Just unbelievable. Almost every day this thought goes through my head.
I remember very clearly an evening in mid-April this year when I noticed on a message board that ATP had fully replaced it's existing long term debt facilities. I thought to myself, finally I can relax.
I started writing about ATP in the spring of 2009 with the stock at $5 or $6. Around that time I took what I thought was a fairly well thought out risk and made ATP a very large holding.
At that time the company was short on cash and needing to complete a major Deepwater project at their Telemark hub. The market thought that they were done for, I thought that they could sell off pieces of assets to squeak through to the completion of Telemark.
And although it didn't go exactly as I thought it would, the company was able to raise cash through selling pieces of infrastructure, issuing some equity, and using creative vendor financing. And the reaction in the share price was rewarding. ATP reached first production from Telemark and replaced an unfriendly debt structure. From as low as $2.78 in March 2009 the stock price hit $23 immediately before the BP spill.
Since then.......down, down, down as the drilling moratorium has and government threats of liability and financial responsiblity caps have frightened investors.
Without government intervention I believe ATP shares are worth considerably more than $30 per share. I've written numerous times explaining that valuation, so I won't repeat again. The problem is that I have no idea what the government is going to do, and therefore I have no idea what the value per share is.
Here is an update with my current thoughts/information:
1) MC941 #3 well is the second Telemark well that will come on production. Based on conversations the company has had with investors it will come on production in August. This well should be at least 7,000 BOE per day and will likely be closer to 10,000 BOE per day as they are pulling from a thick zone with more than 200 feet of pay.
2) Titan monetization is still a go. Again based on conversations the company has had with investors I would look for this some time in August. I was expecting that ATP would net about $350mil in cash from this refinancing (it is a refinancing, not a sale).
3) Step 2 to Titan monetization. When the time is right (depends on market conditions) the equity interest of the Titan SPV will be taken public thereby raising more cash for ATP parent to develop the oil and gas properties.
4) Octabouy topsides construction cost deferral. I believe ATP is speaking with the manufacturer of the Octabouy (the floating unit from their UK Cheviot field) about deferring the construction costs for the remainder of the Octabouy as they did for the hull. The plan would be to roll the Octabouy directly into a Titan like SPV which would fund the construction cost. This would eliminate a huge amount of capex from ATP's 2011 capex budget.
5) The third and fourth Telemark wells. Currently the government's 2nd moratorium means these can't have their drilling completed until after it expires in November. If that is when they can be finished, really isn't a big deal as it is just a couple of month delay. But who knows what the government will do.
6) The proposals to raise the liability cap and financial responsibility cap. This is the elephant in the room because these could force operators like ATP out of the Deepwater. However, there seems to be a real issue that the government has to consider and that is that trying to apply these changes to existing leases is a pretty clear breach of contract. Breaching these contracts could make the government liable for tens and tens of billions of dollars from companies who incurred costs under the terms of the original contract.
7) Smaller operators have already been speaking off line about pooling together to address these cap issues. I'm sure there will be all kinds of ideas that could come forward to work around whatever the government comes up with.
8) Don't forget Gomez. Everyone focuses on Telemark and how they are being impacted by the government issues but this is going to hurt at Gomez as well as there were two wells scheduled for late 2010 early 2011 that would also be big producers. And most importantly was an exploration well to be drilled on MC710 that could have added significantly to ATP's reserves.
9) There is another well to be completed at Gomez MC754 that is having a pipeline laid. It is already fully drilled so not impacted by the moratorium.
10) There is potential for a partner to be brought in at Cheviot. ATP was discussing doing this with an interested party earlier in 2010. Should they do this it would greatly reduce capex requirements, although certainly give away some value per share.
What am I doing with my shares ? Nothing. Just holding. If we find out that existing leases won't be impacted by any government changes or if the noise about making changes dies off after BP plugs the well ATP shares really have no reason to be below the $23 that they were at in April. On the other hand who knows what the government might do, and with the debt ATP carries any negative actions are amplified.
The short interest here is now enormous. If things do take a turn for the better the share price move upwards could be very dramatic.
