ATP Oil & Gas's Forgotten Infrastructure Value 23 comments
-
Font Size:
-
Print
- TweetThis
I wrote about ATP Oil and Gas (ATPG) previously. I focused on the fact that while they have debt, it appears that they have the means to handle it. I looked at cash flow, debt maturities, covenants and pending asset sales. Please read it if you are interested.
Now I’d like to write a little more about the infrastructure of ATP. And my question is, am I the only one who thinks it has some serious value? The stock market certainly doesn’t agree with me.
First, a couple of numbers about ATP to consider before the infrastructure discussion:
PV10 of Reserves at depressed Dec 08 energy prices $4.7bil (determined by independent 3rd party review)
- Net debt today $1.2bil
- Difference $3.5 bil (with the $4.7bil likely understated as oil prices have risen)
- Market cap $252mil (or less than 10% of NAV…10 bagger plus)
So you can see there is quite a difference between the value of the reserves and the market capitalization without even considering the infrastructure.
ATP spent its early life on the GOM shelf, and in recent years they have moved out into the Deepwater. As oil prices have increased these projects have become more and more attractive.
And yes, they are still attractive. We are now at $60 oil which is plenty high enough. The strip prices are even higher and many of us believe we are just beginning a long climb upwards for the price of oil. The peak level of oil production seems to have arrived for the world, with decline coming as we can’t keep up with decline rates on the aging giant oil fields. Combine that with a world that will continue to increase its demand for oil as populations grow and 90% of the world becomes more developed and hell, you have a sure fire recipe for shortages.
But future oil prices is maybe a topic for another day.
As I mentioned, in the early days ATP focused on the GOM shelf. The shelf has been well explored and developed with plenty of infrastructure now in place. So if you are developing a property, chances are that your main capex is only going to involve drilling not building production facilities and pipelines.
The Deepwater however is a frontier with sparse infrastructure. Out there the bulk of the capex goes to building a pipeline system and building floating production units. Of course, they have to drill wells also, but the cost is not nearly as large as the cost of putting the infrastructure in place.
What ATP has done is developed several hubs where they have deployed (or are about to deploy) a floating production unit and built pipelines. This is a costly process and ATP has used a lot of debt to get it done (see my prior article on the debt and why it is within ATP’s means to service it).
The replacement cost of the infrastructure ATP has in the Deepwater is as follows:
- ATP Innovator $300mil
- ATP Titan $550mil
- Gomez Pipeline $80mil
- Telemark Pipeline $160mil
- Canyon Express $200mil
That is $1.3bil of infrastructure. Interestingly, ATP currently has $1.3bil of debt.
If you actually think that this infrastructure is worth $1.3bil, which is equal to the company debt, then you are getting the 250mil BOE of reserves PV10$4.7bil ($100 plus dollars per share) for free. The shares are currently around $7.
Why would this infrastructure have this much value to another party ? I mean, if you can’t sell it, then it doesn’t have the value I’m suggesting.
I’m not an expert, but I’ve cobbled together some thoughts.
The Floating Production Units – ATP Innovator and ATP Titan
Together they have cost about $850mil.
That’s big money. The Titan is 70 stories from top to bottom and is set to sail out to Telemark later this year. If you can avoid having to front this kind of capital you would.
Both of them were built to have useful lives of 30 to 50 years so they are going to last well beyond the time when the Gomez and Telemark oil and gas reserves are depleted. They can be moved to other locations.
So we are talking long term assets here. As I mentioned, the Deepwater is lacking in infrastructure, and to build a new one is incredibly expensive. So once ATP has the floating units in place anyone in the region who plans on developing a property is going to tie into the Titan or the Innovator rather than front the $500mil it would cost to build a new unit.
This is beneficial to ATP now as they will either get a working interest in the other company’s property and/or receive processing fees for the use and access to the Innovator or Titan.
This has already happened with the Innovator as Nexen (NXY) and Newfield (NFX) are both developing properties that will tie into it. This is beneficial to ATP in the near term.
But what about the longer term? I think that these assets will hold their value extremely well. The Deepwater is going to be the primary source of new oil for the States going forward. These floating production units are going to be in high demand. I recently read that of the 150 or so floating units that were scheduled for production in the next year more than half of them had been cancelled due to the credit crisis and oil price collapse. There is going to be a shortage.
