10 Upcoming Catalysts for ATP Oil and Gas

I've written twice before about ATP (ATPG). With the rapid increase in oil prices I thought it important to update the change in value to ATP's assets and therefore the value per share.

Here is an updated NAV:

	Jun 09 - strip prices
Current Assets	265,803,000
Current Liabilities	(249,857,000)
Long Term Debt	(1,324,927,000)
Net Proceeds from Innovator	0
Value of ATP Titan	500,000,000
Value Canyon/Gomez/Tele pipelines	242,000,000
PV 10 Oil and Gas (@$67 oil)	5,475,500,000
Tax on oil sales	(1,916,425,000)
ATP share of Innovator MLP	150,000,000
	3,142,094,000
Shares	35,979,000
Value per share	87.33
Stock price	8.90
Upside	981.25%

NOW THE CATALYSTS

So what might help the stock market recognize some of this value? Have a read of the following, some or all of which are going to occur in the next 7 months.

1. Sale of the Gomez pipeline. This is the pipeline system at ATP’s largest producing development. Expect $85mil in cash coming into ATP and further debt reduction. This one will also help with the EBITAX debt covenant and is a reason why someone looking only at the Q1 production run rate might not appreciate that ATP will be in compliance with all covenants all of 2009. Per Al Reese, CFO, at public presentations, this is in progress (meaning it is agreed between parties and documents being prepared) and we can expect it to be completed this year.
   
2. Sale of 49% of the ATP Titan. This is ATP’s brand spanking new floating production unit. The cost of which is north of $500mil and was a big reason for the debt ATP has. I believe there is no doubt that an ATP Innovator type deal will be done with this. (ATP MLP’s its other floating production unit in Q1 of this year by selling half to GE and raising $150mil.) GE is on record with the Houston Business Journal as being interested in both the Titan and ATP’s next unit the Octobuoy which will deploy at another large project (Cheviot) in the North Sea. CFO Reese is on record as saying that it is a matter of “when and not if” the Titan is monetized. This will result in another $250mil plus coming back into the company for further debt reduction and cash strength.
   
3. ATP is considering bringing in a partner brought in on Telemark. Telemark is ATP’s next big step up. An oil field in the GOM that will come on production at the end of this year. It is a big one, projected to reach 32,000 barrels of oil per day within a year of start up. Per Scotia Waterous ATP is looking to raise up to $460mil by bringing in a partner on Telemark. Check the Scotia Waterous website if you are interested in reading about the offering.
   
4. ATP is also considering bringing in a partner brought in on Cheviot. The property is similar in size to Telemark so again could raise hundreds of millions in cash for ATP. Leland Tate in a presentation mentioned that there is significant exploration potential in addition to what is known at Cheviot.
5. Sale of Canyon Express Pipeline. This Pipeline is very valuable as it is the only pipeline in place that could service the eastern GOM. There have been sizable discoveries in the region in the past two years. I expect that ATP will hold onto it as it will be a great source of fee income going forward, but it could let it go for $200mil plus (estimated replacement cost) if it decides it'd rather have the cash to speed up development elsewhere.
6. Sale of Telemark Pipeline system. Brand new pipelines for the Telemark development. The cost of these are $160mil and could be monetized like the Gomez pipeline is going to be in the near future. The Deepwater GOM is a frontier lacking in infrastructure and this pipeline will be attractive. Building of this is another reason for ATP taking on debt. Selling it will return capital to the company.
   
7. Here is the big one. Telemark is about 7 months away from commencing production. Telemark will peak at 32,000 BOE per day within one year and will produce enough cash flow (using strip prices) to pay off virtually all debt in one year. I can’t imagine being short ATP shares and waiting for this to start throwing off $750mil to $1bil in cash flow in a year. It is a game changer and the clock is ticking.
   
8. Share buyback program is approved. ATP has patiently waited to start buying shares. Once the cash flow from Telemark starts flowing at the end of 2009 the short sellers can enjoy bidding against ATP to try and purchase shares.
   
9. Continued appreciation in ATP's asset values and cash flows as oil prices increase. Why would they increase?
   - Opec cut 4.2mil barrels, demand is only down 2.4mil barrels.
- Economy will improve demand will increase.
- Supply destruction has occurred as countless capital has not been spent on development that was needed just to keep world production flat.
- Inflation is unavoidable, listen to Buffett...you can't increase money supply by this magnitude and not have it.
- World population continues to increase, developing countries continue to need more oil.
- World's largest oil fields are in serious decline, this is going to show up as capital hasn't been spent to try and stem this problem.
10. Short covering. Over 20% of the available float is short. At some point it will get uncomfortable being short shares with this kind of upside. Please read my earlier article that covers ATP's debt which is intelligently structured. I believe fear over debt of all kinds is what has pushed shares down to this level.

Summary of Catalysts

By my calculation all of the above could bring in almost $1.5bil in cash to ATP. And that has nothing to do with the huge cash flow that is going to come from Telemark production. ATP will pick and choose which monetizations they do and only select those where they like the prices. I am fully confident that several of them will get done as ATP has already monetized $630mil of assets at excellent prices over the past year.

One of these could trigger a short squeeze. Imagine what several of them will do.

Disclosure: I own shares of ATP

Comments

[Devon Shire:]

Good news already.

Catalyst #3 realized, but better. ATP's vendor (drillers) are accepting a limited net profits interest of up to $300mil in place of cash payment for the cost of drilling the remainder of Telemark.

Much better way to fund this than giving up ownership in the property. Also nice to see that the vendor has confidence in the property for it's future payments.

Info from company presentation slides for today's conference.

Also appears catalysts 1 & 2 are on track per the comments.

And #7 now also very secure as Telemark is still on schedule for the end of the year.

Jun 03 08:39 AM

[hohfour@tam...:]

Buy Jan(2011) 10 calls and sell Jan 7.5 puts for max leverage .


On Jun 03 08:39 AM Devon Shire wrote:

> Good news already.
>
> Catalyst #3 realized, but better. ATP's vendor (drillers) are accepting
> a limited net profits interest of up to $300mil in place of cash
> payment for the cost of drilling the remainder of Telemark.
>
> Much better way to fund this than giving up ownership in the property.
> Also nice to see that the vendor has confidence in the property for
> it's future payments.
>
> Info from company presentation slides for today's conference.
>
> Also appears catalysts 1 &amp; 2 are on track per the comments.<br/>
>
> And #7 now also very secure as Telemark is still on schedule for
> the end of the year.

Jun 03 09:22 AM

[speeddaimon:]

Devon,

I appreciate the information, however, due to reading SA consistently, I have become wary of certain things. Specifically, anonymous authors who only shill for one stock, people who link to their blog every single time they comment, large financial institutions who appear to be making an awful lot of money in a bad economy, and anything involving Ben Bernanke's open mouth.

As such, I've also taken a look at ATP, it seems like a decent enough company, morningstar rates its profitability at an F, but its growth at an A, and it appears to be spending 90-115% of its earnings on CapEx, a good sign for future growth. I will continue watching this company based on your recommendation and research, but I think I'm going to hold off on buying for a bit.

Jun 03 11:22 AM

[kewlhand:]

Your logic is impecable, but oddly UNG is down 8% today as I speak!! Any guesses as to why?

Jun 03 11:24 AM

[Devon Shire:]

Thanks for the comment.

I won't hide my motive for writing. I'm a shareholder and I'm tired of my shares being valued by Mr. Market at about 10% of what I think they are worth.

Check out what I've written. Let me know what you agree with and disagree with. I'd welcome an intelligent discussion. I'm trying to be objective, but with a vested interest you never know what you might convince yourself is and isn't true.

Thanks for the interest.


On Jun 03 11:22 AM speeddaimon wrote:

> Devon,
>
> I appreciate the information, however, due to reading SA consistently,
> I have become wary of certain things. Specifically, anonymous authors
> who only shill for one stock, people who link to their blog every
> single time they comment, large financial institutions who appear
> to be making an awful lot of money in a bad economy, and anything
> involving Ben Bernanke's open mouth.
>
> As such, I've also taken a look at ATP, it seems like a decent enough
> company, morningstar rates its profitability at an F, but its growth
> at an A, and it appears to be spending 90-115% of its earnings on
> CapEx, a good sign for future growth. I will continue watching this
> company based on your recommendation and research, but I think I'm
> going to hold off on buying for a bit.

Jun 03 11:29 AM

[Devon Shire:]

No idea. I have a long term opinion on oil going up over the next few years, natural gas is always volatile.

Day to day movements are just noise.


On Jun 03 11:24 AM kewlhand wrote:

> Your logic is impecable, but oddly UNG is down 8% today as I speak!!
> Any guesses as to why?

Jun 03 11:30 AM

[Karl Glazier:]

Why are 2010 earnings estimates only $.79 ?

Jun 03 11:31 AM

[Devon Shire:]

No idea. I only look at cash flow. They are trading less than one times this year's cash flow, so like less than .5 next year.

The analysts on this company had it at a strong buy at $50 and as a sell or hold at $3.

Telemark is huge in significance. It will ramp up quickly peaking at 33,000 BOE per day in 2011. Will more than double production next year. And produce over $4 billion in sales over it's life using today's strip prices.


On Jun 03 11:31 AM Karl Glazier wrote:

> Why are 2010 earnings estimates only $.79 ?

Jun 03 12:20 PM

[peachberry_tea:]

Hey Devon,

Thanks for another informative post.

I was wondering what your thoughts were on short term oil prices. There's been a bit of talk about oil inventories and that there's a bit of speculation behind the recent increase in oil prices. Predicting short term pricing is a sucker's game, yes, but just wanted your thoughts on it anyway because you seem like you'd be fairly informed with this sort of thing.

Thanks again

Jun 03 01:57 PM

[Devon Shire:]

Honestly, I have no clue short term.

The one fact that sticks out to me is that OPEC cut something like 4 million barrels per day and demand is down 2.4 million barrels per day. That has to reduce supply.

It may be that while we seem to have enough oil in the States right now, the rest of the world has a tighter market. I read somewhere that Asia is undersupplied (they are impacted by OPEC cuts) and have had to buy more from Africa than they usually do.

But I don't know. Sooner or later it has to go up. OPEC production is way down, non-OPEC supply is being impacted severely by the credit crunch and commodity collapse.

I'm very happy to see Diamond Offshore willing to put their money on the line with respect to Telemark. Huge validation.

Thanks for the question. Bottom line is I'm not nearly smart enough to answer.


On Jun 03 01:57 PM peachberry_tea wrote:

> Hey Devon,
>
> Thanks for another informative post.
>
> I was wondering what your thoughts were on short term oil prices.
> There's been a bit of talk about oil inventories and that there's
> a bit of speculation behind the recent increase in oil prices. Predicting
> short term pricing is a sucker's game, yes, but just wanted your
> thoughts on it anyway because you seem like you'd be fairly informed
> with this sort of thing.
>
> Thanks again

Jun 03 02:45 PM

[BFOWLER:]

I like the ATPG story very much, however fail to understand the logic of filing a $200 million shelf registration (see company's SEC filings on website). Has management commented on this? With a market cap of about $300 to $350 million, issuing $200 million of new equity at anywhere near stock prices thus far in 2009 would be disastrous. Among other things, this certainly flies in the face of a stock purchase plan. Surely management does not plan to issue new equity in the near future if it can possibly be avoided. Some clarification here might be useful.

Jun 03 03:52 PM

[Devon Shire:]

I don't know why they filed the shelf. I would be shocked if common shares were issued at these prices as management owns 20% of the company and would be diluted terribly.

It is especially unlikely given the vendors picking up $300mil of drilling costs on Telemark to be repaid out of future production.

Maybe they are looking at a pref share offering, they have used this in the past. Maybe they are just getting one filed so they can move quickly if the share price moves up significantly.

Also consider they have other large sums of cash coming in over the next 9 months. Gomez pipeline $85mil, Titan MLP $260mil, Telemark pipeline $160mil. CFO as recently as today reaffirmed that these are going to happen.

With the arrangement for vendor pick up of drilling costs today and their 20% stake in the game I am inclined to think that I'm not going to be diluted.

And the amazing thing is that even if I am, half of the $87 I think these shares are worth is still $40 plus with huge dilution.

Thanks for the comment.


On Jun 03 03:52 PM BFOWLER wrote:

> I like the ATPG story very much, however fail to understand the logic
> of filing a $200 million shelf registration (see company's SEC filings
> on website). Has management commented on this? With a market cap
> of about $300 to $350 million, issuing $200 million of new equity
> at anywhere near stock prices thus far in 2009 would be disastrous.
> Among other things, this certainly flies in the face of a stock purchase
> plan. Surely management does not plan to issue new equity in the
> near future if it can possibly be avoided. Some clarification here
> might be useful.

Jun 03 05:10 PM

[Offering:]

Devon,

I enjoy your writing. And have looked at the stock and actually put on a trade. The issue of the shelf offering really needs to be addressed. I actually pulled some of my shares from a trade because of this and $WTIC being overbought. I have seen what the delusion has done to stocks like DPTR. ATPG at $8.5 becomes $4.25 overnight. That's a ton and I mean real risk just put into this trade with that shelf.....I have few thoughts to the shelf. Some of the proposed asset do not have buyers or at prices desired. Which means funds will be needed. Or they just want some insurance to keep the company floating if Oil and the asset sales go sour....Managment needs very specific comments $200MM offering...Your point is well taken about even $40 a share with the offering. But we may go to $4 per share first........

Mark

Jun 03 08:37 PM

[Devon Shire:]

Thanks for the comment.

I don't know the plan for the shelf. I do know a few things though and they all lead me to believe they aren't going to dilute me at this low stock price

1) CEO and Chairman Paul owns 20% of this company. A company he started in his living room in 1991. Do you really think that after building this into a very successful company (and yes despite the stock price they are very successful) that he is going to give away half his ownership interest ?

2) They just raised almost $300mil in what amounts to an interest free loan from their vendors. I can't imagine that they would then turn around and then give away half the company for $200mil.

3) We basically know there is a lot (and I mean a lot) of cash that is going to be coming into the company in the next 9 months via infrastructure monetization. Gomez Pipeline is $85mil and they have offers. Al Reese is on public record so many times saying that this will get done that I have no doubt about it. He has done exactly as he said with Wenlock, and the Innovator. The Titan will go into an MLP, again they have said this so many times publicly that I have no doubt. This is another $260mil. Today Al mentioned that the Telemark pipeline would be next once they start producing (which has been assured by the Diamond deal) which will be another $160mil. So there is what another $500mil that they are going to raise which makes me very much doubt that they would give away half the company for $200mil

3) Canyon Express Pipeline They aren't rushing to monetize this. It has a replacement value of $200mil and is in a very strategic location. They have been approached (per Al today) by people about it. Surely they would sell this before giving away half the company for $200mil.

So I just don't see it happening. I think a pref share offering which they used around the time Gomez was about to ramp up would be more likely, but it might not be doable in today's market.

Or perhaps they just want a shelf in place in case the stock price comes up and they want to take advantage of it.

And again this stock is priced like they can't raise capital. So an equity raise would actually be good news to people who think the assets here are only worth $8.

I've got some faith in management. They are owners and act in shareholders best interests.


On Jun 03 08:37 PM User 425298 wrote:

> Devon,
>
> I enjoy your writing. And have looked at the stock and actually put
> on a trade. The issue of the shelf offering really needs to be addressed.
> I actually pulled some of my shares from a trade because of this
> and $WTIC being overbought. I have seen what the delusion has done
> to stocks like DPTR. ATPG at $8.5 becomes $4.25 overnight. That's
> a ton and I mean real risk just put into this trade with that shelf.....I
> have few thoughts to the shelf. Some of the proposed asset do not
> have buyers or at prices desired. Which means funds will be needed.
> Or they just want some insurance to keep the company floating if
> Oil and the asset sales go sour....Managment needs very specific
> comments $200MM offering...Your point is well taken about even $40
> a share with the offering. But we may go to $4 per share first........
>
>
> Mark

Jun 03 10:22 PM

[maxiedog:]

Thanks for the detailed analysis; your long interest is a strong motivation of course but it is great to get your well-argued insights without having to DMOR. A great start point for research on a compelling opportunity. The shelf is a potential problem of course. Have you access to the company principals to just directly ask them why they think it necessary?

Jun 04 02:01 AM

[Mayascribe:]

Compelling debate here! If the author's numbers hold true about the 200MM, then the ATP CEO would be nuts to dilute his 20% stake by half. Especially if he believes his stock will increase by three or four fold by this time next year. With the 300MM now in hand he can clean up the balance sheet right now (that would be a great sign!). With the $1 billion plus future cash he can buy back shares assisting in the appreciation market cap value, increasing his own wealth all along the way.

The possibility of indirect dillution through a preferred share offering, though, could be of concern. With an extra $200MM right now, he could leverage up again against the "guaranteed" coming revenues, and build another floating rig or two, and then sell a 49% share in each of those a few years down the line when oil likely will be higher priced than now.

I'm a share owner, and thanks to the debate here (and my own out loud thoughts), I will be closely watching where the 300MM lands in ATP's next quarterly balance sheet.

My last curiosity is to give myself some homework and look far into the past of ATP's balance sheet and history of offerings. Could pick up a sign or trend there.

Jun 04 02:34 PM

[Devon Shire:]

Thanks for the comment.

I have spoken to CFO Al Reese, but before the shelf was filed. He was very professional and I don't think he would comment on it without having commented publicly previously.

Do some digging and poke some holes in my analysis or confirm some of it if you agree. I certainly appreciate other opinions.


On Jun 04 02:01 AM maxiedog wrote:

> Thanks for the detailed analysis; your long interest is a strong
> motivation of course but it is great to get your well-argued insights
> without having to DMOR. A great start point for research on a compelling
> opportunity. The shelf is a potential problem of course. Have you
> access to the company principals to just directly ask them why they
> think it necessary?

Jun 04 03:41 PM

[Devon Shire:]

Thanks for the comment.

Just to be clear, the $300mil isn't in hand right now. What Diamond is doing is basically drilling now and accepting payment after Telemark starts producing. So it is basically an interest free loan with Diamond expressing confidence in the prospects of this very significant development.

