70 oil and $5 natural gas. These draconian assumptions needed to justify the currently depressed stock price indicate that the downside in ATPG shares is well protected no matter how long the GOM deepwater drilling moratorium lasts, and it is important to note that the company has net assets other than those specific deepwater GOM reserves.

    Since ¼ of U.S. oil production comes from deepwater GOM, we firmly believe the necessity of tapping domestic oil resources will eventually open deepwater GOM for drilling again, thereby not permanently impairing a significant amount of the $4 billion of ATPG’s pre-tax proven and probable oil and gas reserves in the area. In the meantime, we estimate ATPG is currently break-even and has over $350 million in cash and available credit with no major debt maturities until 2015. In the event the deepwater GOM drilling moratorium is lifted, the potential upside in ATPG shares is extraordinary.

    Company Overview

    ATPG is an oil and gas development and production company (rarely does exploration) that utilizes a hub model to gain economies of scale for its own leases and those of third parties nearby. As such, ATPG invests major capex into a central infrastructure (including platform) near a cluster of its own leases and then proceeds to buy or develop other attractive reserves in the same vicinity at attractive prices. The company has a consistent history of growing proven and probable reserves (at a 20% CAGR over the past five years). ATPG operates 99% of all of its proven reserves (on a PV-10 basis) which allows the company control of development timing and correlated costs.

    ATPG owns two re-usable floating platforms worth approximately $984 million ($834 million net of GE Finance’s 49% SPV ownership): ATP Innovator is currently used at the Gomez Hub and ATP Titan is currently used at the Telemark Hub (both in the GOM). A third platform called Octabuoy will have a total installed cost of $600 million ($150 million already invested with $99 million deferred), is nearly 60% complete, and is intended for placement at the Cheviot Hub (North Sea) in 2012. These floating platforms are re-usable and have useful lives exceeding 40 years in water depths from 300’ to 9,500’. As an example, ATPG estimates that only 30% of the useful life of the ATP Titan platform would be used under its current plans in the GOM.

    Why is ATPG so Cheap?

    We think it is fairly obvious that the unmitigated disaster that is the BP oil spill and the desperate moratorium imposed by scrambling politicians have led to excessive pessimism priced into ATPG’s shares. We think a temporary moratorium to ensure safety makes sense, but the market seems to be worried (in ATPG’s case at least) that there is an extremely high likelihood that deepwater Gulf of Mexico drilling is forever banned. This pessimism is compounded by somewhat misleading trailing financial statements (due to a recent doubling of production and major debt refinancing), $16+ million in insider sales around $20 per share (before the BP spill), and a spotty record of operational disappointments and equity dilution over the past few years (please see two previous VIC write ups).

    As a result of the GOM deep water moratorium, ATPG must delay three wells slated for the second half of 2010 (MC941#4, MC942#2, MC305#2) while it can continue completion of two wells (MC941#3, MC754#1). Thus, April’s daily production of 27k BOEPD (double 4Q09 production) should be relatively stable for the remainder of the year (achieving 9+ million BOE in total production).

    We think Mr. Market’s pessimism is entirely overblown since 1/3 of the nation’s domestic oil production is from the GOM and 80% of that GOM production is from deepwater GOM activities. Ultimately, we believe it is a question of “when?” rather than “if?” drilling is allowed to proceed in the deepwater to stabilize and/or grow what is currently ¼ of total U.S. oil production. That said, however, deepwater GOM drilling being allowed again is NOT necessary to have ample downside protection in the stock at this price.

    Valuation using NAV

    ATPG has 212 million BOE (58% oil) of proven and probable reserves (62% in deepwater GOM, 32% in North Sea, and 6% in GOM shelf) valued at a pre-tax PV-10 of $4.4 billion at $70 oil and $5 natural gas. These proven and probable reserves have been growing at a 20% CAGR over the past five years and we expect them to continue growing (although we assume no additions to 2P reserves for the valuation below). In addition, ATPG owns three floating platforms and related infrastructure worth approximately $1 billion net of GE’s $150mm minority interest. The company’s total long-term obligations (net of cash) are approximately $1.95 billion (after adjusting for the April financing). There are 51 million shares outstanding (and an additional 6.3 million shares in dilution if the $140 million preferred is converted at $22 per share). ATPG’s current after-tax NAV including proven and possible reserves at $70 oil and $5 natural gas is approximately $36 per share:

    ASSET

    VALUE

     

    NOTE

    ATP Innovator

    $150 mm

     

    Net of $150mm 49% GE Interest

    ATP Titan

    $680 mm

     

     