So the Titan and the Innovator will have long lives and will be in demand either at their current locations tied into nearby discoveries or moved elsewhere.
But better than just thinking that they have value, we have proof that they have value and can be monetized. ATP recently sold 49% of the ATP Innovator to GE for $150mil. That is exactly half of what it cost ATP to build. The Innovator was put into an MLP with ATP owning the controlling interest worth $150mil.
What about the Titan? Al Reese, CFO of ATP, commented recently that it is a “matter a when and not if”, with respect to when a similar deal will be done for the Titan. In fact, GE is on record in the Houston Business Journal commenting that they are interested in doing a similar deal with respect to the Titan and potentially the Octobuoy which is being built in the near future by ATP for the Cheviot field in the UK.
I think the case is pretty solid that these two giant pieces of floating iron are worth $850mil. $150mil already realized through the GE sale, $150mil retained in the MLP interest which will flow cash to ATP for years going forward or could be sold. Another $550mil relating to the Titan, $275mil which is likely to come back to the company in cash in the next 7 months.
Now, how about the pipelines?
- Gomez Pipeline $80mil
- Telemark Pipeline $160mil
- Canyon Express Pipeline $200mil
It’s the same situation here, other than, of course, the pipelines can’t be moved like the floating units. There is little out in the Deepwater with respect to pipeline systems in place. So if you are developing properties south of Gomez, or south of Telemark (which is going to happen as companies move further and further out in the GOM) you are going to want to tie into (or perhaps purchase) already developed pipelines rather than build your own to cut down on your upfront capital costs.
Canyon Express is the closest interconnect in the far eastern GOM to several new discoveries in recent years and has definite strategic value.
Do we have any proof that ATP can realize value from these pipelines?
We are about to. The Gomez pipeline monetization is in process. I don’t mean looking for interested parties, I mean finalizing the deal. Al Reese, CFO, has mentioned this twice in the last month or so at a conference and on the earnings call.
One other thing to mention about this infrastructure that is critically important. Whoever has this in place in a region in the GOM has a huge competitive advantage. Economically, they can acquire and develop smaller and smaller fields nearby because the only incremental cost they have is the drilling. As the infrastructure has already been put in place, ATP will be the only party who can economically develop many of the surrounding areas and will have little or no competition when it comes to acquiring them. So they get them cheap and the cash flow is gravy on top of the original development plan.
And think of the economics of this as oil prices get back to higher levels. There will be little that has to be spent to develop the nearby fields as everything is already in place, but lots of revenue from the higher oil prices.
It is truly a huge advantage to have been early to the Deepwater party.
So there it is. I expect the Gomez pipeline monetization within months and the big deal on the Telemark late this year. That will be $300mil plus in cash to the company which it will partially use to retire the remaining $300mil on it’s second loan tranche. Could be more coming from the Telemark and Canyon Express Pipelines.
That will leave them with no debt maturity before 2014 and a more than double in production coming in 2010 as Telemark starts up.
In summary, there is somewhere close to $1.3bil in long lived key infrastructure value here that is equal to the company’s debt (makes sense as they took on the debt to build the infrastructure). The value of the infrastructure is and will become more obvious as these monetizations occur this year.
That means if the infrastructure nets the debt you get the oil and gas reserves, which are likely worth $5bil and increasing as oil prices (and gas) climb. There are 36 million shares outstanding so do the math, the upside here is multiples and multiples of the stock price.
Next year’s cash flow might exceed the entire debt of the company. All they have to do is survive to make this a multi-bagger investment at this price. And I see no reason to question their survival given they can handle their debt, have lots of levers to pull if they want to reduce it further and are about to dramatically increase their production.
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
TraderMark
-
2
Don Dion
-
3
Cliff Wachtel
-
4
Mike Havrilla
-
5
James Quinn
Top Instabloggers » -
1
-
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
This article has 23 comments:
On May 17 10:02 AM berloe wrote:
> Almost half of oil production is used to power autos. The electric
> car is coming, so they say. How will this affect oil prices?
THE COHEN's HAVE CONTROL OF THE ATLAS GROUP OF COMPANIES AND THEY MANAGE IT FOR THEIR BENEFIT,
NOT YOURS OR MINE.
What about jimmy 46's point about management? I know nothing about them. I do expect the yield to be high once prices stabilize.
Some idiots on here just want to rant about politics- let's talk about stocks here - there are other places for politics- loads of them.