I think looking at ATP's past balance sheets would be a good idea. They are very creative at raising capital and have managed a significant debt load for their entire existence.

The key is that they do development not exploration. It is a risk aversion business plan.

On Jun 04 02:34 PM Mayascribe wrote:

> Compelling debate here! If the author's numbers hold true about the
> 200MM, then the ATP CEO would be nuts to dilute his 20% stake by
> half. Especially if he believes his stock will increase by three
> or four fold by this time next year. With the 300MM now in hand he
> can clean up the balance sheet right now (that would be a great sign!).
> With the $1 billion plus future cash he can buy back shares assisting
> in the appreciation market cap value, increasing his own wealth all
> along the way.
>
> The possibility of indirect dillution through a preferred share offering,
> though, could be of concern. With an extra $200MM right now, he could
> leverage up again against the "guaranteed" coming revenues, and build
> another floating rig or two, and then sell a 49% share in each of
> those a few years down the line when oil likely will be higher priced
> than now.
>
> I'm a share owner, and thanks to the debate here (and my own out
> loud thoughts), I will be closely watching where the 300MM lands
> in ATP's next quarterly balance sheet.
>
> My last curiosity is to give myself some homework and look far into
> the past of ATP's balance sheet and history of offerings. Could pick
> up a sign or trend there.

Jun 04 03:45 PM

[Mayascribe:]

Thanks for the reply, Devon. It seems from reviewing the past balance sheets that indeed ATP has carried debt for some time, with a sidnificant increase in the past couple of years. I don't necessarily look at this as a bad aspect. In fact, with exploration down worldwide, it may turn into a major positive, especially when Telemark's spigots turn on.

The real key to this company is how they manage their cash flow here forward.

####

I'm also interested in Stone Energy Corporation (SGY). This oil company's stock price is parallel to ATP's. But the situation is vastly different, as they suffered big and expensive damage to their platforms and pipelines due to hurricanes in the Carribean. Reparations are on target. The Fool has it rated 5 stars like ATP.

Maybe you can branch out a little and investigate SGY as it's stock is down about 8 fold to ~$9.00 from $72.59 fifty-two weeks ago.

Thanks, again!

Jun 04 07:41 PM

[Devon Shire:]

The ramp up in debt in the past couple of years was related to building long lived infrastructure relating to the development of Telemark and Gomez. They have a $520mil floating production unit in the ATP Titan, a $300mil floating unit in the ATP Innovator, $160mil of pipelines at Telemark.

So the debt went into assets that have value and long lives. They are selling pieces of the floating units to bring that capital back into the company and they are selling off the pipelines for the same purpose. Look for all of the 2011 debt to be gone by the end of this year.

I've heard SGY mentioned a few times. My understanding is that it is debt they took on for an acquisition at exactly the wrong time that has really punished them. I'm pretty happy with ATP at this point as I think management is doing a really great job through this period and has their incentives completely aligned with me as a shareholder.


On Jun 04 07:41 PM Mayascribe wrote:

> Thanks for the reply, Devon. It seems from reviewing the past balance
> sheets that indeed ATP has carried debt for some time, with a sidnificant
> increase in the past couple of years. I don't necessarily look at
> this as a bad aspect. In fact, with exploration down worldwide, it
> may turn into a major positive, especially when Telemark's spigots
> turn on.
>
> The real key to this company is how they manage their cash flow here
> forward.
>
> ####
>
> I'm also interested in Stone Energy Corporation (seekingalpha.com/symbo...).
> This oil company's stock price is parallel to ATP's. But the situation
> is vastly different, as they suffered big and expensive damage to
> their platforms and pipelines due to hurricanes in the Carribean.
> Reparations are on target. The Fool has it rated 5 stars like ATP.
>
>
> Maybe you can branch out a little and investigate SGY as it's stock
> is down about 8 fold to ~$9.00 from $72.59 fifty-two weeks ago.
>
>
> Thanks, again!

Jun 05 10:24 AM

[BFOWLER:]

LOOKING AT ATPG NUMBERS ON A PER SHARE BASIS.

The materials in support of ATP’s June 3 presentation at the Energy Capital Investment Symposium are available at the ATPOG.com website and are excellent. Most of the numbers mentioned below are taken from this presentation.

I find it very interesting to look at ATPG numbers on a per share basis. There are 36 million +/- shares outstanding. At a $9 trading price the market cap is about $324 million.

The total debt is about $1.37 billion, or about $38 per share.
This debt is due $296 million in 2011, $31 million in 2013 and $1,042 million in 2014.
The interest rate is apparently about 8.5% now and floats with LIBOR. Principal repayment schedules are quite small (so long as debt covenants are met).

The Company estimates that it has about 6.3 BOE behind each share. At $60 per barrel, this is about $360 per share gross. Discounted at 10% (or PV-10), management believes the value is about $5 billion (see presentation), which is about $139 per share. The Company also has over $1 billion in infrastructure assets that are well positioned to generate cash going forward. These assets are “for sale” and as interest revives in energy infrastructure plays, should be saleable.

The June 3 presentation materials show an IBES 2009 cash flow estimate of $142 million, or $3.94 per share. For 2010 the IBES cash flow estimate is $364 million, or $10.12 per share.

Per management’s statements, it is probably appropriate to assume sale of a one-half interest in the ATP Titan at it’s cost, or for about $250 million. The covenants apparently require 75% of this go to debt (or $188 million). $188 million applied to the $296 million of debt due in 2011, reduces it to about $108 million. Then if interest(s) in pipelines etc. are also sold over the next year and a half, we could probably assume the 2011 debt to be taken care of. That would leave the Company with essentially $1 billion of debt due in 2014 (about $28 per share.) Unless we have some combination of “Volcker style” 18% - 20% interest rates, oil prices going to $30 and staying there, and massive storm damage, it looks like the company should be able to handle the 2014 debt. Maybe the Shelf Registration has been filed as an insurance policy against these seemingly unlikely events.

Once the debt is gone, and assuming additional development of its properties in the Gulf, you are still looking at maybe $4.5 to $5 billion NPV of oil and gas, or a NAV of about $125 to $140 per share. And that does not give much value to the Company’s excellent business model, which seems likely to add additional reserves going forward. There is also the possibility that the market may at some point assign a higher value to domestic, accessible reserves (versus dealing with Iran, Venezuela, Mexico’s Cantarell problem, etc.)

Sure, there’s a lot of debt here, and thus meaningful risk, but a lot of potential value as well.

Jun 05 01:17 PM

[Devon Shire:]

Couldn't have said it better myself ! My only adds are that 1) I think the PV10 numbers are going to be low because oil prices specifically are likely going to be much higher in the future when the product is actually sold 2) If we have Volker style interest rates I can't even imagine how high oil might be which would allow the company to repay the debt pretty quickly

Thanks for the comment.


On Jun 05 01:17 PM BFOWLER wrote:

> LOOKING AT ATPG NUMBERS ON A PER SHARE BASIS.
>
> The materials in support of ATP’s June 3 presentation at the Energy
> Capital Investment Symposium are available at the ATPOG.com website
> and are excellent. Most of the numbers mentioned below are taken
> from this presentation.
>
> I find it very interesting to look at ATPG numbers on a per share
> basis. There are 36 million +/- shares outstanding. At a $9 trading
> price the market cap is about $324 million.
>
> The total debt is about $1.37 billion, or about $38 per share.<br/>This
> debt is due $296 million in 2011, $31 million in 2013 and $1,042
> million in 2014.
> The interest rate is apparently about 8.5% now and floats with LIBOR.
> Principal repayment schedules are quite small (so long as debt covenants
> are met).
>
> The Company estimates that it has about 6.3 BOE behind each share.
> At $60 per barrel, this is about $360 per share gross. Discounted
> at 10% (or PV-10), management believes the value is about $5 billion
> (see presentation), which is about $139 per share. The Company also
> has over $1 billion in infrastructure assets that are well positioned
> to generate cash going forward. These assets are “for sale” and as
> interest revives in energy infrastructure plays, should be saleable.
>
>
> The June 3 presentation materials show an IBES 2009 cash flow estimate
> of $142 million, or $3.94 per share. For 2010 the IBES cash flow
> estimate is $364 million, or $10.12 per share.
>
> Per management’s statements, it is probably appropriate to assume
> sale of a one-half interest in the ATP Titan at it’s cost, or for
> about $250 million. The covenants apparently require 75% of this
> go to debt (or $188 million). $188 million applied to the $296 million
> of debt due in 2011, reduces it to about $108 million. Then if interest(s)
> in pipelines etc. are also sold over the next year and a half, we
> could probably assume the 2011 debt to be taken care of. That would
> leave the Company with essentially $1 billion of debt due in 2014
> (about $28 per share.) Unless we have some combination of “Volcker
> style” 18% - 20% interest rates, oil prices going to $30 and staying
> there, and massive storm damage, it looks like the company should
> be able to handle the 2014 debt. Maybe the Shelf Registration has
> been filed as an insurance policy against these seemingly unlikely
> events.
>
> Once the debt is gone, and assuming additional development of its
> properties in the Gulf, you are still looking at maybe $4.5 to $5
> billion NPV of oil and gas, or a NAV of about $125 to $140 per share.
> And that does not give much value to the Company’s excellent business
> model, which seems likely to add additional reserves going forward.
> There is also the possibility that the market may at some point assign
> a higher value to domestic, accessible reserves (versus dealing with
> Iran, Venezuela, Mexico’s Cantarell problem, etc.)
>
> Sure, there’s a lot of debt here, and thus meaningful risk, but a
> lot of potential value as well.

Jun 05 02:32 PM

[Offering:]

Devon,

You have your answer....7.25 Million shares....Hopefully not many more of these to come.....20% increase in shares...

Mark

Jun 10 05:25 PM

[Devon Shire:]

Yep,

Would certainly prefer them to not have felt the need to do this.

The next 6 months is the key though. They get Telemark up and producing on schedule and all is forgiven.

I suggested it was worth $87 in the article above. This dilution assuming they issue at $8 would reduce that to $73.

I'm optimistic that rising oil prices will more than get this dilutive effect back for us though.




On Jun 10 05:25 PM Offering wrote:

> Devon,
>
> You have your answer....7.25 Million shares....Hopefully not many
> more of these to come.....20% increase in shares...
>
> Mark

Jun 10 07:19 PM

[Offering:]

Devon,

Well...It should resovle the money issues. Plus they are fairly well capitalized now going foward. I agree about Telemark....If it brings in the revenues they are projecting, everything will be fine.......I also believe in a praradigm shift in $WTIC closer to a median price of $60. But as always a rough ride where prices may go from $30 to $150 depending on so many inputs. The next 12 months should paint a better picture....

Mark

Mark


On Jun 10 07:19 PM Devon Shire wrote:

> Yep,
>
> Would certainly prefer them to not have felt the need to do this.
>
>
> The next 6 months is the key though. They get Telemark up and producing
> on schedule and all is forgiven.
>
> I suggested it was worth $87 in the article above. This dilution
> assuming they issue at $8 would reduce that to $73.
>
> I'm optimistic that rising oil prices will more than get this dilutive
> effect back for us though.
>
>

Jun 10 07:48 PM

[peachberry_tea:]

Devon, have you heard anything about how many shares management intends to issue?

Jun 11 01:35 AM

[mind_geek:]

I was just about to the pull the trigger on buying into this company, got a last min call and missed the trade before market close. (sometimes you just get lucky!) Looks like the total share count will increase 20% after todays news, even at these depressed prices. What this tells me is that debt management isnt such a slam dunk as management claimed (and the author) as the company was configured pre-announcment. Then again, when does management ever tell the real truth?

Anyways..while I believe there are many good points here and the company has great potential, it will be hard to own a stock that drifts lower and/or at best sits at even when the rest of the oil market skyrockets upward. Sometimes owning a boring ETF such as XLE or OIH pays off.. they are great emotionless trades.

Theres been talk of all the insider ownership...a closer look reveals that the largest holder (CENTENNIAL ENERGY PARTNERS LLC) has taken a bath on this stock...most of what they purchased was in the $28-43 range, yet they consistently dump shares at the current depressed price...hardly a ringing endorsement. My guess is someone lost their job over this pick! The other current purchases are mandatory buys as part of executive compensation...you'll notice they are all exactly the same number of shares.

I learned long ago that stocks are just pieces of paper, when you start to love a company...it doesnt love you back.

I think you'll see a double in the long run, but if your a short timer...better opportunities lie elsewhere for now in my opinion.

Jun 11 02:59 AM

[peachberry_tea:]

Hmm just read my own comment.. what I meant was: has there been any news on how many more shares management might issue as part of the $200mil offering? Any word on whether it'll be common or preferred etc.?

On Jun 11 01:35 AM peachberry_tea wrote:

> Devon, have you heard anything about how many shares management intends
> to issue?

Jun 11 08:28 PM

[Devon Shire:]

It's common and it's quite dilutive. About 8 million shares at $8.25. Proceeds to be used to make sure Telemark gets done on schedule.

So value per share now something like 80% of what it was pre-dilution. Still multiples of the current share price. Hopefully the extra cash has reduced the risk. I had myself convinced that they were not going to need to do this.

Not happy news, but management must have felt it necessary as they diluted themselves along with the rest of us.

On the bright side it looks like they are going to keep 100% of Telemark (they had been considering a partner) which is going to me a huge step up in cash flow and production next year.

I'


On Jun 11 08:28 PM peachberry_tea wrote:

> Hmm just read my own comment.. what I meant was: has there been any
> news on how many more shares management might issue as part of the
> $200mil offering? Any word on whether it'll be common or preferred
> etc.?
>
> On Jun 11 01:35 AM peachberry_tea wrote:

Jun 11 11:10 PM

[Devon Shire:]

Thanks for the comment. Glad you avoided the dilution.

Couple of points you make aren't accurate.

Actual insiders (as in management or directors) have not been selling any shares. Centennial is an energy focused investment outfit who has sold pieces of their holdings in various companies over the past year. Likely redemption related. They have held the vast majority of their ATP stake.

ATP CEO bought about $300k worth of shares on the open market in the spring of this year and the president bought over $100k last summer in the $20 per share region. Several directors bought a few shares in the fall, not big amounts but at least they spent some money.

You are right about the dilution though. I did not think they would need to raise cash via an equity offering. I was hoping that they could sell pieces of assets at decent prices instead. The fact that they have to use 75% of any proceeds from asset sales to first pay down debt may have meant that they would have had to sell something very large to get the after tax and debt repayment cash that they desired.

NAV per share still multiples of the current stock price with the dilution. I'd prefer not to have been diluted, but much prefer that to having them risk the company by stretching the balance sheet too far.


On Jun 11 02:59 AM mind_geek wrote:

> I was just about to the pull the trigger on buying into this company,
> got a last min call and missed the trade before market close. (sometimes
> you just get lucky!) Looks like the total share count will increase
> 20% after todays news, even at these depressed prices. What this
> tells me is that debt management isnt such a slam dunk as management
> claimed (and the author) as the company was configured pre-announcment.
> Then again, when does management ever tell the real truth?
>
> Anyways..while I believe there are many good points here and the
> company has great potential, it will be hard to own a stock that
> drifts lower and/or at best sits at even when the rest of the oil
> market skyrockets upward. Sometimes owning a boring ETF such as XLE
> or OIH pays off.. they are great emotionless trades.
>
> Theres been talk of all the insider ownership...a closer look reveals
> that the largest holder (CENTENNIAL ENERGY PARTNERS LLC) has taken
> a bath on this stock...most of what they purchased was in the $28-43
> range, yet they consistently dump shares at the current depressed
> price...hardly a ringing endorsement. My guess is someone lost their
> job over this pick! The other current purchases are mandatory buys
> as part of executive compensation...you'll notice they are all exactly
> the same number of shares.
>
> I learned long ago that stocks are just pieces of paper, when you
> start to love a company...it doesnt love you back.
>
> I think you'll see a double in the long run, but if your a short
> timer...better opportunities lie elsewhere for now in my opinion.

Jun 11 11:20 PM

[mind_geek:]

Its too bad they decided to do this when oil is making an incredible run upwards, thus losing all the price momentum the stock had as it piggybacks off market optimism. When oil makes it pullback (Im guessing by not that much, but then again speculation drives this market currently), I think ATPG gets the worst of it short term. You can view that as an opportunity to buy lower and wait it out or just throw your hands up in disgust and go with a petrobras or an oil etf instead.

This one is a hard call...either management is oil savvy but lacks market smarts and timing or they decided to do this to suppress the stock price, buy more on the cheap, and then spring a series of positive news stories ...thus propping up the stock and trying to break even on all those badly timed insider purchases at much higher prices last year. Some did buy this year at lower prices just to be fair, but not that much. Look here if you care: finance.yahoo.com/q/it...

Directors/Insiders only make moves that they think will enrich themselves ...sooo.......
wait for the downturn in oil and this stock and buy on the next positive (and relevant) news story. My guess is management is smarter than they appear today..we hope!

-My former life was spent as a director of exec options/compensation..we called it the self-enrichment dept ;o) -

Jun 12 02:15 AM

[AndrewBaker:]

ATPG is in my humble opinion, much undervalued. It has infrastructure in place, it drills in places where there are known reserves, and it manages its finances in a sound manner, so i believe.

I own ATPG, and am looking to buy more on dips. I agree that this is a multi-bagger over time. It got too far ahead in the past because of the run-up and spike in the oil price, and it suffered when oil fell. But as it goes back up again, people will see that it is a financially sound oil company in politically safe areas, with much proven supply to bring up without fear of interruption or technical problems that haven't been dealt with, and with a stock price that just does not value the company at anywhere near a fair price.

As for shorters; I will happily sell when they have to cover, and buy back at a lower price afterwards.

Jun 13 03:30 PM

[mind_geek:]

I kind of disagree with the last poster...a financially sound company does not increase share count 28% at depressed prices, thats tells me management doesnt think the stock price will be higher anytime soon or debt is more of a burden than we are led to believe.

This one will probably be dead money for a good while.

Jun 14 04:28 AM

[Devon Shire:]

I don't think it is the debt that is the problem, it is the lack of cash for developing Telemark.