    Octabuoy

    $150 mm

     

     

    Total Infrastructure

    $0.98 B

     

     

     

     

     

     

     

    GOM Deepwater Estimated Pre-Tax 2P

    $3.3 B

     

     

    GOM Shelf Estimated Pre-Tax 2P

    $250 mm

     

     

    North Sea Estimated Pre-Tax 2P

    $850 mm

     

     

     

    - 30% Tax Haircut on Production

    (-$1.32 B)

     

    PV-10 tables range from 10% - 30%

    Total After-Tax 2P

    $3.08 B

     

     

     

     

     

     

     

    Total Assets

    $4.06 B

     

     

     

     

     

     

     

     

    Subtract Net Debt

    (-$1.25 B)

     

    After adjusting for April financing

     

    Subtract Other liabilities

    (-$690 mm)

     

    Vendor NRIs, asset retirement costs

     

     

     

     

     

    Total Common Equity Value

    $2.12 B

     

     

    Per Share

    $36

     

    Preferred convert and options dilute to 58mm shares

     

    The valuation assuming $70 oil and $5 natural gas is rather conservative since futures prices are still well above that level (and ATPG hedges a lot of its annual production). Prices for oil and gas are off about 4%-7% from the YE 2009 price deck, but using those prices, the after-tax 2P values would go to $4.5 billion (for a total NAV of $60+ per share), and values are presently closer to that than $70/$5. Slide 12 of the Company’s April presentation has these numbers.

    This analysis also tells us the draconian discount currently priced into the stock: ATPG’s equity is conservatively worth over $2 billion, yet its market cap is less than $500 mm; therefore, applying the $1.5+ billion discount entirely to the after-tax deepwater GOM 2P of $2.3 billion implies a 65% discount. We believe this is far too harsh for what could very well be just a temporary delay to development plans.

    While we aren’t sure how long the moratorium might last nor how much the new standards might increase costs, we are highly confident this haircut is too steep. Just as doing nothing was not politically feasible, however, it could be political suicide to either permanently ban deepwater drilling or make the process cost-prohibitive (under which scenarios they would likely need to compensate companies some value for their leases and capital investment – after all, even Venezuela compensated companies for nationalized assets). Just read these articles to see the brewing moratorium backlash:

    http://www.nola.com/opinions/index.ssf/2010/06/louisiana_deserves_answers_mr.html

    http://www.nytimes.com/2010/06/05/us/05gulfecon.html

    Entrada

    The above haircut on deepwater GOM reserves is actually understated since ATPG recently spent $0.3 million acquiring GOM leases for a project near a Conoco field whose previous operators had booked over 30 million BOE in proven reserves and over 50 million BOE in proven and probable reserves. Thus, we think this is low hanging fruit that is likely to add to ATPG’s proven and probable reserves by year-end.

    Production Growth and Cash Flows

    ATPG just released updated guidance for 2010 production of between 9 million and 10 million BOE, which is down from pre-moratorium guidance of 12 million BOE, but up from 5.9 million BOE in 2009. In fact, daily production as of April had already doubled from 4Q09, hitting 27k BOEPD. Before the moratorium, ATPG was guiding for daily production to hit 50k BOEPD in early 2011 and enter 2012 at around 75k BOEPD. At 75k BOEPD, we believe ATPG would be generating around $10 per share in CFO with most major capex expenditures behind it. Once ATPG’s Telemark #4 well is completed by 3Q (not subject to moratorium), this daily production number should climb even further. We believe ATPG will be profitable at these production numbers since ATPG earned $1 per share in 2007 at similar production levels (adjusted for a higher share count now).

    The company also updated its capex guidance for 2010 to be around $500 +/- $25 million for the full year. It is important to note that $240 million of this was already spent in 1Q ($77 of which was non-cash vendor financing) and $140 million of the total is non-cash vendor financed. Thus, ATPG is only due to spend another $200 million in cash capex for the remainder of 2010, far below its $370 million in liquidity as of end of 1Q (when adjusting for April’s financing).

    Liquidity

    In a stroke of luck, the day before the BP oil disaster ATPG closed a $1.5 billion note due in 2015 at 12% interest. These funds paid off existing bank loans and provided a net $131 million in cash to the company to go along with its $140 million in cash on hand at end of 1Q (the $45 million of restricted cash was largely freed up subsequent to quarter-end, explanation is given in the Q). In addition, ATPG closed a $100 million Senior Secured First Lien revolving credit facility from which it has not drawn. Just as ATPG was able to finance half of its ATP Innovator platform, we believe it is possible they will be able to finance up to half of their ATP Titan platform, potentially freeing up to $340 million in additional cash in the next year. Our confidence is bolstered by management’s comments on the May 6th conference call (two weeks after the spill): “We continue in negotiations with [the ATP Titan financing], and I have not heard any pushback from the entities that we are talking with on that. So it does not appear that there would be any direct or indirect impact as a result of the conditions in the Gulf…At this particular point - I do not want to count chickens before they hatch - but, as I see it, I do see it moving forward.”