I do study energy stocks and ATP is the best value right now, AAV isn't too far behind.
Regards
Just in case you're wondering though, the individuals/companies owning a significant stake of ATP are below:
T. Paul Buhlman (founder and CEO): 18.88%
Centennial Energy Partners: 11.37%
Bessemer Group: 8.33%
Wellington Management Company: 7.38%
Gilder, Gagnon, Howe and Co., LLC: 5.19%
This adds up to 51.15%. Add the 1.64% owned by members of the Board of Directors other than Buhlman, and you have 52.79%. Note that none of these people are named Cohen.
On May 17 08:12 PM jimmy46 wrote:
> YOU IGNORE THE STINKING TURD IN THE MIDDLE OF THE ROOM.
>
> THE COHEN's HAVE CONTROL OF THE ATLAS GROUP OF COMPANIES AND THEY
> MANAGE IT FOR THEIR BENEFIT,
> NOT YOURS OR MINE.
Mine is PV10 of P2 reserves as Dec 08 using strip prices at that time. That is what they use for their debt covenants.
I think the PV10 figure using the commodity prices on one single day is pretty much useless. What matters is what the price is going to be on the date of sale, not what the price was on one day two years before sale.
Personally I think the transaction multiples are more useful.
You have to have an opinion on commodity prices to make an investment in this type of company.
Thanks for the question.
On May 20 08:15 PM peachberry_tea wrote:
> hmm where did you get your PV-10 figure of $4.7 billion? it says
> $1.3 billion in their 10K, if i'm not mistaken
Thanks for the clarification. Where did you get the pv10 for their p2 reserves if you don't mind me asking. Was that also in their 10k? I'm new to following ATPG so I'm just getting oriented.
I think you have a pretty good investment thesis though. Thanks for the article.
Thanks for the comments
On May 21 06:13 PM peachberry_tea wrote:
> Devon,
>
> Thanks for the clarification. Where did you get the pv10 for their
> p2 reserves if you don't mind me asking. Was that also in their 10k?
> I'm new to following ATPG so I'm just getting oriented.
>
> I think you have a pretty good investment thesis though. Thanks for
> the article.
phx.corporate-ir.net/E...
Page 3, third paragraph. First written page in the annual report. Not the 10k itself.
On May 26 12:46 AM commanderaugust wrote:
> I'm looking at their first page and I don't see the $4.7 figure,
> it's $1.3 I searched for '4.7' in the filing and didn't find it.
> I searched "PV-10" and didn't find any mention of P2 reserves. I
> think you might be the one missing something.
Link below again.
phx.corporate-ir.net/E...
On May 26 12:46 AM commanderaugust wrote:
> I'm looking at their first page and I don't see the $4.7 figure,
> it's $1.3 I searched for '4.7' in the filing and didn't find it.
> I searched "PV-10" and didn't find any mention of P2 reserves. I
> think you might be the one missing something.
if you project their Q1 EBITDAX over '09 (around $50M in Q1 * 4 = $200M for 2009) and compare it to net debt ($1.7M) then you'll see that practically no amount of debt reduction will get them under 3/1 net debt/ebitdax. even if they pay off the $296 left on their asset facility it's still only $1.4M/$200M, which is 7/1.. at this point they'd have to earn or sell of assets (at a gain) for about $300M to make the 3/1 (i.e. 1.4M/(200+300M) ~3/1)
another cause for concern is how the CFO handled the EBITDAX question in their conference call.. when asked about their covenants and what EBITDAX ATPG were using that has staying within the their covenants in '09, the CFO said EBITDAX was "driven off our internal estimates of production and we have not revealed that at this point". this was a huge red flag for me. while i haven't looked at their production figures in detail, it seems like a stretch to make a $500M ebitdax figure that'll keep them in compliance with covenants.
you can see the conference call transcript here: seekingalpha.com/artic...
now i know you've stated that the lender shouldn't have problems even if the covenants are breached because ATPG should be able to make its debt repayment. as a general statement i'd completely agree with it. to simply shrug off a potential covenant violation based on such a general statement tho - i think that's dangerous. i don't know who their lender is (i haven't looked) but it's entirely conceivable the lender may have its own liquidity issues and will use the covenant breach to call in its loan. now this is a very extreme case, but i think to invest in ATPG you have to realize that this risk is there, however remote, because this changes yoru risk/reward tradeoff in the invesetment
overall, i still think ATPG is has a very good risk/reward tradeoff despite what i've pointed out above. i think the upside and value that ATPG represents is probably worth the risks i've mentioned above. i haven't forgotten about the 20% insider ownership, or the fact that the CEO knew all about their covenants when he made that 80k share purchase. i also believe that ATPG should be able to secure a waiver from its covenants if necessary.