They will pay down the remaining balance on the 2011 debt this year by monetizing infrastructure assets. So the debt reduction will take place. The problem is that the debt agreement stipulates that 75% of all asset sale proceeds have to go to debt reduction which means it is very difficult to raise cash for non-debt repayment purposes.

As far as dead money for a good while, well I guess that depends on what your perspective of what a good while is. Telemark will start producing at the end of this year. That is 6 months away. It will very quickly get to about 25,000 BOE per day which is going to double ATP's production and more than double it's revenue and cash flows as Telemark is 76% oil.

Over this same time period you are also going to see another $300mil of debt repaid as the Gomez pipeline and half the ATP Titan are sold for the purpose of repaying debt.

Then some time early in 2010 they will likely sell the Telemark pipeline for another $160mil of cash.

Yes, we own 20% less of the company now than we did before, but any uncertainty of whether Telemark is going to produce is gone. I mean Diamond Offshore is drilling it for payment from Telemark production (in other words they are taking on production risk). What better stamp of approval could we ask for than that.


On Jun 14 04:28 AM mind_geek wrote:

> I kind of disagree with the last poster...a financially sound company
> does not increase share count 28% at depressed prices, thats tells
> me management doesnt think the stock price will be higher anytime
> soon or debt is more of a burden than we are led to believe.
>
> This one will probably be dead money for a good while.

Jun 14 11:01 AM

[DudeKabob:]

You've been dilluted. Now what?


On Jun 03 05:10 PM Devon Shire wrote:

> I don't know why they filed the shelf. I would be shocked if common
> shares were issued at these prices as management owns 20% of the
> company and would be diluted terribly.
>
> It is especially unlikely given the vendors picking up $300mil of
> drilling costs on Telemark to be repaid out of future production.
>
>
> Maybe they are looking at a pref share offering, they have used this
> in the past. Maybe they are just getting one filed so they can move
> quickly if the share price moves up significantly.
>
> Also consider they have other large sums of cash coming in over the
> next 9 months. Gomez pipeline $85mil, Titan MLP $260mil, Telemark
> pipeline $160mil. CFO as recently as today reaffirmed that these
> are going to happen.
>
> With the arrangement for vendor pick up of drilling costs today and
> their 20% stake in the game I am inclined to think that I'm not going
> to be diluted.
>
> And the amazing thing is that even if I am, half of the $87 I think
> these shares are worth is still $40 plus with huge dilution.
>
> Thanks for the comment.

Jun 14 11:59 PM

[Devon Shire:]

Now what ?

Well, I guess this is part of the beauty of buying something so undervalued. Even with this dilution net asset value per share appears to me to be around $70 (down from the $87 I had suggested earlier).

So, now the upside is 9 times the current share price instead of 11 times. And they have more cash to work with.

I'm not saying I enjoy giving away this much value. But I would prefer this to having management try and stretch too far and risk the company.

Good things are still to come in 2009. Gomez pipeline and ATP Titan will be monetized (only half the Titan) and all of the 2011 maturing debt will be repaid leaving all debt maturing in 2014.

At the end of the year of course Telemark will start producing. 4 wells, each of which will flow at something like 7,000 BOE per day. Enormous boost to cash flow.


On Jun 14 11:59 PM DudeKabob wrote:

> You've been dilluted. Now what?

Jun 15 10:26 AM

[mind_geek:]

I'll have to admit that your conviction on this company is strong..Im guessing you have a good portion on money invested in it. I think the main reason no one else sees this potential is that this company is not consistent and all over the board for revenues, earnings and analysts are also all over the spectrum as well. Of the 11 that cover it, the price target is as high as 23 and as low as a buck..thats scary!

The chart looks like a dot com company...blasted off like a rocket and fell like a rock in a 3 year time span. Im not really a chartist, nor do I religiously follow them...just an observation.

You'll probably strongly disagree with me on this, but I think the company has a 50-50 shot at making it big or just plunging under $5 and hoping for a buy-out. Nonetheless..Ive been looking for a good speculation and at $8, this might work. Another couple of days to see if it can buck the current downtrend and/or see if this company can finally start to participate with the oil rally.

Jun 16 02:42 AM

[Devon Shire:]

Thanks for the comments.

Have a look at the chart of any oil and gas company and you will see something similar. The bigger ones are less severe, but anything close to ATP in size looks similar.

Now, about your comment that you think this company is going to make it big or plunge under $5 and hope for a buy-out. You don't provide a reason. That is just a statement. Provide a reason why you think the company is going to have a problem and then we can have a discussion.

Here is why I think this company is going to survive and thrive:

1) The Telemark property is going to come on production in roughly 6 months. Their cash flow will more than double with this. The wells are being drilled right now. Why am I confident in the property ? Well the drillers doing the drilling in exhange for cash from production later, dollar for dollar. Do you really think they would agree to this without having full confidence in the potential of the property ? That means they have had a chance to do due diligence and look at the reserves. They have assume reservoir and production risk.

2) There is an enormous amount of cash that is going to be coming back to this company in the next 6 months. Gomez Pipeline $85mil, Titan MLP $300mil or more, Telemark Pipeline another $160mil. That is over $500mil in cash. That is going to reduce debt by $300mil and leave them nothing maturing 2014. They have interested parties, and are on record publicly saying that it is a matter of when, not if these happen. I suppose management could be lying but they said the same about the Wenlock sale and the ATP Innovator as well and came through with those in much more difficult markets.

3) Supporting the debt. They are able to make all debt payments out of existing cash flow quite comfortably. Do you think this is going to get worse once debt is reduced by $300mil and production and cash flow more than double with Telemark ?

4) Post Telemark. Telemark is key obviously. But they have a huge inventory of proved reserves to drill after this. Cheviot is of similar size to Telemark. Yes, that means that in a couple of years cash flow is going to be triple where it is now, and more if you think oil prices will be higher.

So there is why I think they aren't going to have problems. Might the stock price go under $5 again ? Sure I have no idea what the stock market might do short term. But they have a huge increase in cash flow coming, a huge influx of cash coming and a very significant debt reduction as well. And I didn't mention again that the terms on the debt are very favorable, and they are in compliance with all covenants.

So I guess I do disagree with you. If you can pick holes in my thinking then great, it would serve me well to have some critical analysis. Or perhaps you have some other observations that I am not aware of.

Thanks




On Jun 16 02:42 AM mind_geek wrote:

> I'll have to admit that your conviction on this company is strong..Im
> guessing you have a good portion on money invested in it. I think
> the main reason no one else sees this potential is that this company
> is not consistent and all over the board for revenues, earnings and
> analysts are also all over the spectrum as well. Of the 11 that cover
> it, the price target is as high as 23 and as low as a buck..thats
> scary!
>
> The chart looks like a dot com company...blasted off like a rocket
> and fell like a rock in a 3 year time span. Im not really a chartist,
> nor do I religiously follow them...just an observation.
>
> You'll probably strongly disagree with me on this, but I think the
> company has a 50-50 shot at making it big or just plunging under
> $5 and hoping for a buy-out. Nonetheless..Ive been looking for a
> good speculation and at $8, this might work. Another couple of days
> to see if it can buck the current downtrend and/or see if this company
> can finally start to participate with the oil rally.

Jun 16 12:53 PM

[mind_geek:]

To answer your question on why it could go to $5:

#1..most of the events that would be catalyst for a much higher stock price havent happened yet and none of it is a sure thing. It seems like this company is really banking on telemark (and from what Ive read so are the people owning the stock), but again..hasnt produced anything yet.

#2..the company is currently losing money

#3.. 28% dilution, analysts have no idea whats its worth (hence the price targets of $1 to $23), nor can they even agree on future earnings

#4..Reading your original post, almost every catalyst you have listed is precluded with the words - "I expect", "they are considering", "could be".

Penny stocks and biotech companies normally move on the "could be" or "I expect" principle...oil companies do not.

Im obviously not anywhere in the know on this company as you are..nor do I honestly have the time, so your statements on the company will be much more accurate and detailed than mine. However, Im looking at it soley from a Wall Street angle and until these events actually come to fruition, theres absolutely nothing with fundamentals to prop this stock up. Its already halfway to $5 in less than a week since the dilution announcement and its missed the entire oil run!

When 1 of these major events actually happens, THEN its time to jump in and buy or when it gets under $7 if you want to speculate. If this company was so undervalued at your diluted price target of $70, wouldnt it have been bought out already or you would see a surge in insider buying? This company is hardly a secret and it trades north of 1.4mil shares a day.

I think you have talked yourself into loving this company a little too much..its just a piece of paper and that paper is currently shredding itself a little more each day. Emotional trades have always lost me money in the past...but thats just me.

Jun 17 05:33 PM

[Devon Shire:]

Thanks for the comments. I've replied to some of them. Your comments are in quotes.

"To answer your question on why it could go to $5:"

Just to be clear. I'm not saying it couldn't go to $5. The stock price can do anything. What you said is that is could go to $5 and they would hope for a buyout. That implies that there has to be something wrong with the company for the stock price to go to $5. That is where I disagree. The stock price could do anything. All I care about is the underlying performance of the company.

"
> #1..most of the events that would be catalyst for a much higher stock
> price havent happened yet and none of it is a sure thing. It seems
> like this company is really banking on telemark (and from what Ive
> read so are the people owning the stock), but again..hasnt produced
> anything yet."

I completely agree with that. There is the potential that management is lying about the infrastructure deals. They have indicated complete confidence in getting them done.

I also agree that Telemark is crucial. But I have quite a bit of confidence in it. Why ? Well they just announced that their vendors involved in the drilling and set up have agreed to accept payment for their services out of the Telemark production. In other words they don't get paid unless Telemark produces. For Diamond Offshore that means they are risking $118mil on this property. I can't imagine that they would agree to do that without doing some serious due diligence on the property and having complete confidence in it's cash flow.

"
> #2..the company is currently losing money
>"

That isn't true. They even had positive earnings in Q1 with oil in the 30s and half their production still shut due to 3rd party pipeline problems. Since then, all of their production is fully back on line and oil prices are up more than 50%.

I would also say that you need to pay attention to cash flows when looking at a company like this as earnings have such a huge element of non-cash depletion charge.

"
> #3.. 28% dilution, analysts have no idea whats its worth (hence the
> price targets of $1 to $23), nor can they even agree on future earnings"

Most, if not all of those analyst estimates were made when oil was around $40 so I think that you will find that almost all are revised upwards.

And what an analyst thinks has no bearing on the performance of a company.


> #4..Reading your original post, almost every catalyst you have listed
> is precluded with the words - "I expect", "they are considering",
> "could be".

Well I can't dispute this. Either you trust management or you don't. I've followed them for quite a while. They told me they expected to close on a significant reserve sale last fall, and they did $430mil sale of Wenlock. They told me that they would get the ATP Innovator MLP done even in the middle of the credit crisis and they did, sold $150mil piece to GE.

I can't blame you if you don't believe what they are saying. They have made the statements I'm relying on multiple times in public forums. I think it would crazy to be doing that if it wasn't true.

"
> this company was so undervalued at your diluted price target of $70,
> wouldnt it have been bought out already or you would see a surge
> in insider buying? This company is hardly a secret and it trades
> north of 1.4mil shares a day."

CEO did buy 80,000 shares in March. You should also know that both he and the CFO have virtually their entire net worth's in the company.

As for a buyout. Have you seen any oil and gas companies bought out in the USA over the past 6 months ? I haven't, they are all protecting their cash positions. I also don't think that CEO Paul Bulmahn who started the company in his living room in 1991 is looking to sell it now at exactly the wrong time to sell. Why not sell when the stock market isn't depressed and get a better price.

The shares traded at over $40 and often over $50 for the better part of 3 years prior to the collapse in all stocks last fall. Why does my valuation seem so crazy given the market valued the stock at these prices at oil prices that are very similar to the $70 we have today. Yes, they have diluted but they have also added reserves since then which has more than offset this.

"
> I think you have talked yourself into loving this company a little
> too much..its just a piece of paper and that paper is currently shredding
> itself a little more each day. Emotional trades have always lost
> me money in the past...but thats just me."

It is possibly that I have lost objectivity here. That is why I write, so I can have people challenge my thinking.

But I strongly disagree that it is just a piece of paper. The piece of paper is an ownership interest in a company. The company isn't shredding every day. Mr. Market is just offering a different value for my shares on a daily basis. Mr. Market will go from being pessimistic to optimistic again some day and offer me a better price. I'll just sit and wait until then and keep my eye on management and the company's assets.


On Jun 17 05:33 PM mind_geek wrote:

> To answer your question on why it could go to $5:
>
> #1..most of the events that would be catalyst for a much higher stock
> price havent happened yet and none of it is a sure thing. It seems
> like this company is really banking on telemark (and from what Ive
> read so are the people owning the stock), but again..hasnt produced
> anything yet.
>
> #2..the company is currently losing money
>
> #3.. 28% dilution, analysts have no idea whats its worth (hence the
> price targets of $1 to $23), nor can they even agree on future earnings
>
>
> #4..Reading your original post, almost every catalyst you have listed
> is precluded with the words - "I expect", "they are considering",
> "could be".
>
> Penny stocks and biotech companies normally move on the "could be"
> or "I expect" principle...oil companies do not.
>
> Im obviously not anywhere in the know on this company as you are..nor
> do I honestly have the time, so your statements on the company will
> be much more accurate and detailed than mine. However, Im looking
> at it soley from a Wall Street angle and until these events actually
> come to fruition, theres absolutely nothing with fundamentals to
> prop this stock up. Its already halfway to $5 in less than a week
> since the dilution announcement and its missed the entire oil run!
>
>
> When 1 of these major events actually happens, THEN its time to jump
> in and buy or when it gets under $7 if you want to speculate. If
> this company was so undervalued at your diluted price target of $70,
> wouldnt it have been bought out already or you would see a surge
> in insider buying? This company is hardly a secret and it trades
> north of 1.4mil shares a day.
>
> I think you have talked yourself into loving this company a little
> too much..its just a piece of paper and that paper is currently shredding
> itself a little more each day. Emotional trades have always lost
> me money in the past...but thats just me.

Jun 18 12:02 PM

[mind_geek:]

Honestly, I would love to jump into this one with both feet as Im always on the lookout for severely undervalued stocks (arent we all). I was a day away from buying it at $9.50..but as I mentioned before, luckily I missed that trade.

If this company wasnt so debt laden currently, it would easily be in the teens. Bumping up the share count 28% for a "measily" 68.1mil dollars looks like a desperation move to the casual observer. I feel theres something management isint saying..the dilution just isnt very logical.

For all the astute observations you've made and research you've done, made the case for undervaluation..it really all comes down to the share dilution and debt levels currently. Its short term thinking for sure, but since debt is a 4 letter word so to speak in this economy, the share price is getting penalized heavily for it.

Its hanging above $7, but is still dropping double on a % basis what its peers are right now on down days. 1 positive news story and 2-3 days of counter-trending other deepwater drillers and then its time to BUY. If it closes below $7, based on technicals...$5-$6 here we come.

Jun 18 03:21 PM

[InvestBaboo:]

Devon:

This is one of the best researched articles I have read on SeekingAlpha. Furthermore, you have replied to every post where a question was asked without taking offence.

I spotted ATPG when it registered a Buy signal on the chart in early May. I am a chart reader first and do fundamental analysis next. I searched SeekingAlpha and came across your article and loved the story. The charts said YES and your fundamental analysis said YES. Another enticing factor was that this was once a fifty dollar stock (!) and it stands to reason that if someone paid fifty bucks for it once they will remember it and support the stock once it starts showing upwards momentum.

I would really like to double down or triple down on ATPG however a couple of things bother me. Perhaps, you can answer?

#1 Throughout your article and in the posts thereafter you seemed to firmly believe that they would not dilute. It was so strongly against their interests given the CEO and CFO's significant stake in the company. BUT THEY DID IT! Instead of reevaluating your position and checking facts againt you have forgiven them too easily. If the story is this good and if the stock price potential is so high would you not think that they would leave no stone unturned to not dilute? In fact, you firmly believed that they had other ways to get the money they needed. How come they still diluted? Is there something you do not know and the big money knows that caused management to do this?

#2 On June 15, 2009 the ATPG daily charts registerd a Sell signal. Ever since then this equity has headed south. Weekly charts are perhaps a day or two away from registering a sell signal. A Sell on the weekly charts if it happens almost certainly means this stock is headed down to the $5 range. What I am saying here is irrespective of the fundamentals you detail big money is running from the stock fast and furiously.

#3 I fell for a similar stock on SeekingAlpha - a company named LDK Solar which was touted by many authors on SeekingAlpha as $120 stock that was misunderstood and was stuck in the $40 range. Same kind of analysis that you provided accompanies these articles to rationalize why this was a $120-plus stock. This company was one of the largest producers of polysilicon on the planet, had many many delivery agreements, was building a new generation plant that would give them even lower cost and so on and on. Almost every day the company issued press releases touting yet another delivery agreement with yet another brand name company. They did have to acquire a lot of debt to bring their new plant online much like ATPG but the authors were confident the company could easily handle the debt load. For some mysterious reason the stock was going down every day. Instead of going to $120 in 6 months the stock went to single digits! What went wrong? Well, it turns out that the company lied about their new plant and when it would come online. They lied about Polysilicon price points which went south quite drastically. Instead of upbeat quarter they announced massively disappointing earnings and they stock got hammered. And when they went ahead and did a surprising dilution event (much like ATPG) the backers who balked at first found it easy to forgive the company and came up with rationale that justifed the diluation. Much like ATPG! And most importantly -- the Street had no faith in the management and that was one of the reasons why they did not trust anything the managemeng said and eventually the Street was proven right. So if things are this good and the management is telling the Street all the information you seemed to have acquired from them yet the stock is headed south -- is this because the Street distrusts the management?

Your perspective much appreciated.

Jun 18 06:14 PM

[Devon Shire:]

Thanks for the comments.

I've replied below. Your related comment in quotes:
"
> Another enticing factor was that this was once a fifty dollar stock
> (!) and it stands to reason that if someone paid fifty bucks for
> it once they will remember it and support the stock once it starts
> showing upwards momentum."