    In a highly unlikely worst-case scenario of a permanent deepwater moratorium in the GOM, it’s possible that ATPG could sell its partially completed Octabuoy platform and move its ATP Titan platform to its leased acreage in the North Sea (assuming current GOM production had tapered off), sell/lease its ATP Titan platform and proceed with current North Sea Octabuoy plans, or just move ATP Titan to a new hub somewhere else in the world. We have confidence these platforms have retained most of their value since GE was willing to buy 49% of ATP Innovator at cost two years after its in service date.

    Insider Ownership

    ATPG’s management owns 13% of the company’s shares outstanding. Management sold $16+ million worth of shares in January of this year, however. Two directors bought 2.5k shares on the open market a few days ago. To us, this respectable ownership and the large margin of safety in the share price offset management’s having been accused of over-promotion in the past.

    Oil Price Risk

    ATPG hedges some of its production, but you can hedge out the rest of the oil and natural gas price exposure if you wish. ATPG has crude swap contracts valued at over $400 million and natural gas swap contracts valued at over $50 million as of April, representing approximately 2/3 of 2010 production.

    Disclosures: We and funds we manage own shares of ATPG and disclaim any responsibility to update our ownership status. Please do your own due diligence as we have lost money before and ATPG’s shares may lose value.

    Catalyst

     Major Catalysts

    1) 2Q financials showing good liquidity and ramping revenues

    2) Financing 49% of the ATP Titan for as much as $340 million

    3) Entrada reserve estimates increasing 2P reserves by a double-digit percentage

    4) Clarification or lifting of the GOM moratorium.

    Messages


    SubjectTitan
    Entry06/06/2010 01:04 PM
    Memberrab
    Why would anyone finance the Titan during the moratorium?  I happen to believe the moratorium will be lifted sooner than expected (i.e., less than six months), due to political backlash, but if I'm wrong, doesn't ATPG need new capital in early 2011?

    Subjectquestions
    Entry06/06/2010 02:03 PM
    Memberissambres839
    1) Why do you think that the company has to finance its debt at such a high level of 12%? Isn't that a big warning sign?
     
    2) Who is going to insure there deepwater wells? Is it even possible to get insurance for these things anymore?
     
    3)Related to #2, doesn't the economics totally change with what will have to be dramatically tougher regulations, taxes and insurance?

    SubjectRE: RE: questions
    Entry06/06/2010 07:36 PM
    Memberrab
    Management has been optimistic thoughout the past few years, which has done nothing but put the company in vulnerable positions from time to time.  The bottom line is management dances too close to the fire.  I think ATPG is dramatically undervalued and I hope they get a chance to right the ship, but management should have learned its lesson the first time around (when its stock went to $3) and raised some equity to create more of a cushion.

    SubjectInsider sales
    Entry06/06/2010 09:32 PM
    Memberarmaya
    Two of the biggest insiders, Paul Buhlman and Albert Reese, sold in Dec 09 and Jan 10 850.000 and 65.000 shares (more than 12% of their holdings) at $18.85-20.37 / share. This behavior leads me to believe that they were valuing their comopany at (significantly) less tha $20 / share. And this was before the GOM oil spill. This makes me wonder how much upside there is given the risks involved. I would appreciate your take on that.

    SubjectRE: CFO Analysis
    Entry06/09/2010 05:15 PM
    Memberronmexico
    how flexible is the expected $200MM in capex spend?  can you provide a breakdown of what that capex is going towards? trying to get a better understanding of what is mandatory spending vs discretionary.  how much of the $140MM of vendor financed capex is related to Octabuoy? i know the credit facility explicitly limits vendor financing for Octabuoy at $350MM.  to the extent they have funding commitments in place, could they declare force majeure to stop or delay the capex spend if needed.
    any reason why no one at the company is taking calls or responding to emails from investors

    SubjectRE: CFO Analysis
    Entry06/14/2010 02:26 PM
    Memberronmexico
    Can you give more color on the $190MM "forward sales repaid", the composition of the $190MM and the repayment period? Thanks

    SubjectRE: ATPG Closes $150-$500 m Credit Facility
    Entry06/25/2010 03:27 AM
    Memberissambres839
    While they resolved their funding needs for the next three years, isn't this really, really expensive terms? With 10 year rates in the 3s, they are paying 11%, this after earlier agreeing to pay 12% on another bond issue.
     