hmm if there's any disagreement with what i've presented above i'd love to hear it. in fact, i'd love to be completely wrong, because ATPG is a screaming value and a multibagger in 5 yrs or so, no matter how you valuate it, and i'd like to put money into this
disclosure: no positions
I've pasted some of your text below and commented beneath it.
"i'm not sure how they'll keep from breaching their net debt/ebitdax covenant, once their gain on sale is removed from the calculations in '09 Q4
if you project their Q1 EBITDAX over '09 (around $50M in Q1 * 4 = $200M for 2009) and compare it to net debt ($1.7M) then you'll see that practically no amount of debt reduction will get them under 3/1 net debt/ebitdax. even if they pay off the $296 left on their asset facility it's still only $1.4M/$200M, which is 7/1.. at this point they'd have to earn or sell of assets (at a gain) for about $300M to make the 3/1 (i.e. 1.4M/(200+300M) ~3/1)"
I have a few comments:
1) I believe that you are using the wrong figure for net debt. Net debt for the covenant calculation would be the $1.3bil of loans less the cash position of $100mil, which is $1.2bil. Once the rest of the asset sale tranche is paid off with the Gomez Pipeline and Titan monetizations net debt will be $900mil or less.
You have included all liabilities (payables etc incurred in the ordinary course of business are not included) on the balance sheet in your debt figure and I believe as per the credit agreement that only the long term debt would be included. See the definition of indebtedness from the credit agreement below:
“Indebtedness” of any person shall mean, without duplication, (a) all obligations of such person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such person upon which interest charges are customarily paid, (d) all obligations of such person under conditional sale or other title retention agreements relating to property or assets purchased by such person, (e) all obligations of such person issued or assumed as the deferred purchase price of property or services (excluding trade accounts payable and accrued obligations incurred in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such person, whether or not the obligations secured thereby have been assumed, (g) all Guarantees by such person of
14
----------------------...
Indebtedness of others, (h) all Capital Lease Obligations and Synthetic Lease Obligations of such person, (i) all obligations of such person as an account party in respect of letters of credit, (j) all obligations of such person in respect of bankers’ acceptances and (k) the liquidation preference of, and all other obligations of such person in respect of, Disqualified Capital Stock (including, for clarification purposes only, Cash-Pay Preferred) of such person. The Indebtedness of any person shall include the Indebtedness of any partnership in which such person is a general partner, other than to the extent that the instrument or agreement evidencing such Indebtedness expressly limits the liability of such person in respect thereof. For the avoidance of doubt, Indebtedness of any partnership in which a person is a general partner shall not be included in the Indebtedness of such general partner if such Indebtedness is a non-recourse obligation of such general partner to be satisfied out of the assets of such partnership and other assets and obligations other than obligations of such general partner or other assets (i.e., assets other than its general partner interest) of such general partner.
2) Using the first quarter run rate for the entire year likely isn't going to be accurate as Gomez was down until Jan 19 (due to 3rd party pipelines that were still shut in from the hurricane) so they were missing production from by far their biggest producing field
3) You astutely realize the gain on sale from Wenlock is going to come off in Q4. However, don't forget they are selling more assets this year and will have further gains on sale. The Gomez pipeline specfically will result in a sizable gain when it goes for $80mil. And if they had to they could sell Canyon Express Pipeline which is on the books at zero and is likely to fetch $200mil plus all of which would be a gain.
4) Revenue is changing dramatically with what oil is doing. ATP has no hedges on oil so this 50% increase is going to go directly to the top and bottom lines from Q1 levels. They are fairly well hedged on gas so that isn't as much of an issue.
"another cause for concern is how the CFO handled the EBITDAX question in their conference call.. when asked about their covenants and what EBITDAX ATPG were using that has staying within the their covenants in '09, the CFO said EBITDAX was "driven off our internal estimates of production and we have not revealed that at this point". this was a huge red flag for me. while i haven't looked at their production figures in detail, it seems like a stretch to make a $500M ebitdax figure that'll keep them in compliance with covenants."