Yes, that is something to consider. I don't know anything about momentum, but if you look at oil prices from 2005 to 2007 they aren't much different than what they are today. During that time ATP likely averaged $40 a share and was above $30 the entire time. Personally I have to think that the market was likely more rational in valuing their assets during that period than they are today after a terrible stock market collapse. I get comments about my valuation being ridiculous given that this is an $8 stock. But it traded at $40 or higher for most of the past 4 years. They actually have more assets now than then (more than offsetting the dilution).
"
> #1 Throughout your article and in the posts thereafter you seemed
> to firmly believe that they would not dilute. It was so strongly
> against their interests given the CEO and CFO's significant stake
> in the company. BUT THEY DID IT! Instead of reevaluating your position
> and checking facts againt you have forgiven them too easily. If the
> story is this good and if the stock price potential is so high would
> you not think that they would leave no stone unturned to not dilute?
> In fact, you firmly believed that they had other ways to get the
> money they needed. How come they still diluted? Is there something
> you do not know and the big money knows that caused management to
> do this?"

That is a hugely important question. I'm not worried about the value lost by the dilution because it is still enormously undervalued. But the idea that they know something that I don't is a concern. And I have given it a great deal of thought and have had access to management's explanation that was provided through the roadshows to sell the equity offering. Here are my thoughts on it, let me know what you think:

1) I made a mistake in thinking that they could realize a lot of free cash right now via asset sales. What I mean, is that the big asset infrastructure sales (Titan, Telemark Pipeline) can't take place until the Titan is on location later this year. And also restricting them is the fact that the debt covenant requires 75% of asset sale proceeds to go against debt. So if they wanted $50mil of cash right now, and can't sell the Titan and Telemark pipeline until later in the year they need to sell something that is worth at least $200mil ( and that is after tax) to keep $50mil in cash. So you are looking at an asset sale of more like $300mil right now which without the Titan involved is not easy.

2) They had been considering a partner for Telemark. And the past 6 months were likely the worst 6 months in the last decade to try and get a decent price for these assets. They are now going to keep 100% of it so part of the decision is likely that they could either sell part of Telemark (for which they would have to take a price they don't like which is much like offering shares at this horrible price) or keep it and finish it on their own. Dilution either way to NAV, maybe some personal pride got in the way on not accepting less than Telemark is worth.

3) Once they made the decision to go at Telemark alone, and had the vendor agreement with Diamond and others lined up it meant they would have to commit to spending capital over the next 6 months. And now the input from management....in their opinion they could develop Telemark to completion quite comfortably if everything stayed as it is now. Meaning current production, current oil prices. But if they made this commitment to spending and oil went back to $40 or a hurricane knocked Gomez off production that things could get tight. If oil were to drop or a hurricane to cause problems and they needed to raise capital down the road they could be faced with closed capital markets (as they have been for the last 9 months).

So the explanation is that the cash raised is to keep a buffer in case something unexpected does happen over the next 3 or 4 months. It is ther to make sure they can see Telemark through to completion on schedule.

I believe the message from management is basically that come the end of the year we would much rather have to apologize to shareholders for the dilution, instead of having to apologize for not raising a cash buffer when they could and it turned out they needed it.

So, I guess you have to make the choice to either believe them or not. One promising sign is Diamond's commitment to Telemark. They must believe in both the property and also ATP as they are only going to get paid if it is put on production and produces as expected. I'm sure they must have done some serious due diligence on both before agreeing to this.

"
> #2 On June 15, 2009 the ATPG daily charts registerd a Sell signal.
> Ever since then this equity has headed south. Weekly charts are perhaps
> a day or two away from registering a sell signal. A Sell on the weekly
> charts if it happens almost certainly means this stock is headed
> down to the $5 range. What I am saying here is irrespective of the
> fundamentals you detail big money is running from the stock fast
> and furiously."

From this stock and every over oil and gas company of similar size. About 8 days in a row. I'm not going to remember how the stock moved this particular week or month 2 years from now if the company peforms

"
> #3 I fell for a similar stock on SeekingAlpha - a company named LDK
> Solar which was touted by many authors on SeekingAlpha as $120 stock
> that was misunderstood and was stuck in the $40 range. Same kind
> of analysis that you provided accompanies these articles to rationalize
> why this was a $120-plus stock. This company was one of the largest
> producers of polysilicon on the planet, had many many delivery agreements,
> was building a new generation plant that would give them even lower
> cost and so on and on. Almost every day the company issued press
> releases touting yet another delivery agreement with yet another
> brand name company. They did have to acquire a lot of debt to bring
> their new plant online much like ATPG but the authors were confident
> the company could easily handle the debt load. For some mysterious
> reason the stock was going down every day. Instead of going to $120
> in 6 months the stock went to single digits! What went wrong? Well,
> it turns out that the company lied about their new plant and when
> it would come online. They lied about Polysilicon price points which
> went south quite drastically. Instead of upbeat quarter they announced
> massively disappointing earnings and they stock got hammered. And
> when they went ahead and did a surprising dilution event (much like
> ATPG) the backers who balked at first found it easy to forgive the
> company and came up with rationale that justifed the diluation. Much
> like ATPG! And most importantly -- the Street had no faith in the
> management and that was one of the reasons why they did not trust
> anything the managemeng said and eventually the Street was proven
> right. So if things are this good and the management is telling the
> Street all the information you seemed to have acquired from them
> yet the stock is headed south -- is this because the Street distrusts
> the management?"

Don't know anything about that company. I know quite a bit about ATP. If you are worried about ATP stock price being a sign, I would suggest having a look at comparable companies. All kinds of them down from 40 to 5 or 80 to 15 over the past year.

Now. The value of ATP is in it's assets. There is some real verification of that value

1) All oil and gas reserves are audited by an independent 3rd party. Always have been

2) They put all their major properties into a data room last summer as they were interested in monetizing some assets. So obviously they aren't afraid to have these properties looked at by many parties. If the values were overstated I don't think they would do this. (By the way they sold 9% of proved reserves for $430mil last fall)

3) The infrastructure seems to have the value they say it does. They sold half the ATP innovator to GE for exactly what they said they would. GE executive was interviewed in a Houston paper and indicated they are interested in the Titan and the Octobouy as well. Having GE as a partner isn't a bad sign.

4) Every employee owns shares and CEO and CFO have retained most of their interests (they don't sell even when the stock gets high). They believe in the value of the assets.

5) The Diamond and vendor agreement. These parties have agreed to take on production and reservoir risk instead of getting cash up front. What better stamp of approval on the value of Telemark could you get than that ? And again, I'd bet quite heavily that they studied Telemark and ATP pretty carefully before agreeing to this.

Let me know what you think about my comments. Your questions about the dilution are important. I was disappointed that I didn't see it coming, and disappointed it was necessary. As a shareholder though, I'd rather see them make the mistake on the conservative side.



On Jun 18 06:14 PM InvestBaboo wrote:

> Devon:
>
> This is one of the best researched articles I have read on SeekingAlpha.
> Furthermore, you have replied to every post where a question was
> asked without taking offence.
>
> I spotted ATPG when it registered a Buy signal on the chart in early
> May. I am a chart reader first and do fundamental analysis next.
> I searched SeekingAlpha and came across your article and loved the
> story. The charts said YES and your fundamental analysis said YES.
> Another enticing factor was that this was once a fifty dollar stock
> (!) and it stands to reason that if someone paid fifty bucks for
> it once they will remember it and support the stock once it starts
> showing upwards momentum.
>
> I would really like to double down or triple down on ATPG however
> a couple of things bother me. Perhaps, you can answer?
>
> #1 Throughout your article and in the posts thereafter you seemed
> to firmly believe that they would not dilute. It was so strongly
> against their interests given the CEO and CFO's significant stake
> in the company. BUT THEY DID IT! Instead of reevaluating your position
> and checking facts againt you have forgiven them too easily. If the
> story is this good and if the stock price potential is so high would
> you not think that they would leave no stone unturned to not dilute?
> In fact, you firmly believed that they had other ways to get the
> money they needed. How come they still diluted? Is there something
> you do not know and the big money knows that caused management to
> do this?
>
> #2 On June 15, 2009 the ATPG daily charts registerd a Sell signal.
> Ever since then this equity has headed south. Weekly charts are perhaps
> a day or two away from registering a sell signal. A Sell on the weekly
> charts if it happens almost certainly means this stock is headed
> down to the $5 range. What I am saying here is irrespective of the
> fundamentals you detail big money is running from the stock fast
> and furiously.
>
> #3 I fell for a similar stock on SeekingAlpha - a company named LDK
> Solar which was touted by many authors on SeekingAlpha as $120 stock
> that was misunderstood and was stuck in the $40 range. Same kind
> of analysis that you provided accompanies these articles to rationalize
> why this was a $120-plus stock. This company was one of the largest
> producers of polysilicon on the planet, had many many delivery agreements,
> was building a new generation plant that would give them even lower
> cost and so on and on. Almost every day the company issued press
> releases touting yet another delivery agreement with yet another
> brand name company. They did have to acquire a lot of debt to bring
> their new plant online much like ATPG but the authors were confident
> the company could easily handle the debt load. For some mysterious
> reason the stock was going down every day. Instead of going to $120
> in 6 months the stock went to single digits! What went wrong? Well,
> it turns out that the company lied about their new plant and when
> it would come online. They lied about Polysilicon price points which
> went south quite drastically. Instead of upbeat quarter they announced
> massively disappointing earnings and they stock got hammered. And
> when they went ahead and did a surprising dilution event (much like
> ATPG) the backers who balked at first found it easy to forgive the
> company and came up with rationale that justifed the diluation. Much
> like ATPG! And most importantly -- the Street had no faith in the
> management and that was one of the reasons why they did not trust
> anything the managemeng said and eventually the Street was proven
> right. So if things are this good and the management is telling the
> Street all the information you seemed to have acquired from them
> yet the stock is headed south -- is this because the Street distrusts
> the management?
>
> Your perspective much appreciated.

Jun 19 09:23 AM

[InvestBaboo:]

Very good and compelling answers! The charts however confirm a Sell signal on the daily charts as of today. A reversal generally takes several days to take place so ATPG may have a little ways to go down and could present a better buying opportunity. The charts do reverse and if they do I will let the readers know.

Jun 19 01:37 PM

[Offering:]

Hey Devon,

Have you looked at the math on the debt retirement. I'm not quit sure how much they owe on a quartly basis. Just curious to know how much in Principle and interest they owe on a quarterly basis? Also would be interesting to see how the math looks at present prices and after Telemark go's on line. From their presentations I see cash flows of $640 Million in 2010. I guess the question would be at what market prices did they foecast the $640 MM>. Also I noticed in the last presentation they would need an additional $500 millions to complete Telemark. They mentiond, if I'm correct that 40-45% of the expenses would be handled by vendors and the would recieve revenue sharing. My question would be how fast will they need the additional $250 million that is not covered by Diamond offshore and others? Is this something they need before Telemark starts pumping or is this over the life of the project. My concern is that is another $250 MM? Where are they getting that?

Thanks,

Mark

On Jun 19 09:23 AM Devon Shire wrote:

>
> Thanks for the comments.
>
> I've replied below. Your related comment in quotes:
> "

Jun 20 06:52 PM

[Devon Shire:]

Thanks for the comments. I've replied below with your comments in quotes.

"Have you looked at the math on the debt retirement. I'm not quit
> sure how much they owe on a quartly basis. Just curious to know how
> much in Principle and interest they owe on a quarterly basis?"

Considerable details on the debt in my first article. Please read that for background. Briefly though, the debt terms are very favorable. There is a small $2.5mil principle payment on the 2014 tranche per quarter and the 2011 is interest only until due. Total payments are about $30mil per quarter.

"Also
> would be interesting to see how the math looks at present prices
> and after Telemark go's on line. From their presentations I see cash
> flows of $640 Million in 2010. "

I actually don't think they provide revenue or cash flow guidance. Were these maybe analyst numbers ?

Telemark is going to have 4 wells. I think the 3 at Morgus and Mirage are going to be about 7,000 BOE per day. The Atwater well will be a little more, perhaps almost 10,000. So you are looking at about 30,000 BOE per day from Telemark in total, almost 80% oil.

Annualize that 10.9mil BOE at even $60 and you are looking at cash from production of $657mil per year. This will be on top of current production which is somewhere around 21000 to 25000 BOE per day.

G&A expense is only $33mil per year, so there is going to be a big step up in cash flow available for further development or debt reduction.


"Also I noticed in the
> last presentation they would need an additional $500 millions to
> complete Telemark. They mentiond, if I'm correct that 40-45% of the
> expenses would be handled by vendors and the would recieve revenue
> sharing. My question would be how fast will they need the additional
> $250 million that is not covered by Diamond offshore and others?
> Is this something they need before Telemark starts pumping or is
> this over the life of the project. My concern is that is another
> $250 MM? Where are they getting that?"

That is a good question and part of the reason that they have just diluted us. Once they had these vendors sign on for the capex deferral they were committed to the project. That means they would have spend the money in the next six months. And I think your $250mil figure is exactly accurate.

Over the next 6 months there is going to be a lot of cash coming into ATP as you can not only expect them to spend $250mil but also repay another $280mil of debt at well.

Now the sources of this cash.

1) Cash in the bank $100mil
2) Cash from equity offering $50mil
3) Cash flow from operations $120mil (my estimate)

Now there is $270mil which will cover the capex

Now the sources of cash for debt reduction

1) Sale of Gomez Pipeline $80mil
2) Sale of portion of ATP Titan $300mil (and potentially more if they decide sell down more than half the property which I believe is possible)
3) Sale of Telemark Pipeline $160mil (timing of this might slip to Q1 2010 or could go into the same deal as the Titan)

So there is $540mil from which they will use about $280mil to pay down debt. This actually leaves a surplus of $260mil. There should be no tax consequences on the Titan and the Telemark pipe because they are brand new and will likely go at cost.

I believe the value of this infrastructure is a big part of what the market is missing. ATP management has been very public about their confidence to get the Gomez Pipeline and the Titan done this year. Note that they were also vocal about the ATP Innovator and did deliver. So you can see that there is no problem with cash if these deals go as planned. In fact they will actually increase cash on hand before Telemark starts up.

You kind of have to decide whether or not you feel management is trustworthy.

You should ask why they needed to dilute us if they are going to have excess cash. The answer is that it is partially a timing issue and partially a safety issue. The titan and Telemark MLPs will not happen until after the Titan is out on location in late Q3. So a good portion of the cash has to be spent before it can be sold. They do have enough cash on hand and cash flow to cover the spending, but should they hit hurricane problems or a big reversal in oil prices things would be very tight. Thus they bit the bullet and took the dilution now to make sure they didn't have to go begging for cash in 2 months and find the equity markets closed again (should they have hurricane or commodity price complications).



On Jun 20 06:52 PM Offering wrote:

>
> Hey Devon,
>
> Have you looked at the math on the debt retirement. I'm not quit
> sure how much they owe on a quartly basis. Just curious to know how
> much in Principle and interest they owe on a quarterly basis? Also
> would be interesting to see how the math looks at present prices
> and after Telemark go's on line. From their presentations I see cash
> flows of $640 Million in 2010. I guess the question would be at what
> market prices did they foecast the $640 MM>. Also I noticed in the
> last presentation they would need an additional $500 millions to
> complete Telemark. They mentiond, if I'm correct that 40-45% of the
> expenses would be handled by vendors and the would recieve revenue
> sharing. My question would be how fast will they need the additional
> $250 million that is not covered by Diamond offshore and others?
> Is this something they need before Telemark starts pumping or is
> this over the life of the project. My concern is that is another
> $250 MM? Where are they getting that?
>
> Thanks,
>
> Mark
>
> On Jun 19 09:23 AM Devon Shire wrote:

Jun 20 11:28 PM

[kewlhand:]

I think the general disappointment over the dilution is somewhat illogical. Negotiation 101 says you dont negotiate from a position of weakness if you can avoid it. ATP plan on selling a lot of assets, far better to have a strong cash position so you can bide your time for the best price than be forced into an undervalued sale because you were short of cash!


On Jun 11 11:20 PM Devon Shire wrote:

>
> Thanks for the comment. Glad you avoided the dilution.
>
> Couple of points you make aren't accurate.
>
> Actual insiders (as in management or directors) have not been selling
> any shares. Centennial is an energy focused investment outfit who
> has sold pieces of their holdings in various companies over the past
> year. Likely redemption related. They have held the vast majority
> of their ATP stake.
>
> ATP CEO bought about $300k worth of shares on the open market in
> the spring of this year and the president bought over $100k last
> summer in the $20 per share region. Several directors bought a few
> shares in the fall, not big amounts but at least they spent some
> money.
>
> You are right about the dilution though. I did not think they would
> need to raise cash via an equity offering. I was hoping that they
> could sell pieces of assets at decent prices instead. The fact that
> they have to use 75% of any proceeds from asset sales to first pay
> down debt may have meant that they would have had to sell something
> very large to get the after tax and debt repayment cash that they
> desired.
>
> NAV per share still multiples of the current stock price with the
> dilution. I'd prefer not to have been diluted, but much prefer that
> to having them risk the company by stretching the balance sheet too
> far.

Jun 21 01:46 PM

[Devon Shire:]

I certainly think that is part of it. If you sell an asset at well less than you believe it to be worth you are diluting as well aren't you.

It's so undervalued that I honestly don't care about the dilution. I'd much rather have them make the mistake on the conservative side. They are aligned with me as a shareholder so I trust them to do the right thing.

Two analyst upgrades after the offering. Capital One Southcoast and Pritchard have upgraded to buy. Pritchard basis for it was "a growing confidence in both the company's financial health and it's ability to increase production in 2010". In other words monetizations and Telemark.


On Jun 21 01:46 PM kewlhand wrote:

> I think the general disappointment over the dilution is somewhat
> illogical. Negotiation 101 says you dont negotiate from a position
> of weakness if you can avoid it. ATP plan on selling a lot of assets,
> far better to have a strong cash position so you can bide your time
> for the best price than be forced into an undervalued sale because
> you were short of cash!

Jun 22 03:20 PM

[mind_geek:]

I agree with your assessment of negotiation in general, but bottom line it was just poor judgment since the stock price was already in a state of weakness when the decision was made. Management probably did this because they knew the stock price was headed downward (and fast!) and I still believe there are circumstances that management isint telling investors.