    The cost of capital for this company is really high. If the price of oil were to drop, ATPG could be in a real cash squeeze with such expensive debt.
     
    Thoughts?

    SubjectRE: RE: ATPG Closes $150-$500 m Credit Facility
    Entry06/27/2010 03:20 PM
    Memberissambres839
    ok, thanks.

    SubjectCouple Question
    Entry07/13/2010 05:02 PM
    Memberlys615
    reaux1318,
    We've just now gotten around to this idea and have a couple of quick questions --
     
    First, what is your estimate of remaining spending on Octabuoy at the end of 2010?  Put another way, what is a rough approximation of ATP's cash use for that project in 2011?
     
    Second, it seems to us that the new revolver could be expanded to the $500M level given that most of the cash use would be on Octabuoy or other O&G properties (in other words, assets against which they could borrow).  Is that your take as well?  That seems reasonably important just simply because if they have access to the full $500M, it's hard to see how they have financing risk in the near term.
     
    Third, we saw some of the bonds for sale yesterday at $73ish.  That's roughly a 20% YTM vs. 2% on similar term Treasurys.  The bond market obviously thinks there is serious risk here.  We'd sure like to find a reason for that other than they don't appreciate the insignificance of the moratorium longer term.  Any ideas why the bonds are so cheap?
     
    Fourth, a minor point -- in your CFO analysis, it seems you may have forgotten the preferred dividends and the payments to GE for their interest in Titan.  Are we missing something in your analysis?  It doesn't seem like this matters too much depending on how effectively they can access this new revolver.
     
    Thanks.

    SubjectAnd one more...
    Entry07/13/2010 08:01 PM
    Memberlys615
    First, I just realized that in our earlier questions, I typed payments to GE for Titan when I meant Innovator.  Sorry for the confusion.
     
    We noticed in your CFO analysis that you account for the payment of the $190M royalty override over the next 18 months.  What about the remainder of the $537M in liabilities ($510M LT, and $27M current) related to NPIs, royalty overrides, vendor finance, etc. that exists on the balance sheet?  Doesn't that also reduce the expected cash flows over the next few quarters?  The 2009 10K says that the average effective interest rate on these other long-term obligations is 18.7% as of 12/31/09 (p. F22).  Wow--these guys must have one hell of a high expected return on these projects to justify the financing options they choose.

    SubjectRE: RE: And one more...
    Entry07/19/2010 12:23 PM
    Memberlys615
    reaux,
    Thanks for your responses.  We've since done a fair amount of additional work on this company, so we're more comfortable with our understanding than we were when I first posted these questions.  I had not seen the new JPM note.  We did get the original model last week and couldn't get to their numbers, or even close for that matter, so it's funny that this new report came out.  It certainly makes more sense.  The company could certainly do a lot to clear up some of these issues, though I suspect that they don't know exactly how the cash flow plays out given the dependence on both production levels and commodity price in calculating the payments and timing of payments.
     
    Regarding the GE partnership -- they have a line on the income statement entitled "income attributable to the redeemable noncontrolling interest" in the amount of ($4,455) for 1Q10.  The cash flow statement has a lower amount ($3,563) for "limited partner distributions to noncontrolling interest".  We're assuming that is the ATP Innovator deal, and would annualize to somewhere in the $15-20M neighborhood of cash outflows.
     
    One thing that we also found interesting in that comical JPM report was that they stopped their model at the end of 2011.  We're not suggesting anything sinister, but clearly the action, if you will, in ATPG equity begins in 2012 if you believe they can get past the cash flow risk of the next 18 months.  Even using a modest cash flow multiple of expected cash flows 5 years from now gets a very high IRR from today's share price.  That gave us some comfort that while the cost of debt is very high, and the cost of vendor deferrals, NPIs, etc. is very high, they are both well below the implied cost of equity financing.  Of course, that doesn't eliminate the cash flow risk, but we think it is an interesting way to think about potential returns.

