I’ve been following the progress of government legislation relating to the BP oil spill and the potential impact on the smaller players in the Gulf of Mexico.
With each passing week it becomes more apparent that there will be a place in the Deepwater for independent producers who already account for more than 50% of production.
Today FBR capital market released a not suggesting that Congress will not act this year on ANY legislation to tighten oil-industry drilling and liability rules. In late July the House passed a bill relating to oil drilling legislation, but the Senate delayed action until the fall because of division over several issues. FBR’s note suggests that the Senate likely will not be able to come to any sort of compromise.
FBR goes on to further state that according to their contacts, “Democratic leaders are losing momentum for passing offshore drilling legislation”. So at the very least any legislation is going to be much less expansive than originally feared.
And in concluding FBR states “At the very least, FBR predicts, the longer the delay, the better the outlook for independent oil companies (compared to majors like BP and Exxon). In our view, the capping of the [BP] well, and the likely eventual ‘kill,’ will help alleviate pressure to act precipitously and give the industry the time to marshal evidence and resources against prohibitively restrictive legislation,”
Now have a look at some share prices both before the BP spill and currently:
ATP Oil and Gas (ATPG, Financial)
Pre-spill - $23
Post-spill - $12
Stone Energy (SGY, Financial)
Pre-spill - $20
Post-spill - $12
Cobalt International
Pre-spill - $14
Post-spill - $7.50
There are three stocks that need to increase roughly 100% just to get back to pre-spill levels. If you do the research, understand the likely legislation coming and get comfortable with the fact that business has not changed in a terribly material way for these companies they start to look like very attractive opportunities at current prices. My valuation work on all three suggests that they were actually pretty attractive at their pre-spill prices.
Stone Energy’s market capitalization for example is 1X trailing 12 months EBITA. ATP is trading at about 20% of the present value of future production. And Cobalt has a lease portfolio that could contain up to 9 billion BOE of reserves.
For further details on each:
ATP
http://www.gurufocus.com/news.php?id=101862
Stone
http://www.gurufocus.com/news.php?id=104529
Cobalt http://www.gurufocus.com/news.php?id=101391