Management 101 - management that runs a companies stock price from $42 to $2.75 is well, poor management. The ONLY goal management is "supposed" to accomplish in a publicly traded company is to build shareholder value..period. I know thats realistically a fantasy statement, but its taught in every college around the globe. On a numbers basis, its hard to argue against it.

Im still a bit confused at all the happy posts here on this company as it falls into the abyss and the stock keeps dropping at twice the speed (percentage spread) of a well run oil driller. Short positioned trader blogs on this stock arent this cheerful!

Bottom line.. once it drops below 6 (according to the charts its headed there by weeks end), its an excellent buy if the positive statements are true. I think you had the headwind of debt hanging over the stock price..but now I think you'll need to add lousy management to the list as well. As Ive mentioned before..this company is hardly a secret on wall street..theres a reason its priced as is.


On Jun 21 01:46 PM kewlhand wrote:

> I think the general disappointment over the dilution is somewhat
> illogical. Negotiation 101 says you dont negotiate from a position
> of weakness if you can avoid it. ATP plan on selling a lot of assets,
> far better to have a strong cash position so you can bide your time
> for the best price than be forced into an undervalued sale because
> you were short of cash!

Jun 22 06:54 PM

[Devon Shire:]

Thanks for the comments.


"Management probably
> did this because they knew the stock price was headed downward (and
> fast!)"

Are you serious ? Have you looked at any comparable E&P company ? They are all down in exactly the same fashion over the past 10 days.

"and I still believe there are circumstances that management
> isint telling investors."

Why do you think that ? What do you think it is ?

"Management 101 - management that runs a companies stock price from
> $42 to $2.75 is well, poor management. The ONLY goal management is
> "supposed" to accomplish in a publicly traded company is to build
> shareholder value..period. "

Management didn't run the stock from $42 to $2.75. Stock market investors did. Here are some questions for you.

In 2007 oil was in the $70 region. ATP stock price was in the $40s. Oil is now again around $70, ATP actually has more oil reserves now than then. When would you say ATP had more valuable assets ? Now with or then ? Oil prices are the same, but the now have more reserves. Also, they now have $750mil of infrastructure in the Titan and Telemark pipeline that they didn't have now. Doesn't that mean they have created additional value ?

I think you are confusing the price the stock market is assigning with the actual value of the company assets less debt. It isn't management's fault that the stock market has become incredibly pessimistic.


"I know thats realistically a fantasy statement,
> but its taught in every college around the globe. On a numbers basis,
> its hard to argue against it."

It is hard to argue against but you aren't using it correctly. You are looking at the stock price instead of the value of the assets (less debt) that management has built. Over time the stock price will reflect the intrinsic value of the company's shares. My opinion obviously it that it isn't doing that now, near the bottom of a stock market collapse.

"
> Im still a bit confused at all the happy posts here on this company
> as it falls into the abyss and the stock keeps dropping at twice
> the speed (percentage spread) of a well run oil driller."

Again, I believe in being concerned with what the company is doing, not what the stock is doing on a day to day basis. So don't be confused any longer.

Does the company still have the same assets that it did 10 days ago ? Yes. Do I still think they will monetize the ATP Titan this fall ? Yes. Do I still think that they are going to more than double production next year ? Yes

When those things change I'll be concerned. What Mr. Market tells me from one day to the next is not what concerns me.

"I think you had the headwind of debt hanging
> over the stock price..but now I think you'll need to add lousy management
> to the list as well. As Ive mentioned before..this company is hardly
> a secret on wall street..theres a reason its priced as is."

Now I'm catching on. You've come over from the Yahoo boards have you ? Here are three questions for you. Tell me where my thinking is incorrect and I may think you are on to something.

1) The company assets as appraised by 3rd party reserve engineers are worth $5 billion. Their lenders think these figures are credible for debt purposes. Why isn't this an accurate representation of what the assets are worth ?

2) I keep saying that Telemark is going to double production and more than double cash flows next year. Diamond Offshore is confident enough in the property to accept payment for drilling from Telemark production. I'm assuming that Diamond cares about receiving over $100 million dollars and that they did some pretty solid due diligence on both Telemark and ATP. Why would this not be a pretty solid conclusion to draw ?

3) The company is in compliance with all debt covenants. They will be for the forseeable future. They have enough cash on the balance sheet to cover over 1 year of debt and interest payments. They are also creating cash flow from operations and that is going to double next year. Further they have already reduced debt by $300mil and will reduce by another $300mil through asset sales (we know GE is interested in the Titan so there is outside confirmation as well as management confirmation). Given all of that why would I think they are going to have problems with their debt ?

So there are 3 biggies. If you want to raise some concern about this company 1) Show me where my estimate of asset value is flawed ? 2) Explain to me why I should doubt Telemark production ? 3) Explain to me how the debt is a problem if they make all debt payments and always do ?

Thanks for the comments


On Jun 22 06:54 PM mind_geek wrote:

> I agree with your assessment of negotiation in general, but bottom
> line it was just poor judgment since the stock price was already
> in a state of weakness when the decision was made. Management probably
> did this because they knew the stock price was headed downward (and
> fast!) and I still believe there are circumstances that management
> isint telling investors.
>
> Management 101 - management that runs a companies stock price from
> $42 to $2.75 is well, poor management. The ONLY goal management is
> "supposed" to accomplish in a publicly traded company is to build
> shareholder value..period. I know thats realistically a fantasy statement,
> but its taught in every college around the globe. On a numbers basis,
> its hard to argue against it.
>
> Im still a bit confused at all the happy posts here on this company
> as it falls into the abyss and the stock keeps dropping at twice
> the speed (percentage spread) of a well run oil driller. Short positioned
> trader blogs on this stock arent this cheerful!
>
> Bottom line.. once it drops below 6 (according to the charts its
> headed there by weeks end), its an excellent buy if the positive
> statements are true. I think you had the headwind of debt hanging
> over the stock price..but now I think you'll need to add lousy management
> to the list as well. As Ive mentioned before..this company is hardly
> a secret on wall street..theres a reason its priced as is.

Jun 22 10:50 PM

[NormK:]

I guess a 20% move in a week is the new "day to day" movement reality. I bought ATPG on recommendations in seekingalpha after doing some of my own research and the past 5 trading days have punished me hard. Fortunately, I didn't buy much so considering more at this level (6.5). Anyone want to chime in that ATPG is a freaking bargain at this price or is it still just as much a crap shoot as it was at $8?


On Jun 03 11:30 AM Devon Shire wrote:

>
> No idea. I have a long term opinion on oil going up over the next
> few years, natural gas is always volatile.
>
> Day to day movements are just noise.

Jun 23 01:10 AM

[mind_geek:]

Me again..I wasnt influenced by the yahoo message boards actually, I was strictly basing it on my opinions of what I see currently. To answer your questions...

#3..sure the debt was paid down 300mil..but they had to dilute the share base 28% to help do it!..thats not paying down debt with operational cash flow. Anyone can print more shares out of thin air to reduce debt...doesnt do much for shareholder value however.

90% of thier assets are plants and equipment, cash and current assets are a pitance at 10% ... BUT...they are in expansion mode, so this is perfectly excusable if the plan works. It really comes down to being a highly leveraged company stuck in a deleveraging economy...not exactly a sweet spot to be in. The debt may not be due for a few years, but it currently dwarfs current assets on hand.

#2.. I really cant make a judgment on telemark because its not currently producing anything. It may become a tremendous producer
...but I personally cant base an investment thesis on speculation.

#1 I cant make a case for flawed asset value per se..but those valuable assets, again, are 28% more diluted than a month ago.

Even though I post a lot of negative comments..Im cheering for this company to pull off the game plan that you have written in much detail. I watch this company like a hawk and will be in with both feet when it troughs under $6 and actually posts something positive. The market is in temporary hate mode with the energy space right now...another fat fall tomorrow and a week of drifting. Im all in cash right now waiting for energy (and ATPG) to stop the bleeding.

>So there are 3 biggies. If you want to raise some concern about this company 1) Show me where my estimate of asset value is flawed ? 2) Explain to me why I should doubt Telemark production ? 3) Explain to me how the debt is a problem if they make all debt payments and always do ?

Jun 23 03:46 AM

[Devon Shire:]

I've replied again. I don't agree with some of your comments.

"> #3..sure the debt was paid down 300mil..but they had to dilute the
> share base 28% to help do it!..thats not paying down debt with operational
> cash flow. Anyone can print more shares out of thin air to reduce
> debt...doesnt do much for shareholder value however."

You are right that dilution does destroy shareholder value. The debt pay down came from asset sales though. They sold $400mil of oil and gas reserves last fall and used 75% of proceeds to repay debt. The dilution has arisen 6 months after the debt reduction and is due to their decision to retain 100% of Telemark. It isn't being used for debt reduction it is needed to ensure they have enough cash on hand to complete development.

"
> 90% of thier assets are plants and equipment, cash and current assets
> are a pitance at 10% ... BUT...they are in expansion mode, so this
> is perfectly excusable if the plan works."

That just isn't right. I don't think you understand the balance sheet here. Their oil and gas reserves are acquired at a very low cost, often for nothing up front in exchange for a working interest. Thus there is no entry on the balance sheet that reflects their value.

They have $5bil in PV10 oil and gas reserves. About 225MBOE. This is verified by 3rd party reserve appraisers. You will not see this on the balance sheet and your statement above is incorrect.

"
> #2.. I really cant make a judgment on telemark because its not currently
> producing anything. It may become a tremendous producer
> ...but I personally cant base an investment thesis on speculation.
>"

I think it is far from speculation. Here is why:

1) ATP has a 98% success rate on taking properties to commercial production
2) Their reserve engineers agree to it's value
3) Their lenders believe it has value and are willing to lend against it
4) Their suppliers (Diamond) seem to think fairly highly of the property. They are willing to do about $250mil of work on it for payment from production. They are taking reservoir and production risk. You can be sure they have done serious due diligence on the reserves before doing this as hundreds of millions of dollars are being risked.
5) ATP must have a fair amount of confidence in the property as they have twice asked for bids on it and thus opening up datarooms for viewing. You don't do that unless you believe in your property.

"
> Even though I post a lot of negative comments..Im cheering for this
> company to pull off the game plan that you have written in much detail.
> I watch this company like a hawk and will be in with both feet when
> it troughs under $6"

Why would you want to own a company where you think management is incompetent ?


On Jun 23 03:46 AM mind_geek wrote:

> Me again..I wasnt influenced by the yahoo message boards actually,
> I was strictly basing it on my opinions of what I see currently.
> To answer your questions...
>
> #3..sure the debt was paid down 300mil..but they had to dilute the
> share base 28% to help do it!..thats not paying down debt with operational
> cash flow. Anyone can print more shares out of thin air to reduce
> debt...doesnt do much for shareholder value however.
>
> 90% of thier assets are plants and equipment, cash and current assets
> are a pitance at 10% ... BUT...they are in expansion mode, so this
> is perfectly excusable if the plan works. It really comes down to
> being a highly leveraged company stuck in a deleveraging economy...not
> exactly a sweet spot to be in. The debt may not be due for a few
> years, but it currently dwarfs current assets on hand.
>
> #2.. I really cant make a judgment on telemark because its not currently
> producing anything. It may become a tremendous producer
> ...but I personally cant base an investment thesis on speculation.
>
>
> #1 I cant make a case for flawed asset value per se..but those valuable
> assets, again, are 28% more diluted than a month ago.
>
> Even though I post a lot of negative comments..Im cheering for this
> company to pull off the game plan that you have written in much detail.
> I watch this company like a hawk and will be in with both feet when
> it troughs under $6 and actually posts something positive. The market
> is in temporary hate mode with the energy space right now...another
> fat fall tomorrow and a week of drifting. Im all in cash right now
> waiting for energy (and ATPG) to stop the bleeding.

Jun 23 08:54 AM

[User 435778:]

Devon,

First of all, I very much appreciate your analysis and the time you've taken to intelligently respond to people's questions and concerns about the company. So thank you.

One of the few things I see missing in your analysis is political risk, or more specifically the possibility that Obama / Congress will end a lot of the favorable tax benefits for oil and gas companies. Risk like this is almost impossible to see coming, but its results could be devestating to a small company like ATP.

I own ATP and will be adding to my position as it goes down any further, but the possibility that a Democrat-led Congress and Senate will push to tax O&G profits (or repeal their tax advantages) makes me very nervous.

Stimulus spending and now healthcare spending (1.6 trillion) make higher taxes a very real possibility, like it or not. And if you're a Congressman, increasing taxes on oil companies is like milking a cow.

Jun 23 07:02 PM

[Devon Shire:]

Thanks for the comments.

Your concern is obviously valid. The problem I have is that I have no ability to handicap it or quantify it.

In the case for ATP I don't think it would be devastating. Once they get through this year they are going to have a lot of free cash flow and really will look like a new company (both balance sheet and production levels).

There is quite margin of safety here with respect to valuation. I can be off by a lot and still have a lot of upside.

Hopefully the Obama people figure out that they should be doing everything they can to stimulate domestic production not curtail it. We are going to use a lot of oil before alternatives can kick in. With the way they are going we are going to be even more dependent on the Middle East, not less.

So that is a poor reply, but I don't really have an answer to that unknown. I do think that we also have to consider that the impact of this could increase the value of their oil and gas reserves considerably as the increased cost of producing is only going to further exacerbate the world oil supply/demand issues.


On Jun 23 07:02 PM User 435778 wrote:

> Devon,
>
> First of all, I very much appreciate your analysis and the time you've
> taken to intelligently respond to people's questions and concerns
> about the company. So thank you.
>
> One of the few things I see missing in your analysis is political
> risk, or more specifically the possibility that Obama / Congress
> will end a lot of the favorable tax benefits for oil and gas companies.
> Risk like this is almost impossible to see coming, but its results
> could be devestating to a small company like ATP.
>
> I own ATP and will be adding to my position as it goes down any further,
> but the possibility that a Democrat-led Congress and Senate will
> push to tax O&amp;G profits (or repeal their tax advantages) makes
> me very nervous.
>
> Stimulus spending and now healthcare spending (1.6 trillion) make
> higher taxes a very real possibility, like it or not. And if you're
> a Congressman, increasing taxes on oil companies is like milking
> a cow.
>
>
>
>
>

Jun 23 09:44 PM

[mind_geek:]

The stock had a nice bounce off its Tuesdays low of $6.09 in a bad day for oil in general. This may be your reflection point if you think oil will churn in a range or go higher the rest of the year. If the price holds in a down day tomorrow for oil or surges towards $7 in an up day..I think this is your entry point into the stock. If you think oil is in a corrective phase down to the $50's, obviously waiting is wise..$5 and change will be a good entry in that scenario.

The stock has digested the dilution and (contrary to everyones opinion here) bad choices by management, so all the recent news is baked into the price.

Devon Shire...to answer your question on why I would invest in a company where I thought management was inept..even the worst run companies get a bounce in a good tape. I think management is adept at securing oil assets and partnering with the right people, but from strictly a shareholder point of view, they are wealth destroyers. Your rebuttles to my comments are very informative and throughly explain the operational side. You are unique in the fact that you obviously spend a tremendous amount of time doing your homework on this company and are honestly a little overpassionate about a piece of paper..Im ONLY looking at it from the side of the avg investor who looks over a company briefly, looks at financials posted last quarter..looks at the charts, reads some posts and invests accordingly.

Bottom Line..if you believe in oil....tomorrow is a good day to buy!

Jun 24 06:55 PM

[Devon Shire:]

Mind-geek. I can't follow this comment of yours:

" I think management is adept
at securing oil assets and partnering with the right people, but
from strictly a shareholder point of view, they are wealth destroyers."

How can they be adept at securing assets, but also be wealth destroyers ? Securing assets in a cost effective manner is EXACTLY what creates shareholder value.

Look at the company when it came public in 2001. It had less than 10% of the net assets that it does now, and that is factoring in all dilution. Shareholder value has increased tenfold. The net assets owned by each shareholder has increased 10 times.

So I don't follow how you think they destroy shareholder wealth when my piece of paper entitles me to 10 times what it did 8 years ago.






On Jun 24 06:55 PM mind_geek wrote:

> The stock had a nice bounce off its Tuesdays low of $6.09 in a bad
> day for oil in general. This may be your reflection point if you
> think oil will churn in a range or go higher the rest of the year.
> If the price holds in a down day tomorrow for oil or surges towards
> $7 in an up day..I think this is your entry point into the stock.
> If you think oil is in a corrective phase down to the $50's, obviously
> waiting is wise..$5 and change will be a good entry in that scenario.
>
>
> The stock has digested the dilution and (contrary to everyones opinion
> here) bad choices by management, so all the recent news is baked
> into the price.
>
> Devon Shire...to answer your question on why I would invest in a
> company where I thought management was inept..even the worst run
> companies get a bounce in a good tape. I think management is adept
> at securing oil assets and partnering with the right people, but
> from strictly a shareholder point of view, they are wealth destroyers.
> Your rebuttles to my comments are very informative and throughly
> explain the operational side. You are unique in the fact that you
> obviously spend a tremendous amount of time doing your homework on
> this company and are honestly a little overpassionate about a piece
> of paper..Im ONLY looking at it from the side of the avg investor
> who looks over a company briefly, looks at financials posted last
> quarter..looks at the charts, reads some posts and invests accordingly.
>
>
> Bottom Line..if you believe in oil....tomorrow is a good day to buy!

Jun 24 09:15 PM

[mind_geek:]

On Feb 7, 2001 the share price was $13.81...now its $6.67 8 years later...am I missing something here?. If you had bought on that day and held it to market close today you would have lost half your money (and inflation would have eaten another portion..but thats another conversation). Maybe I can put this a different way..Management obviously cannot MONETIZE those assets. Who cares if assets are up 10 fold..bottom line is your 50% poorer now if you buy and held. Your case is for potential..and potential isnt worth a case of bean dip unless it equates to a higher stock price.

If I bought 1 acre of swampland..then increased it to 10 acres over 8 years, but am now 50% poorer because I cant monetize my mud hole....how exactly is that a good thing?