    SubjectGOM development costs to explode?
    Entry07/27/2010 10:42 PM
    Membermm202
    Assuming that the liability cap is increased massively, are you concerned that the costs of drilling in the GOM for smaller drillers like ATPG could become crushing?
    The analyst interviewed in the clip below thinks that this will be the case,  that drillers may have to pay 2% of the new liability cap...which he's expecting to be $10 billion...which will basically double finding and development costs for GOM oil fields
    Thoughts?
    http://www.cnbc.com/id/15840232/?video=1553079500&play=1

    SubjectQ2 Thoughts?
    Entry08/06/2010 03:05 PM
    Memberlys615
    Any thoughts on the second quarter?  Obviously the market is not too pleased.  Just an observation, but the analyst community certainly seems confused about the cash flows of this company especially as it relates to the NPIs, overrides, etc.  Related, the analysts are clearly much less certain about the balance sheet than the management team.
     
    We'd enjoy reading your thoughts.
     
    Thanks.

    Subjectbonds vs. stock
    Entry08/08/2010 10:32 PM
    Membertyler939
    On the macondo thread, buggs1318 suggests that the ATPG 2015 11.875% bonds have a better risk /reward ratio than the common stock.  Reaux, do you have any thoughts on the bonds, and the companies willingness to dilute equity holders?  Thanks.

    SubjectInfrastructure Assets
    Entry08/23/2010 09:41 AM
    Memberndn86
    Reaux,
     
    Do you know of a good company whose infrastructure assets are similar to ATPG's?  We are trying to think about, and ultimately value, these assets in a similar manner to the FPSOs in the world of Teekay and Co, among others.  Do you think these are enough alike to warrant such a comparison, or is there a better fit?
     
    Thanks for the idea.

    SubjectRE: ATPG's Presentation for Tomorrow
    Entry08/25/2010 10:01 PM
    Memberlys615
    I had the opportunity to listen to this presentation live, and to attend the subsequent breakout session.  There were a couple of things I found interesting.  First, either I am not very skilled at judging the risk in this balance sheet, management is far more optimistic about their balance sheet than I am, or some combination of these things.  I detect almost no fear among the management team of any type of cash flow issues regarding their company.  They jokingly reiterated that they are in the 12th week of being a couple weeks away from monetizing Titan.  They also mentioned that the terms of that deal have not materially changed since the Macondo disaster.  And, absent this deal getting done they claimed to have a line of interested parties that would do such a financing.
     
    This management team also seems to believe that their hub strategy is much more relevant globally after the spill in the GoM.  They claim that the safety protocols used on Titan are leading edge, and thus many deepwater projects around the world may be ripe for ATPG to apply this strategy given their patent portfolio for design of these platforms.  I have no idea if that is accurate, or what that might imply for the value of this business.
     
    Anyway... we would be curious as to what others thought, if anything, regarding this presentation.
     
     

    SubjectRE: 3 of 3 Items Checked;
    Entry10/13/2010 02:30 PM
    Membergs0709
    reaux, curious to hear your thoughts on the potential impact of environmental liability. The number that was floating around was $300m cap, which is roughly 35% of ATPG market cap at this point.

    SubjectRE: RE: RE: RE: 3 of 3 Items Checked;
    Entry10/13/2010 03:45 PM
    Membergs0709
    thanks, I agree with you that the incremental operating costs are probably not the issue here, but believe that the liability issue can not be easily dismissed.
    It doesn't matter how we chose to assess it, what matters is how the regulators and insurance comanies will look at it. And we simply don't know at this point. But it can't be entirely ruled out that they would look at it from the capital adequacy standpoint, not the PV-10 of the reserves (which by the way is also market driven at the end of the day).
    I agree with you that it is probably worth more than the current valuation, but not sure I believe in 30-40 valuation. We chose to own senior parts of the capital structure at this point for these reasons.
    Thank you for highlighting the name!

    SubjectRE: 4Q
    Entry03/15/2011 09:21 PM
    Memberrjm59
    It was interesting that was brought up - no response of course, would be interesting just to hear their thoughts on what their options would even be to delever - sell assets, equity, royalty (GOR), working interest, ?
     
    To be fair to the management I think they do have virtually all of their net worth in the equity right?  It's not as if they're running some risky fund with an override and just have the upside optionality or own liquidity preference shares or something so at least they are sincere in how they run things, if perhaps pushing limits...
     
    Was surprised that the Proved Developed reserve number wasn't re-rated higher but I guess it's because of the permit delay, would have thought that it goes based on field so once Telemark is producing the first well the whole field is considered producing but I guess not?
     
    Some details on the Israel project were interesting - they think they would get the license approved by the local govt within 3-5 weeks it sounded like and they'd be producing as soon as mid 2012 at only a cost of some $50-70M to them (for a 50% WI).  Seems like a pretty low risk proposition to them compared to their other huge capex projects that doesn't get any credit right now - another free option here...
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