I remember very clearly an evening in mid-April this year when I noticed on a message board that ATP had fully replaced it's existing long term debt facilities. I thought to myself, finally I can relax.
I started writing about ATP in the spring of 2009 with the stock at $5 or $6. Around that time I took what I thought was a fairly well thought out risk and made ATP a very large holding.
At that time the company was short on cash and needing to complete a major Deepwater project at their Telemark hub. The market thought that they were done for, I thought that they could sell off pieces of assets to squeak through to the completion of Telemark.
And although it didn't go exactly as I thought it would, the company was able to raise cash through selling pieces of infrastructure, issuing some equity, and using creative vendor financing. And the reaction in the share price was rewarding. ATP reached first production from Telemark and replaced an unfriendly debt structure. From as low as $2.78 in March 2009 the stock price hit $23 immediately before the BP spill.
Since then.......down, down, down as the drilling moratorium has and government threats of liability and financial responsiblity caps have frightened investors.
Without government intervention I believe ATP shares are worth considerably more than $30 per share. I've written numerous times explaining that valuation, so I won't repeat again. The problem is that I have no idea what the government is going to do, and therefore I have no idea what the value per share is.
Here is an update with my current thoughts/information:
1) MC941 #3 well is the second Telemark well that will come on production. Based on conversations the company has had with investors it will come on production in August. This well should be at least 7,000 BOE per day and will likely be closer to 10,000 BOE per day as they are pulling from a thick zone with more than 200 feet of pay.
2) Titan monetization is still a go. Again based on conversations the company has had with investors I would look for this some time in August. I was expecting that ATP would net about $350mil in cash from this refinancing (it is a refinancing, not a sale).
3) Step 2 to Titan monetization. When the time is right (depends on market conditions) the equity interest of the Titan SPV will be taken public thereby raising more cash for ATP parent to develop the oil and gas properties.
4) Octabouy topsides construction cost deferral. I believe ATP is speaking with the manufacturer of the Octabouy (the floating unit from their UK Cheviot field) about deferring the construction costs for the remainder of the Octabouy as they did for the hull. The plan would be to roll the Octabouy directly into a Titan like SPV which would fund the construction cost. This would eliminate a huge amount of capex from ATP's 2011 capex budget.
5) The third and fourth Telemark wells. Currently the government's 2nd moratorium means these can't have their drilling completed until after it expires in November. If that is when they can be finished, really isn't a big deal as it is just a couple of month delay. But who knows what the government will do.
6) The proposals to raise the liability cap and financial responsibility cap. This is the elephant in the room because these could force operators like ATP out of the Deepwater. However, there seems to be a real issue that the government has to consider and that is that trying to apply these changes to existing leases is a pretty clear breach of contract. Breaching these contracts could make the government liable for tens and tens of billions of dollars from companies who incurred costs under the terms of the original contract.
7) Smaller operators have already been speaking off line about pooling together to address these cap issues. I'm sure there will be all kinds of ideas that could come forward to work around whatever the government comes up with.
8) Don't forget Gomez. Everyone focuses on Telemark and how they are being impacted by the government issues but this is going to hurt at Gomez as well as there were two wells scheduled for late 2010 early 2011 that would also be big producers. And most importantly was an exploration well to be drilled on MC710 that could have added significantly to ATP's reserves.
9) There is another well to be completed at Gomez MC754 that is having a pipeline laid. It is already fully drilled so not impacted by the moratorium.
10) There is potential for a partner to be brought in at Cheviot. ATP was discussing doing this with an interested party earlier in 2010. Should they do this it would greatly reduce capex requirements, although certainly give away some value per share.
What am I doing with my shares ? Nothing. Just holding. If we find out that existing leases won't be impacted by any government changes or if the noise about making changes dies off after BP plugs the well ATP shares really have no reason to be below the $23 that they were at in April. On the other hand who knows what the government might do, and with the debt ATP carries any negative actions are amplified.
The short interest here is now enormous. If things do take a turn for the better the share price move upwards could be very dramatic.