I beginning to think you work for ATPG.. only a CEO on a sinking ship of a company would use logic like that! (ie.. Worldcom) When the stock is at $138.10 (10x monetized entitlement), I will eat crow and send you the keys to your new jag. ;o)

Jun 25 04:13 AM

[Devon Shire:]

" On Feb 7, 2001 the share price was $13.81...now its $6.67 8 years
later...am I missing something here?. If you had bought on that day
and held it to market close today you would have lost half your money"

Yes, you are missing something huge. What the stock market on a certain day says often is not reflective of the value of the actual company.

At this particular point in time you are looking at stock prices for all E&P companies that are incredibly depressed. Not surprising as you have had both the largest stock collapse since the 1929 crash combined with the largest top to bottom commodity price collapse in history.

Do you really expect that stock prices would be rational at this point ?

You are confusing stock price with company value.


"Maybe I can put this a different way..Management obviously
> cannot MONETIZE those assets. "

What are you basing that on ? They can't monetize the Titan and Telemark pipeline until the 4th quarter. They have indicated that they will do that. The Gomez pipeline will be sold in the next month or so.

They have done a pretty good job monetizing over the past 9months just as they said they would:

Wenlock - $430mil sold last fall
VPP on Gomez - $80mil last summer
50% of the Innovator - $150mil Feb this year
>


"I beginning to think you work for ATPG.. only a CEO on a sinking
> ship of a company would use logic like that! (ie.. Worldcom) "

I'm a shareholder. You seem to believe that the share price always has to correctly assess the company's value. Why do you think the share price was $40 plus from 2006 to 2008 ? Has the value decreased that much since then ? They have more assets now, oil is essentially at the same price. The reason is that the stock market is a very emotional beast. It gets both overly optimistic and overly pessimistic. It is there to serve you, not instruct you.

So clearly we disagree. You think the stock price is always reflective of the actual value per share. I think stock prices are not efficient and are often far too optimistic and pessimistic. In this case, my analysis of the assets and liabilities of the company make me think that the stock market is not being very efficient in this case.




On Jun 25 04:13 AM mind_geek wrote:

> On Feb 7, 2001 the share price was $13.81...now its $6.67 8 years
> later...am I missing something here?. If you had bought on that day
> and held it to market close today you would have lost half your money
> (and inflation would have eaten another portion..but thats another
> conversation). Maybe I can put this a different way..Management obviously
> cannot MONETIZE those assets. Who cares if assets are up 10 fold..bottom
> line is your 50% poorer now if you buy and held. Your case is for
> potential..and potential isnt worth a case of bean dip unless it
> equates to a higher stock price.
>
> If I bought 1 acre of swampland..then increased it to 10 acres over
> 8 years, but am now 50% poorer because I cant monetize my mud hole....how
> exactly is that a good thing?
>
> I beginning to think you work for ATPG.. only a CEO on a sinking
> ship of a company would use logic like that! (ie.. Worldcom) When
> the stock is at $138.10 (10x monetized entitlement), I will eat crow
> and send you the keys to your new jag. ;o)

Jun 25 11:01 AM

[mind_geek:]

If this were a privately held company, your argument for company value would hold water. However a public company is valued at how well it rewards shareholders over the long term. Management Im sure has enriched itself plenty since '01, but its clear as day that this is not the case for the shareholder after 8 years.

Yes, wall street is inefficient at times, but weve just rallied 40% on the dow...oil went from $35 to $72 in 4 months and this stock has gone DOWN during that time while Parker, Transocean the OIH (just to name a few) have gone up tremendously along with the majority of the other drillers. This stock has missed the entire run while its peers are making their shareholders money (this statement covers only the time period of oils run from $35-72).

Personally Im in this to make money, period...not to feel good about asset values or fall in love with the company. Wall street looks at a company 6-9 months forward..right now its voting against it as reflected in the share price. You are in the vast minority. Maybe your forward thinking is too far ahead of the analysts..thats could be a positive thing and is usually the time to buy a stock.

I bought at $6.50 yesterday (with a $5.95 stop) and will sell 1/2 when it gets near $9. If telemark reaches its full potential and actually benefits the shareholder, I'll let the profits ride until the fundamentals no longer justify the price. Emotionless trading is the only way to consistently make money in this market..It took me many years of losing trades to figure that out. (I thought GE was the worlds most undervalued stock for the 7 years I held it..fell in love with the company and it stole my wallet..yeesh)

Regardless...I think we have beat this subject to death. Good luck to you and heres hoping this stock can rocket upwards from this point forward.

Jun 25 06:24 PM

[Devon Shire:]

"Regardless...I think we have beat this subject to death. Good luck to you and heres hoping this stock can rocket upwards from this point forward. "

Thanks. We will likely know how this is going to play out before year end as the big asset sales are expected for Q4 and we should know about Telemark by then as well.




On Jun 25 06:24 PM mind_geek wrote:

> If this were a privately held company, your argument for company
> value would hold water. However a public company is valued at how
> well it rewards shareholders over the long term. Management Im sure
> has enriched itself plenty since '01, but its clear as day that this
> is not the case for the shareholder after 8 years.
>
> Yes, wall street is inefficient at times, but weve just rallied 40%
> on the dow...oil went from $35 to $72 in 4 months and this stock
> has gone DOWN during that time while Parker, Transocean the OIH (just
> to name a few) have gone up tremendously along with the majority
> of the other drillers. This stock has missed the entire run while
> its peers are making their shareholders money (this statement covers
> only the time period of oils run from $35-72).
>
> Personally Im in this to make money, period...not to feel good about
> asset values or fall in love with the company. Wall street looks
> at a company 6-9 months forward..right now its voting against it
> as reflected in the share price. You are in the vast minority. Maybe
> your forward thinking is too far ahead of the analysts..thats could
> be a positive thing and is usually the time to buy a stock.
>
> I bought at $6.50 yesterday (with a $5.95 stop) and will sell 1/2
> when it gets near $9. If telemark reaches its full potential and
> actually benefits the shareholder, I'll let the profits ride until
> the fundamentals no longer justify the price. Emotionless trading
> is the only way to consistently make money in this market..It took
> me many years of losing trades to figure that out. (I thought GE
> was the worlds most undervalued stock for the 7 years I held it..fell
> in love with the company and it stole my wallet..yeesh)
>
> Regardless...I think we have beat this subject to death. Good luck
> to you and heres hoping this stock can rocket upwards from this point
> forward.

Jun 25 08:35 PM

[Offering:]

Devin,

Did you see the Addax news?

Jun 30 06:27 PM

[Devon Shire:]

I did. Any particular reason you ask ?

I wasn't sure it would be all that helpful in a valuation of ATP. Addax 4 key reserve areas are shallow water Guinea, Deepwater Guinea, Gabon and Iraq. Oil is oil, but that is quite a difference from the GOM and the Northe Sea.

Let me know if you found something useful in the transaction please.


On Jun 30 06:27 PM Offering wrote:

> Devin,
>
> Did you see the Addax news?

Jun 30 10:20 PM

[Offering:]

Hey Devin,

Oil is Oil.....They Paid roughly $14 for Proven reserves....Obviously dept, Size, location of reserves all play a role in price....They have to get rid of that dept or make it much lower and manageable, If they do I see no reason they could not sell proven reserves for a similiar price.....

Mark


On Jun 30 10:20 PM Devon Shire wrote:

>
> I did. Any particular reason you ask ?
>
> I wasn't sure it would be all that helpful in a valuation of ATP.
> Addax 4 key reserve areas are shallow water Guinea, Deepwater Guinea,
> Gabon and Iraq. Oil is oil, but that is quite a difference from the
> GOM and the Northe Sea.
>
> Let me know if you found something useful in the transaction please.
>

Jul 01 12:27 PM

[Devon Shire:]

You really think so ? You'd pay the same amount for reserves in Iraq, Nigeria and Gabon as you would for reserves in the GOM all else being equal ?

No discount for having to send your people to a place where they might get blown up or kidnapped ? Or where your infrastructure could get destroyed repeatedly or even taken away by the government ?


On Jul 01 12:27 PM Offering wrote:

> Hey Devin,
>
> Oil is Oil.....They Paid roughly $14 for Proven reserves....Obviously
> dept, Size, location of reserves all play a role in price....They
> have to get rid of that dept or make it much lower and manageable,
> If they do I see no reason they could not sell proven reserves for
> a similiar price.....
>
> Mark

Jul 01 10:17 PM

[peachberry_tea:]

Hmm I don't know much about ATP's reserves or how they compare to Addax but one would think $14 is a bit on the low end for ATP's reserves. Just my opinion though.

Devon would you happen to have any information on other oil/gas asset sales and how much those have been going for? I know ATP sold off some last yr towards yr end.. what was the price per barrel for that?

I guess the takeaway with Addax is that deals are still going thru despite the economic environment. I think this bodes well for ATP in case they need to sell assets to meet their covenants.

Much rather that they didn't have to though, ATPG selling their assets that is. Selling shares or selling assets - both dilutes the shareholder.

Jul 02 07:09 PM

[Devon Shire:]

They sold North Sea natural gas reserves last fall so that doesn't help all that much in valuing oil reserves in the GOM. The did get a good price though, selling about 9% of ATP's total reserves for $430mil.

I don't think they are going to be selling any oil and gas reserves now that they have raised cash and had the Diamond agreement put in place. What they will be selling is infrastructure and those discussions with buyers have been going on for quite a while. Between the Gomez Pipeline, Telemark Pipeline and ATP Titan they have over $800mil of infrastructure being considered. They would sell 100% of the pipelines, and 50% to 66% of the Titan.

In other words, they have the opportunity to bring a lot of cash back to the company, and we know there are interested parties.

Just need to be patient and wait for these infrastructure sales to materialize the bulk of which won't be until Q4.


On Jul 02 07:09 PM peachberry_tea wrote:

> Hmm I don't know much about ATP's reserves or how they compare to
> Addax but one would think $14 is a bit on the low end for ATP's reserves.
> Just my opinion though.
>
> Devon would you happen to have any information on other oil/gas asset
> sales and how much those have been going for? I know ATP sold off
> some last yr towards yr end.. what was the price per barrel for that?
>
>
> I guess the takeaway with Addax is that deals are still going thru
> despite the economic environment. I think this bodes well for ATP
> in case they need to sell assets to meet their covenants.
>
> Much rather that they didn't have to though, ATPG selling their assets
> that is. Selling shares or selling assets - both dilutes the shareholder.

Jul 03 10:42 AM

[kewlhand:]

Devon, do you still have the same conviction on ATPG given the slide in the stock price back to early April level?

Jul 07 08:19 AM

[Devon Shire:]

Stock price change doesn't mean anything. The company is worth 20% less than I originally thought due to the dilution which I would have rather not had happen.

Check out any oil and gas company of a similar size. They have all decreased in price in a similar manner.

So, to answer your question. Yes, I still have the same level of conviction. I expect to see the next asset sale (being the Gomez Pipeline) within a month.

I also think the media is missing a simple truth about oil. That being that daily supply has been reduced significantly more than daily demand has gone down. From all the reports I have seen daily demand globally is down 2.5 million barrels a day. Meanwhile OPEC has enforced 3.0 million barrels a day of cuts (out of 4.2 promised), Nigeria is off by 500,000, Mexico 200,000 due to Cantarell, Norway 200,000 and Russia 1%. That is around 4.0 million vs 2.5 million. This is going to have an impact.


On Jul 07 08:19 AM kewlhand wrote:

> Devon, do you still have the same conviction on ATPG given the slide
> in the stock price back to early April level?

Jul 07 08:44 AM

[oil1:]

8.90 to 5.50 in about a month

That's a huge collapse

Do the shorts know something we don't ?

Jul 07 06:13 PM

[mind_geek:]

In 4 days this stock dropped 20% as oil continues it slide downward. I got stopped out at $5.90 after a nice push upward to $7. Purely on a wall street level, the stock is dropping twice as fast as a well run (or well liked) driller and goes up half as much on a good oil tape day.

If what the "experts" say is true for oil short term - $55.00 oil, then steer clear of this dog until the selling in oil subsides. Its 1 positive news story away from running up 25% quick, but like oil1 pointed out..the shorts must know something we dont.

Retail investors love the stock (especially in this blog!) and wall street hates it. Betcha never guess whose opinion matters more...

Jul 07 06:50 PM

[kewlhand:]

I've given up on trying to guess the short term movements in oil and natural gas, they are usually contrary to all logic, im focusing on the longer 2+ years horizon, and on that basis, ATP still looks very attractive to me. My main worry on ATP is any sustained drift below $5 and the implications that has for funds holding, and retailers holding on margin. They would be better off doing a reverse split than letting it drift below $5 IMHO.

Jul 08 05:34 AM

[Devon Shire:]

"My main worry on ATP is any sustained drift
> below $5 and the implications that has for funds holding, and retailers
> holding on margin. They would be better off doing a reverse split
> than letting it drift below $5 IMHO."

Already been there. Hit $2.78 one day back in March. Would prefer not to revisit. Has been briefly over $10 since then.

The stock price isn't boring.


On Jul 08 05:34 AM kewlhand wrote:

> I've given up on trying to guess the short term movements in oil
> and natural gas, they are usually contrary to all logic, im focusing
> on the longer 2+ years horizon, and on that basis, ATP still looks
> very attractive to me. My main worry on ATP is any sustained drift
> below $5 and the implications that has for funds holding, and retailers
> holding on margin. They would be better off doing a reverse split
> than letting it drift below $5 IMHO.

Jul 08 11:04 AM

[cgiffin:]

Devon,
It is clear you very actively and alertly follow ATPG, and i appreciate your thoughtful analysis. I was wondering if you could provide any further updates, thoughts, pps worth or nav value, since your last June 3rd article. What are your thoughts now on the dilution? When do you expect to get some of these asset sales completed? Telemark update? Thanks! I'm thinking of making a significant investment here with ATPG if i can get in at around $6 or below..........thoughts on that? Lastly, can this company remain profitable(were they in past) if Oil falls to $50 or below.........Nat gas at current sub-$3.50?? Thanks.

Chris

Jul 09 09:42 PM

[Devon Shire:]

Hi. My thoughts below.

"thoughts, pps worth or nav value, since your last
> June 3rd article."

Decreased NAV obviously with the dilution. I have it down to around $70 per share with current strip prices. In other words multiples of the current share price. I don't spend much time thinking about that to be honest. The question is whether you think the company will last to enjoy producing and selling their reserves. So you need to think carefully about the debt and the company's ability to monetize assets.


"What are your thoughts now on the dilution?"

Thoughts haven't changed. Wish it hadn't occurred and wish I had seen it coming. Their hands are tied to raise cash with the debt agreement they have, so this is how they had to do it. Once Telemark up and running and the Titan MLP'd this is a completely different company.

" When
> do you expect to get some of these asset sales completed? "

I expect to see the Gomez Pipeline sold some time this month or early August. It isn't the big monetization but it will make another good dent in the debt and provide a gain on sale useful for debt covenant reasons.

"Telemark
> update?"

Well I was thrilled with the agreement with Diamond and other vendors. As of the last company presentation in early June Telemark still on schedule. Their vendors are very motivated to keep it this way. So hopefully we can have a quiet hurricane season and they can get this going before Dec 31.

" I'm thinking of making a significant investment here
> with ATPG if i can get in at around $6 or below..........thoughts
> on that?"

You could get it for $2 for all I know. Stock prices of many of these companies do not reflect their underlying value. That will change over time. My rule is that no matter how cheap something is there always seems to be an opportunity to get in later at a better price. So maybe ease your way in. Then you can actually enjoy the share price declining as it gives you a better entry point.

" Lastly, can this company remain profitable(were they in
> past) if Oil falls to $50 or below.........Nat gas at current sub-$3.50??"

Here is the best I can do for you. See attached link. Provides development costs per boe for each of the 3 major properties. Pages 19, 26 and 32.

library.corporate-ir.n...


On Jul 09 09:42 PM User 444457 wrote:

> Devon,
> It is clear you very actively and alertly follow ATPG, and i appreciate
> your thoughtful analysis. I was wondering if you could provide any
> further updates, thoughts, pps worth or nav value, since your last
> June 3rd article. What are your thoughts now on the dilution? When
> do you expect to get some of these asset sales completed? Telemark
> update? Thanks! I'm thinking of making a significant investment here
> with ATPG if i can get in at around $6 or below..........thoughts
> on that? Lastly, can this company remain profitable(were they in
> past) if Oil falls to $50 or below.........Nat gas at current sub-$3.50??
> Thanks.
>
> Chris
>
>
>
>
>
>
>
>

Jul 09 10:44 PM

[mind_geek:]

To this comment:

"You could get it for $2 for all I know. Stock prices of many of these companies do not reflect their underlying value. That will change over time. My rule is that no matter how cheap something is there always seems to be an opportunity to get in later at a better price. So maybe ease your way in. Then you can actually enjoy the share price declining as it gives you a better entry point."

I disagree that the stock does not reflect its current underlying value. 90% of all the drillers have had a very nice run since January, this one is in continual decline. That statement would have carried water back then or late last year, but not now.

Case in point:
Revenues have dropped 50% since June 08 but the cost of revenue has remained relatively the same on this lower base. Earnings are down 92% as well from the same period. Debt to equity is a very high 4 to 1 and the current book value is $8.96. 28% share dilution just a few weeks ago.

This company is purely a speculation at this point and should be treated as such. Its very irritating when an author pumps up a company like this with ridiculous $70 value claims when the facts say otherwise. If not for the debt, the stock would be higher yes..if telemark is a big time money generator..the stock would be higher yes..and so on. In reality these projects have yet to be monetized for the shareholder.

Right now the company is worth $8.96 on a BV basis so its a relative bargain at todays prices if you can live with the leverage. Treat it like a speculation, avoid the authors pump and dump statements, read only the factual statements made in here for yourself and wait for actual positive news events to happen.

I can just imagine the number of people that have lost money so far here because of this blog...me being 1 of them.

Jul 10 03:16 AM

[Devon Shire:]

"This company is purely a speculation at this point and should be
> treated as such. Its very irritating when an author pumps up a company
> like this with ridiculous $70 value claims when the facts say otherwise"

I'm all ears. According to you the facts say otherwise. So supply some facts. There are two main parts to the asset valuation here.