As detailed above the $500mil ebitax figure isn't what they need, I think it is going to be more like $300mil. Their internal estimates likely include gains on sale which will be included in their covenant calculations so they may not want to get into that too much.
I agree though it would be more comforting to see specifics. Oil prices though are taking much of the worry off the table.
"to simply shrug off a potential covenant violation based on such a general statement tho - i think that's dangerous. i don't know who their lender is (i haven't looked) but it's entirely conceivable the lender may have its own liquidity issues and will use the covenant breach to call in its loan. now this is a very extreme case, but i think to invest in ATPG you have to realize that this risk is there, however remote, because this changes yoru risk/reward tradeoff in the invesetment"
An excellent point. Trust me I haven't shrugged off the covenant issues. I've been going over the numbers constantly. Have a read of my comments as to where I think your numbers are out and let me know what you think. I think they are going to be onside.
And remember that they always have the option to sell something like Canyon Express pipeline or even a small share of Gomez at a discount to create a gain on sale which would fix the EBITAX issue if they feel like the absolutely have to meet the covenant.
thanks again for doing some digging and asking great questions.
I look forward to hearing what you think about my reply
On May 28 04:51 PM peachberry_tea wrote:
> hmm.. i've been looking into ATPG for the past few days.. i agree
> with most of your assessment that this is a fantastic value but there's
> also a catch - i'm not sure how they'll keep from breaching their
> net debt/ebitdax covenant, once their gain on sale is removed from
> the calculations in '09 Q4
>
> if you project their Q1 EBITDAX over '09 (around $50M in Q1 * 4 =
> $200M for 2009) and compare it to net debt ($1.7M) then you'll see
> that practically no amount of debt reduction will get them under
> 3/1 net debt/ebitdax. even if they pay off the $296 left on their
> asset facility it's still only $1.4M/$200M, which is 7/1.. at this
> point they'd have to earn or sell of assets (at a gain) for about
> $300M to make the 3/1 (i.e. 1.4M/(200+300M) ~3/1)
>
> another cause for concern is how the CFO handled the EBITDAX question
> in their conference call.. when asked about their covenants and what
> EBITDAX ATPG were using that has staying within the their covenants
> in '09, the CFO said EBITDAX was "driven off our internal estimates
> of production and we have not revealed that at this point". this
> was a huge red flag for me. while i haven't looked at their production
> figures in detail, it seems like a stretch to make a $500M ebitdax
> figure that'll keep them in compliance with covenants.
>
> you can see the conference call transcript here: seekingalpha.com/artic...
>
>
> now i know you've stated that the lender shouldn't have problems
> even if the covenants are breached because ATPG should be able to
> make its debt repayment. as a general statement i'd completely agree
> with it. to simply shrug off a potential covenant violation based
> on such a general statement tho - i think that's dangerous. i don't
> know who their lender is (i haven't looked) but it's entirely conceivable
> the lender may have its own liquidity issues and will use the covenant
> breach to call in its loan. now this is a very extreme case, but
> i think to invest in ATPG you have to realize that this risk is there,
> however remote, because this changes yoru risk/reward tradeoff in
> the invesetment
>
> overall, i still think ATPG is has a very good risk/reward tradeoff
> despite what i've pointed out above. i think the upside and value
> that ATPG represents is probably worth the risks i've mentioned above.
> i haven't forgotten about the 20% insider ownership, or the fact
> that the CEO knew all about their covenants when he made that 80k
> share purchase. i also believe that ATPG should be able to secure
> a waiver from its covenants if necessary.
>
> hmm if there's any disagreement with what i've presented above i'd
> love to hear it. in fact, i'd love to be completely wrong, because
> ATPG is a screaming value and a multibagger in 5 yrs or so, no matter
> how you valuate it, and i'd like to put money into this
>
> disclosure: no positions
Thanks for the reply. You make some really good points and it shows you’ve really done your homework. This discussion has been a breath of fresh air compared to what usually passes for discussion on boards.
Would you mind linking me to the credit agreement if you have that handy? I just knived thru what you copied onto the msg and I’ll need a closer look, but it looks like it doesn’t it includes any short term payables, etc.
This’ll bring us to (1.3b-1m)/300m so they’re still out but a lot closer than what I had before. Once they pay down the 300m asset facility that’ll bring it manageably close to 3/1. So they’re fine if they pull off that sale-leaseback deal with the Titan because that should take net debt down to 1.0b. They’ll need oil/gas prices help their ebitdax out (hopefully those rumours of high oil inventories/lack of demand doesn’t send prices down again).
Hmm.. I guess the conclusion is we can’t be completely certain at this point that they’ll comply with the covenants. It’s possible for them to make it but it’s going to take some work. There’s always the risk that a storm could hit them and they’ll lose production in the latter part of ’09 and that could hurt their ebitdax in Q4. Of course, all this wouldn’t matter if they could secure a waiver. I’d really like to see them get a waiver because it’s still too close for my liking (I’m a value investor and I like sure wins), or even cut down on capex. It would've been good if the CFO addressed this openly too, and just said they were going to work wit the bank or do what's necessary to meet the covenant.
But anyhow, worst case scenario is they sell some assets to make the ebitdax number. Their valuation is good enough that even selling off some properties at firesale prices and it's still a bargain. And as you pointed out if there’s a sale then they should be able to generate at least some gains. Either on the pipelines or one of their properties (I assume it’s on their books cheap enough to generate a gain).
Devon are my conclusions now in line with what you’re seeing?
page 14 defines "indebtedness"
Yes pretty similar at this point. Another factor just into the equation as they just filed a shelf registration for $200mil of common, pref shares etc.
I don't think there is any way Bulmahn would heavily dilute his 20% so this could be very positive if some sort of pref financing is lined up. With their large asset value vs debt it could be done.
On May 29 03:43 PM peachberry_tea wrote:
> Hey Devon,
>
> Thanks for the reply. You make some really good points and it shows
> you’ve really done your homework. This discussion has been a breath
> of fresh air compared to what usually passes for discussion on boards.
>
>
> Would you mind linking me to the credit agreement if you have that
> handy? I just knived thru what you copied onto the msg and I’ll need
> a closer look, but it looks like it doesn’t it includes any short
> term payables, etc.
>
> This’ll bring us to (1.3b-1m)/300m so they’re still out but a lot
> closer than what I had before. Once they pay down the 300m asset
> facility that’ll bring it manageably close to 3/1. So they’re fine
> if they pull off that sale-leaseback deal with the Titan because
> that should take net debt down to 1.0b. They’ll need oil/gas prices
> help their ebitdax out (hopefully those rumours of high oil inventories/lack
> of demand doesn’t send prices down again).
>
> Hmm.. I guess the conclusion is we can’t be completely certain at
> this point that they’ll comply with the covenants. It’s possible
> for them to make it but it’s going to take some work. There’s always
> the risk that a storm could hit them and they’ll lose production
> in the latter part of ’09 and that could hurt their ebitdax in Q4.
> Of course, all this wouldn’t matter if they could secure a waiver.
> I’d really like to see them get a waiver because it’s still too close
> for my liking (I’m a value investor and I like sure wins), or even
> cut down on capex. It would've been good if the CFO addressed this
> openly too, and just said they were going to work wit the bank or
> do what's necessary to meet the covenant.
>
> But anyhow, worst case scenario is they sell some assets to make
> the ebitdax number. Their valuation is good enough that even selling
> off some properties at firesale prices and it's still a bargain.
> And as you pointed out if there’s a sale then they should be able
> to generate at least some gains. Either on the pipelines or one of
> their properties (I assume it’s on their books cheap enough to generate
> a gain).
>
> Devon are my conclusions now in line with what you’re seeing?
lets do a value calculation off of cash flow
pv10 is one metric..another is cash flow
2010 "pcif"cash flow will be 500 m
4 times picf (pre-interest cash flow) is 2.0 b
less debt ( 1.2 ) =
equity 800 m divided by 50 m shares is $ 16 per share
now the pre interest cash flow of 500 m
they have to make interest payments of 100 M
leaves cash flow of 400m for cap ex
i think they need more thna 400 m for octobuoy and to drill atp43
the best approach for atpg is to drain telemark and stop all other capital expenditures
they need to sell the other 20 % of wenklock to somebody to concentrate on gom
they should also divest all other assets..; they cant be everywhere at once.
that long term debt needs to come down
and one final thought-- all that oil pv10 calculation-- if it cost 50 bucks to sell oil worth 50 bucks the pv is 0
they need to gennerate some serious cash and make steps to pay down debt