1) 200 million BOE of reserves. PV10 according to independent reserve engineers of these reserves is $4.7bil at Dec 2008. In my valuation estimate I reduce this by the 35% income tax rate that ATP will pay. You can also test this valuation by looking at sales of similar assets in the GOM and North Sea.

2) The infrastructure is worth it's cost. That is something around $1bil. They sold the Innovator for half it's cost. I believe they will sell the Gomez Pipeline in a few weeks. Then the ATP Titan this fall.

Those two items are the basis for my valuation. They are right their for you to dispute. So have at them.


On Jul 10 03:16 AM mind_geek wrote:

>
> To this comment:
>
> "You could get it for $2 for all I know. Stock prices of many of
> these companies do not reflect their underlying value. That will
> change over time. My rule is that no matter how cheap something is
> there always seems to be an opportunity to get in later at a better
> price. So maybe ease your way in. Then you can actually enjoy the
> share price declining as it gives you a better entry point."
>
> I disagree that the stock does not reflect its current underlying
> value. 90% of all the drillers have had a very nice run since January,
> this one is in continual decline. That statement would have carried
> water back then or late last year, but not now.
>
> Case in point:
> Revenues have dropped 50% since June 08 but the cost of revenue has
> remained relatively the same on this lower base. Earnings are down
> 92% as well from the same period. Debt to equity is a very high 4
> to 1 and the current book value is $8.96. 28% share dilution just
> a few weeks ago.
>
> This company is purely a speculation at this point and should be
> treated as such. Its very irritating when an author pumps up a company
> like this with ridiculous $70 value claims when the facts say otherwise.
> If not for the debt, the stock would be higher yes..if telemark is
> a big time money generator..the stock would be higher yes..and so
> on. In reality these projects have yet to be monetized for the shareholder.
>
>
> Right now the company is worth $8.96 on a BV basis so its a relative
> bargain at todays prices if you can live with the leverage. Treat
> it like a speculation, avoid the authors pump and dump statements,
> read only the factual statements made in here for yourself and wait
> for actual positive news events to happen.
>
> I can just imagine the number of people that have lost money so far
> here because of this blog...me being 1 of them.

Jul 10 08:39 AM

[cgiffin:]

Thanks man.............do you think the Gomez and the Titan(in the fall you say) proceeds will all go towards debt? And does everthing else in your initial articles on infra and the 10 catalysts still remain sound? Thanks.


On Jul 09 10:44 PM Devon Shire wrote:

>
> Hi. My thoughts below.
>
> "thoughts, pps worth or nav value, since your last

Jul 10 09:38 AM

[Devon Shire:]

The Gomez Pipeline which will be something like $80mil will have 75% of the proceeds go to debt repayment.

The Titan when MLP'd in the fall will have about $200mil of the proceeds go to fully repay the 2011 maturing debt. I believe that is all they want to pay down and will leave them with debt maturing in 2014.

With respect to the original article on catalysts. We aren't going to see them bring in a partner on Telemark. They have made the decision with the dilution and the agreement with Diamond (and others) to go at it alone. Good that they get to keep it all, bad that they diluted us.

The next 6 months will be huge for the company. The Titan sale (and possibly the Telemark pipeline with it) as well as the Gomez pipeline sale will result in $280mil debt repayment and cash for the company. Telemark is still on schedule and takes them from 20,000 BOE per day to between 40,000 to 50,000 and increases the percentage of it that is oil.


On Jul 10 09:38 AM cgiffin wrote:

> Thanks man.............do you think the Gomez and the Titan(in the
> fall you say) proceeds will all go towards debt? And does everthing
> else in your initial articles on infra and the 10 catalysts still
> remain sound? Thanks.

Jul 10 10:05 AM

[cgiffin:]

What are the chances of the Telemark pipeline with it, are they actively seeking to sell it i mean? Why do you feel that so many people are shorting it at these prices........the obvious reason is the debt i'm assuming, but if you feel it is intelligently structured, then why? Did the stock price decline (the broader market obviously and energy declines though you make the great point that oil at 70 was where this stock was 30-40 earlier) have much to do with this debt?? I mean, why do you feel management wanted all of this infrastructure and accompanying debt? It would appear investors today would be much higher on the stock if it had the great reserves and just sold all of this supposedly great valued infrastructure? Has this company always been levered at around 4 to 1 debt to equity? I am not trying to bombard you............just know you know your stuff on this one, and am trying to play devil's advocate a little too! Lastly, is this your favorite way to play oil and gas??


On Jul 10 10:05 AM Devon Shire wrote:

>
> The Gomez Pipeline which will be something like $80mil will have
> 75% of the proceeds go to debt repayment.
>
> The Titan when MLP'd in the fall will have about $200mil of the proceeds
> go to fully repay the 2011 maturing debt. I believe that is all they
> want to pay down and will leave them with debt maturing in 2014.
>
>
> With respect to the original article on catalysts. We aren't going
> to see them bring in a partner on Telemark. They have made the decision
> with the dilution and the agreement with Diamond (and others) to
> go at it alone. Good that they get to keep it all, bad that they
> diluted us.
>
> The next 6 months will be huge for the company. The Titan sale (and
> possibly the Telemark pipeline with it) as well as the Gomez pipeline
> sale will result in $280mil debt repayment and cash for the company.
> Telemark is still on schedule and takes them from 20,000 BOE per
> day to between 40,000 to 50,000 and increases the percentage of it
> that is oil.

Jul 10 10:48 AM

[cgiffin:]

Oh, forgot to ask.........do you have access or have you seen any of the most recent analyst reports that cover this company? Are they in agreement of the compelling and obvious undervaluement? I haven't been able to get access to any of the companies that cover ATPG.........was hoping you might have access?

Jul 10 11:01 AM

[Devon Shire:]

Chances of the Telemark pipeline going with it ? I don't know. I wouldn't count on it, but we don't need to. There is also a chance that they could sell of more than 50% of the Titan. I think the key point is that they will sell off what they need to sell off. They are lucky in that they have had all year to plan for how they are going to do this.

Why is such a high % short ? I don't know. I wish I had shorted it at $50. It is a great hedge for an institution if they want to be short oil in some manner. And it is small so the stock price can be knocked around quite easily. I've looked at a few of the Deepwater smaller guys and they all have pretty sizable short interests. Risky on ATP in my opinion given the major events that look to be coming in the next 6 months.

Why did they want all the infrastructure and the accompanying debt ? Well, I would imagine that when they were planning on how to develop Telemark they likely didn't have $32 oil and $3.50 natural gas down even in their worst case scenarios. And if they did they certainly would have planned for the speed with which is got there.

So, I certainly think that they would have done this differently had they thought the credit crisis and commodity collapse were a possibility. But yes, they have always carried quite a bit of debt all through their existence.

I think what is key to know about the current debt though is that it was taken on to build out this infrastructure. The amount of infrastructure in dollars (about $1bil) is close to the total amount of debt. If this infrastructure can be monetized as the have said that it will be in the coming months, then people may start to realize it's value.

And if they figure out that the infrastructure equals the debt. Then that means the oil and gas reserves (200 million BOE) are left for the equity holders. And that is a pretty good $$ amount per share.


On Jul 10 10:48 AM cgiffin wrote:

> What are the chances of the Telemark pipeline with it, are they actively
> seeking to sell it i mean? Why do you feel that so many people are
> shorting it at these prices........the obvious reason is the debt
> i'm assuming, but if you feel it is intelligently structured, then
> why? Did the stock price decline (the broader market obviously and
> energy declines though you make the great point that oil at 70 was
> where this stock was 30-40 earlier) have much to do with this debt??
> I mean, why do you feel management wanted all of this infrastructure
> and accompanying debt? It would appear investors today would be much
> higher on the stock if it had the great reserves and just sold all
> of this supposedly great valued infrastructure? Has this company
> always been levered at around 4 to 1 debt to equity? I am not trying
> to bombard you............just know you know your stuff on this one,
> and am trying to play devil's advocate a little too! Lastly, is this
> your favorite way to play oil and gas??

Jul 10 11:14 AM

[Devon Shire:]

I haven't seen any analyst reports. Hard to want to when they rate ATP a buy at $50 and then a sell at $5.

I suppose for contrarian reasons.....


On Jul 10 11:01 AM cgiffin wrote:

> Oh, forgot to ask.........do you have access or have you seen any
> of the most recent analyst reports that cover this company? Are they
> in agreement of the compelling and obvious undervaluement? I haven't
> been able to get access to any of the companies that cover ATPG.........was
> hoping you might have access?

Jul 10 11:16 AM

[Offering:]

Devon,

This may be a silly question. But why would GE or others want some of these assets? Is this similiar to taking equity out of your home? Or will they share the use of the Titan Production Platform. Also the Pipelines...If they sell them, don't they still need to use them? So are they going to then pay rent to use them...Just trying to understand how appealing it is to sell and what are the disadvantages. I assume the advantage is that we get cash...I sold most of my shares after the offering, but hold a little to watch. It's not one of the stronger stocks in the group, but for the right price it would be worth a longer term hold.

Mark


On Jul 10 11:14 AM Devon Shire wrote:

> Chances of the Telemark pipeline going with it ? I don't know. I
> wouldn't count on it, but we don't need to. There is also a chance
> that they could sell of more than 50% of the Titan. I think the key
> point is that they will sell off what they need to sell off. They
> are lucky in that they have had all year to plan for how they are
> going to do this.
>
> Why is such a high % short ? I don't know. I wish I had shorted it
> at $50. It is a great hedge for an institution if they want to be
> short oil in some manner. And it is small so the stock price can
> be knocked around quite easily. I've looked at a few of the Deepwater
> smaller guys and they all have pretty sizable short interests. Risky
> on ATP in my opinion given the major events that look to be coming
> in the next 6 months.
>
> Why did they want all the infrastructure and the accompanying debt
> ? Well, I would imagine that when they were planning on how to develop
> Telemark they likely didn't have $32 oil and $3.50 natural gas down
> even in their worst case scenarios. And if they did they certainly
> would have planned for the speed with which is got there.
>
> So, I certainly think that they would have done this differently
> had they thought the credit crisis and commodity collapse were a
> possibility. But yes, they have always carried quite a bit of debt
> all through their existence.
>
> I think what is key to know about the current debt though is that
> it was taken on to build out this infrastructure. The amount of infrastructure
> in dollars (about $1bil) is close to the total amount of debt. If
> this infrastructure can be monetized as the have said that it will
> be in the coming months, then people may start to realize it's value.
>
>
> And if they figure out that the infrastructure equals the debt. Then
> that means the oil and gas reserves (200 million BOE) are left for
> the equity holders. And that is a pretty good $$ amount per share.
>

Jul 10 05:10 PM

[cgiffin:]

Devon,

What are your thoughts on this proposed transaction? Positive or negative in terms of comparison...value, etc............interested to hear if you feel like Atpg is worth much more than this..........thanks. Here is the reference:


UK energy giant Centrica has offered 1.3 billion pounds (US$2.1 billion) to buy North Sea natural gas producer Venture Production. Venture had an independent assessment of its reserves prepared by DeGolyer and McNaughton (D&M) at 31 March 2009. This assessment indicates total proven and probable reserves at this date of 243 MMBOE (US$8/bbl 2P). As at 1 May 2009, production for the year to date averaged approx 53,500 BOEPD (US$40,000/BOEPD)(65% gas).

Venture's business plan is very similar to ATPG as the company focuses on the exploitation of discovered but undeveloped fields, known as stranded reserves, through the application of technology and oilfield operating practices. ATPG has a higher percentage of oil development projects and more infrasture assets but also carries more debt.

The message here is that if Venture Production is a $2 billion company then ATPG will be at least that once Telemark comes online.


Chris

Jul 10 11:58 PM

[Devon Shire:]

Thanks. I'll have a full look and get back to you.

Couple of thoughts off the top. ATP appears to be quite a bit more oil which would make it more valuable. Also need to think about the value of the infrastructure which ATP has $1 bil of, don't know about Venture.

Thanks again. Very useful


On Jul 10 11:58 PM cgiffin wrote:

> Devon,
>
> What are your thoughts on this proposed transaction? Positive or
> negative in terms of comparison...value, etc............interested
> to hear if you feel like Atpg is worth much more than this..........thanks.
> Here is the reference:
>
>
> UK energy giant Centrica has offered 1.3 billion pounds (US$2.1 billion)
> to buy North Sea natural gas producer Venture Production. Venture
> had an independent assessment of its reserves prepared by DeGolyer
> and McNaughton (D&amp;M) at 31 March 2009. This assessment indicates
> total proven and probable reserves at this date of 243 MMBOE (US$8/bbl
> 2P). As at 1 May 2009, production for the year to date averaged approx
> 53,500 BOEPD (US$40,000/BOEPD)(65% gas).
>
> Venture's business plan is very similar to ATPG as the company focuses
> on the exploitation of discovered but undeveloped fields, known as
> stranded reserves, through the application of technology and oilfield
> operating practices. ATPG has a higher percentage of oil development
> projects and more infrasture assets but also carries more debt.
>
>
> The message here is that if Venture Production is a $2 billion company
> then ATPG will be at least that once Telemark comes online.
>
>
> Chris

Jul 11 01:11 PM

[cgiffin:]

Devon,

Do you think the recent offering, combined with what you say will be the finalization of the Gomez later this month, will create the necessary revenue to successfully pay off the rest of the 2011 debt maturing? Or will that require a monetization of the 2nd floating unit as well? Also, you feel like this 2011 debt and the covenants are the main thing keeping the ATPG short-term stock price down? What about the discussion regarding the - 3/1 net debt/ebitdax?? Still think they will be ok?

Jul 12 04:02 PM

[Devon Shire:]

The 2011 debt, of which there is about $280mil remaining at this point will be repaid with proceeds of the Gomez Pipeline sale and the MLP of the ATP Titan. The proceeds from these two will be in excess of the $280mil so there should be some additional cash for the balance sheet after the Titan is MLP'd.

So Telemark cash flow won't be used for the debt reduction.

I don't know what is keeping the stock price down. Have a look at other similar companies. WTI, SGY, ME etc all take a beating together.

Nothing has changed since I wrote about the EBITAX covenant. Actually they repaid some more debt and raised some cash with the equity raise which makes it easier to stay in compliance. My calculations still indicate they will be.

The company has had all year to plan for this covenant situation. They have said repeatedly that they will be onside. I believe that they have it under control at this point.

Still looking that the Venture offer (which was rejected). I noticed that only about 30% of Ventures Proved and Probable reserves are proven. I'll try and post something. The comparison isn't easy since I'm not familiar with Venture.


On Jul 12 04:02 PM cgiffin wrote:

> Devon,
>
> Do you think the recent offering, combined with what you say will
> be the finalization of the Gomez later this month, will create the
> necessary revenue to successfully pay off the rest of the 2011 debt
> maturing? Or will that require a monetization of the 2nd floating
> unit as well? Also, you feel like this 2011 debt and the covenants
> are the main thing keeping the ATPG short-term stock price down?
> What about the discussion regarding the - 3/1 net debt/ebitdax??
> Still think they will be ok?

Jul 12 06:23 PM

[cgiffin:]

Devon,

Thanks for quick reply as always............you often cite other "similiar" companies with regard to stock price.........i was wondering, have you compared any of those companies with ATPG in terms of the compelling value of reserves - both proven and probable? This is of course independent of the infrastructure value.

Jul 13 11:04 AM

[mind_geek:]

I laid out the facts..revenue, sales, share count, debt ratios, 80% stock price decline. Why would I argue the last 2 points?..Im sure you'll have a rebuttal for it anyways!

It makes me wonder...never in my professional career have I ever come across someone who knows every intricate detail of a single company so well..can seemingly predict its future and is nimble enough to shoot down any negative comment that comes across this bloated blog. Only a brokerage analyst drilling the CEO for answers on a daily basis or company insider would be so privy to this detailed info. Or maybe you spend countless hours pouring through the 10-k's...who knows.

I'd be curious to learn what your avg purchase price is and how much overall time you've actually spent digging into every detail of this company. Im betting your sitting on a fairly sizable loss, as are most mid-long term holders of this stock. Do you research every stock you own this thorougly?

There really is no mystery as to the low current stock price...still waiting for the reality of some positive publicly released news on this company..or should we just ask you? ;o)


On Jul 10 08:39 AM Devon Shire wrote:

> "This company is purely a speculation at this point and should be

Jul 18 05:08 AM

[User 68519:]

Devon,

Do you know the break even price that oil needs to be for ATPG to breakeven in terms of cash flow?

Also, with the recent offering, hopefully the Gomez sale soon, etc........do you feel like ATPG has enough resources to get Telemark online? Is that estimated for December or earlier? Thanks!

Chris

Jul 28 10:53 AM

[Devon Shire:]

I don't know what the price would have to be to be breakeven in terms of cash flow.

If you look at the first quarter of this year you will see that they had free cash flow with an average oil price realization of $38.97 and $4.74 natural gas. They also had a fair bit of production constrained for a third of that quarter due to downstream pipelines.

Do I feel like they have the resources to get Telemark online ? Yes. You are missing the most significant thing that they did which was get Diamond Offshore and other service providers to defer cash payment for their services in getting Telemark producing. About $200 million of drilling and other costs are going to be paid out of Telemark production.

In other words, Diamond and others must have taken a good hard look at Telemark and believe that it is not risky for them to be willing to extend ATP an unsecured interest free loan to get this done on schedule. We really could not have asked for a better sign about the property than that.

The estimated start of production is late Q4 or early Q1 2010.

The asset sales are still key and not for cash flow. They want that 2011 maturing debt gone by the end of this year. They have been very public about the fact that they believe they will have the Gomez pipeline deal and the Titan deal completed this year.

Once people understand the value of the infrastructure is basically equal to their long term debt they might realize that buying ATP at these prices is purchasing their reserves for about $2.50 per BOE when similar transactions where companies are purchased are done at 6 to 10 times this amount.

Pulling the cash out of the pipelines and the Titan should help make this more clear to the market.

If it doesn't impress the market the increase in production from 130 million cubic feet a day to 300 million cubic feet a day will. And it is also helpful that they will change production from about 50/50 oil and NG mix to 65% oil and 35% NG.




On Jul 28 10:53 AM User 68519 wrote:

> Devon,
>
> Do you know the break even price that oil needs to be for ATPG to
> breakeven in terms of cash flow?
>
> Also, with the recent offering, hopefully the Gomez sale soon, etc........do
> you feel like ATPG has enough resources to get Telemark online? Is
> that estimated for December or earlier? Thanks!
>
> Chris

Jul 28 12:03 PM

[User 68519:]

Thanks........all still makes sense.....still wondering though why they would truly want to take on all this debt to build this infrastructure, and then turn right around and sell it again?? Can you clarify your thoughts on this?

Also, what do you expect when they report earnings next week? Sale of Gomez announced there?


On Jul 28 12:03 PM Devon Shire wrote:

> I don't know what the price would have to be to be breakeven in terms
> of cash flow.
>
> If you look at the first quarter of this year you will see that they
> had free cash flow with an average oil price realization of $38.97
> and $4.74 natural gas. They also had a fair bit of production constrained
> for a third of that quarter due to downstream pipelines.
>
> Do I feel like they have the resources to get Telemark online ? Yes.
> You are missing the most significant thing that they did which was
> get Diamond Offshore and other service providers to defer cash payment
> for their services in getting Telemark producing. About $200 million
> of drilling and other costs are going to be paid out of Telemark
> production.
>
> In other words, Diamond and others must have taken a good hard look
> at Telemark and believe that it is not risky for them to be willing
> to extend ATP an unsecured interest free loan to get this done on
> schedule. We really could not have asked for a better sign about
> the property than that.
>
> The estimated start of production is late Q4 or early Q1 2010. <br/>
>
> The asset sales are still key and not for cash flow. They want that
> 2011 maturing debt gone by the end of this year. They have been very
> public about the fact that they believe they will have the Gomez
> pipeline deal and the Titan deal completed this year.
>
> Once people understand the value of the infrastructure is basically
> equal to their long term debt they might realize that buying ATP
> at these prices is purchasing their reserves for about $2.50 per
> BOE when similar transactions where companies are purchased are done
> at 6 to 10 times this amount.
>
> Pulling the cash out of the pipelines and the Titan should help make
> this more clear to the market.
>
> If it doesn't impress the market the increase in production from
> 130 million cubic feet a day to 300 million cubic feet a day will.
> And it is also helpful that they will change production from about
> 50/50 oil and NG mix to 65% oil and 35% NG.
>
>

Jul 28 01:01 PM

[Devon Shire:]

Why take on the debt to build it and then sell it ?

Excellent question. I'd love to have them answer this, but here is my opinion.

1) The parties who invest in these types of things (MLPs) etc aren't going to put money up 2 years in advance of earning something on it. The invest for the fee stream from it. So there likely isn't a market to bring a partner in until completion. And if you do want a partner at the initiation of the construction you would likely have to pay him interest until it is complete, so no different than the bank.

2) ATP wants 100% control over their developments. That is part of their risk management as it allows them to control the pace of development and control the pace that they spend cash. Nothing more important than that for a commodity producer. If they control 100% they can basically stop building if they have to. With a partner you likely have a capital commitment schedule.

With respect to earnings. I hope we see the Gomez pipeline sale now, but don't really know. I believe it is coming, so as long as it happens in this quarter or the next it really doesn't matter.





On Jul 28 01:01 PM User 68519 wrote:

> Thanks........all still makes sense.....still wondering though why
> they would truly want to take on all this debt to build this infrastructure,
> and then turn right around and sell it again?? Can you clarify your
> thoughts on this?
>
> Also, what do you expect when they report earnings next week? Sale
> of Gomez announced there?

Jul 28 01:27 PM

[User 68519:]

Devon,

Any thoughts or reaction to SGY's earnings report and the stock's subsequent huge move? Any affect on ATPG?

Chris

Jul 31 07:04 PM

[Devon Shire:]

Hi,

I don't know SGY very well. I looked briefly at the earnings and it didn't look like it had any huge news. More like a good quarter and confirmation the company was going to exist in the future.

I noticed SGY has been over $40 for much of the past 5 years much like ATP so it is likely very undervalued vs it's net asset value.

When stocks are that undervalued and you take away what the market has believed is liquidity and bankruptcy risk, and this kind of move can happen.

ATP has two huge catalysts that should have a much bigger impact than a quarter of good earnings. One is the Titan and Gomez pipeline deals. The other of course being the huge change in revenue and cash flow once Telemark is on.


On Jul 31 07:04 PM User 68519 wrote:

> Devon,
>
> Any thoughts or reaction to SGY's earnings report and the stock's
> subsequent huge move? Any affect on ATPG?
>
> Chris

Aug 02 11:14 PM

[User 68519:]

Devon,

I'm very anxious to hear your commentary and/or thoughts on Friday's Earnings? Please discuss anything and everything that comes to mind as you are a huge source of information for me in my investment in ATPG. Thanks.

Aug 10 08:43 AM

[Devon Shire:]

Listened to the conference call and made some notes. Hopefully they will be in reasonable order.

In summary. No change to the long term story of a big step change coming from Telemark around year end. Still comfortable that asset sales will get done. Market reaction must be due to weak Q2 production. I don't see anything that changes the attractiveness of the investment from the information provided today.

What I didn't like:

- Production in Q2 was less than expected 1.6 million BOE 58% oil
- Main reason for this was delay in 3 wells. The #8 well at Gomez, #3 at Wenlock and the well at South Marsh Island 190. All three came on at the end of the quarter
- Gomez pipeline deal is not done year. Al Reese said they are in heavy negotiations and that it "feels' like a Q3 thing. His earlier comments led me to think that it would have been done early in Q3. I would rather get a good price then a quick sale however.


What I did like

- Q2 should be the bottom for production for ATP. The 3 wells brought on at the end of the quarter (Gomez/Wenlock/South Marsh Island) will help Q3
- There are also two recompletions awaiting permitting at Gomez. These are actually very significant as they should add 5,000 to 6,000 BOE per day, which is a good 20% increase to current production level of about 110 million cubic feet per day. They are waiting on MMS for permit approval on these, they actually thought it would be done by now. Leland suggested Q3 to have them up and going.
- 3Q production should be in the 120 million cubic feet range. 4Q production another 10% or so higher. Early 2010 is when it will jump thanks to Telemark.
- CEO Bulmahn and the Leland Tate both for the first time said that production will likely more than double with Telemark
- ATP Titan to be Christened August 26th and taken out in October. So it is done
- They still are saying the Titan and telemark pipeline MLP/monetizations are when and with who questions not if. That is a lot of money, $300mil or so on the Titan and $160mil on the pipeline.
- Upside at Telemark with respect to reserves. I have been talking about this a bit after listening to presentations. Both CEO and Leland/Al referred to this in an earnings call for the first time. Don't know how much bigger it is than the reserves booked, but I think it is safe to say that it is bigger.
- Reserve value PV10 $5.3bil at the end of June, and this doesn't include the upside not yet recognized in the Dec 08 reserve reports that ATP alerted us to at Enercom last year
- Sounds like they will be selling some partial interests in a couple of the properties (other than the infrastructure). This was mentioned twice, once by Leland and once by Al. Encouraging as the extra cash would be useful and I think it is pretty safe to say these guys won't sell for less than a decent price.
- Hedged a good portion of the oil production over the remainder of this year at $67 plus. Good in my opinion as they have locked in cash flow to match their expected capital to be spent on Telemark.
- The deal with Diamond and other vendors is going to be repaid over a period of about one year. It is a percentage of cash flows so the pace of repayment is adjusted based on production and commodity price levels
- Still expect to be in compliance for the remainder of the year. Given that we are now well into August they should know for sure at this point.


Other facts

- $200million has actually been spent towards the Octobuoy/Cheviot. I didn't think they had spent this much
- still focused on debt reduction and plan to have the 2011 debt repaid
- They believe in considerably higher oil prices coming in 2010 and 2011. They will hedge in case they are wrong, but are leaving more upside than they have in the past



On Aug 10 08:43 AM User 68519 wrote:

> Devon,
>
> I'm very anxious to hear your commentary and/or thoughts on Friday's
> Earnings? Please discuss anything and everything that comes to mind
> as you are a huge source of information for me in my investment in
> ATPG. Thanks.

Aug 10 11:25 AM

[Devon Shire:]

I've posted below a recap of ATP's meeting with analysts, shareholders and debtholders that was held yesterday.

The source is geoscientist who contributes to the Motley Fool and works for a competitor of ATP.

My valuation work at current oil and gas prices has led me to believe that value per share for ATP is somewhere around $70. None of the upside to the Morgus, Mirage and Telemark reserves that are referred to below is included in my valuation.

Notes from ATP Analysts’ Breakfast

I attended the analyst breakfast this AM at ATP’s Houston office. The meeting was very well attended and about half the crowd of around 40 had been at the Titan christening yesterday. From what I gathered most of those were the bankers that have financed ATP’s ambitious expansion plans. The large group of bankers mostly from Credit Suisse seem to be very involved in the process of bringing Telemark onto production in 1Q of next year. This seems to be a good sign that they would be willing to have some flexibility with the debt covenants since they are very aware of the eventual reward at the end ATP’s transformation into a major deepwater producer. This presentation was focused solely on Telemark and did not involve any discussion about the North Sea projects or financials. The presentation was largely technical in nature which was right up my alley. Being a Geoscientist from a competitor of ATP’s was kind of like letting a fox in the hen house. I asked a lot of questions the analysts would never think of and I came away with a much better feeling about the upside potential of their reserves at Telemark. The plan is to put the Titan over the Morgus/Mirage fields and produce those reserves before moving to Telemark in about 4 years to produce the remaining reserves there. With the potential upside reserves and possible tie-ins from future discoveries I have a feeling that Titan will stay much longer over Morgus and we could see the Mindoc II built to finish up at Telemark or deploy to some other remote asset in the Gulf. They did not suggest any such thing but this is my instinct from working assets like theirs.

ATP started the meeting by discussing the monetization of assets and ended the meeting talking about that as well. Obviously, the only way to pay off the $297M of debt by the end of the year is to monetize something by then. The Titan hull is worth at least $600M so selling half of that works out perfectly. CFO Albert Reese was very confident that they could monetize the Titan very easily. In fact he stated “the chance to monetize the pipelines, Titan and Octobuoy are as close to 100% as you can get.” They are likely working on a deal on the Titan right now and the indicated GE was not the only company interested. At the end of the meeting COO George Morris stated that no one would finalize the deal before the Titan was actually on location at Telemark and it was fully hooked up and ready to produce. The companies like GE that are interested in owning production assets are not interested in taking any of the risks of constructing and deploying those assets. Fortunately, the Titan is on track to be ready in November but delays are common in deepwater construction. I asked if production was delayed 90-180 days would they run afoul of their debt covenants and Mr. Morris gave me a nervous “maybe”. They are keenly aware of the situation but there is not much they can do about it other than manage the deployment of the Titan to the best of their abilities. With most of the bankers sitting in the room I suspect they will get some flexibility with the debt covenants since on one would benefit from calling that $297M debt a few weeks or months before it could easily be paid in full.

ATP spent a great deal of time discussing how the development of Gomez and the ATP Innovator has steered the company towards their current business model of building hubs in remote areas of the deepwater Gulf. In 2003, ATP bought the Gomez field which was thought to be a one well, one block (offshore leases are divided into 5000 acre blocks and leased from the Federal Gov’t) development with about 15 MMBOE (million bbls of oil equivalent). The next year, ATP was able to flow test the well and it flowed at a rate many times what ATP initially assumed. This significantly expanded the scope of the project and spurred ATP to purchase the Innovator rather than lease it as they had planned. The Innovator needed significant upgrading to handle the larger production volume and it was going to be in a remote location with no pipelines so it would be a strategic hub for other producers to tie their discoveries back to. The next year ATP purchased the two adjacent leases to the north of Gomez so that they could protect their asset from potential competitors and possibly drill additional prospects on those blocks. The very next year (2006) they achieved first production and by the end of the year they were able to add 7 MMBOE of proven reserves based on the performance of the 2 wells that they had online. After that they added a third well, acquired an working interest in 2 ¼ nearby blocks and sold a 49% interest in the Innovator earlier this year. As of June 30th they had already produced the initial 15 MMBOE estimate and they now have an additional 41 MMBOE of probable reserves remaining in the field. Additionally, a number of discoveries have been made near the Gomez hub by other operators (including one I’m involved in) and those discoveries will likely be tied back the Innovator. ATP will receive substantial fees from those operators to process their oil on the Innovator and put it into the pipeline. The great hope is that the Telemark development turns out as successful as Gomez. From the technical work I witnessed today I would say that is a likely outcome.

The rest of the presentation was focused on the technical work at Telemark. Ironically, the Titan will be moored at the Morgus field to the north of Telemark and Telemark will initially utilize a single well with a subsea tie-back to the Titan. It is expected that 4 years after commencing production at Morgus, the Morgus/Mirage fields will be depleted and the Titan will move down to the Telemark field to drill 3 wells and produce the remaining reserves there. In reality, it is likely the reserves picture will dramatically increase at Morgus and Mirage and the Titan will need to stay there much longer. If everything goes well I suspect they will start construction of a second hull to produce Telemark and future similar opportunities in the deepwater.

The Mirage field is in the adjacent block to the Morgus about 10 miles NW of Telemark. Mirage has two proven pay sands that have been well delineated but it has deeper potential sands that have not been drilled and are found productive in the Morgus field to the west. Diamond Offshore is currently drilling through the proven sands and will be drilling ahead to test the deeper potential in that block. Next door at Morgus only one sand is found productive (which is the deeper potential sand at Mirage) but the size of the reservoir is not fully delineated. The discovery well has a very nice pay sand that is filled to the base and the delineation well drilled too far down dip to find the oil water contact. Since the oil water contact is unknown, ATP can only book proven reserves to the base of the sand in the original well. Also, they can only carry one sand thickness (about 150’) down structure as the probable reserves even though there is some seismic evidence that the oil water contact is much deeper. That means the reservoir at Morgus could be much larger than what is on the books. Additionally, there is an adjacent fault block to the east that is untested which is highly prospective since it sits between two known productive fault blocks. The next fault block to the northeast sits on another lease and is known as the Crosby field. Shell is producing that field right now and flowing it back to some facilities they have way to the north. This untested block could add a substantial amount of reserves to the Morgus field if it is productive. They would likely be testing that fault block in a couple years once they have some cash flow and the debt is under control. Further to the east is the Oasis prospect which they apparently don’t have any timeline in mind to drill. I wouldn’t be surprised to see them drill that one along with the untested fault block at Morgus in a couple years. They could find a partner to drill those exploration wells to mitigate some of the risk.

The Telemark field to the southeast is a much more complicated development and will eventually require the Titan or some other facility to fully deplete it. The entire field is underneath a salt canopy which makes it very hard to seismically image. It was discovered in 2000 by Texaco and only one fault block has been tested. Texaco found 12 thin pay sands on a very large structure and could not fully delineate it with their wells. That means like Morgus the oil water and gas water contacts are further down structure than what is booked to the field. Significant upside exists in several pay sands and of course on the adjacent fault blocks. ATP will only drill one well at first to produce the deepest sands which have oil in them. Once the Titan moves down to Telemark then 3-4 additional wells will be needed to full develop that field. ATP recently picked up two adjacent blocks at the last lease sale but they said the structure at Telemark spills over onto those blocks so they are buying them to protect themselves from someone else drilling into their field on the adjacent lease. Like I said, with the upside at Morgus/Mirage the 4 year estimate to move down to Telemark is unlikely IMO.

It is worth mentioning that once the Titan is producing it will take 6 months to ramp up production to full capacity. The Titan will initially produce about 6000 bbls/day and some gas then ramp up as additional wells are hooked up to the facility. The max capacity is 25000 bbls/day and another 30 million cu. ft./day of associated gas. The Titan will produce at max capacity for a couple years then start declining for a couple years before it becomes uneconomic to keep producing and it then moves to Telemark. Of course, if some of the upside reserves come to fruition it will stay at max capacity much longer. The presentation shows the production profile of Telemark along with maps and logs of the fields. It well worth reading if you have the time after this lengthy post.

phx.corporate-ir.net/p......

TMFDoodlebugger



On Aug 10 11:25 AM Devon Shire wrote:

> Listened to the conference call and made some notes. Hopefully they
> will be in reasonable order.
>
> In summary. No change to the long term story of a big step change
> coming from Telemark around year end. Still comfortable that asset
> sales will get done. Market reaction must be due to weak Q2 production.
> I don't see anything that changes the attractiveness of the investment
> from the information provided today.
>
> What I didn't like:
>
> - Production in Q2 was less than expected 1.6 million BOE 58% oil
>
> - Main reason for this was delay in 3 wells. The #8 well at Gomez,
> #3 at Wenlock and the well at South Marsh Island 190. All three came
> on at the end of the quarter
> - Gomez pipeline deal is not done year. Al Reese said they are in
> heavy negotiations and that it "feels' like a Q3 thing. His earlier
> comments led me to think that it would have been done early in Q3.
> I would rather get a good price then a quick sale however.
>
>
> What I did like
>
> - Q2 should be the bottom for production for ATP. The 3 wells brought
> on at the end of the quarter (Gomez/Wenlock/South Marsh Island) will
> help Q3
> - There are also two recompletions awaiting permitting at Gomez.
> These are actually very significant as they should add 5,000 to 6,000
> BOE per day, which is a good 20% increase to current production level
> of about 110 million cubic feet per day. They are waiting on MMS
> for permit approval on these, they actually thought it would be done
> by now. Leland suggested Q3 to have them up and going.
> - 3Q production should be in the 120 million cubic feet range. 4Q
> production another 10% or so higher. Early 2010 is when it will jump
> thanks to Telemark.
> - CEO Bulmahn and the Leland Tate both for the first time said that
> production will likely more than double with Telemark
> - ATP Titan to be Christened August 26th and taken out in October.
> So it is done
> - They still are saying the Titan and telemark pipeline MLP/monetizations
> are when and with who questions not if. That is a lot of money, $300mil
> or so on the Titan and $160mil on the pipeline.
> - Upside at Telemark with respect to reserves. I have been talking
> about this a bit after listening to presentations. Both CEO and Leland/Al
> referred to this in an earnings call for the first time. Don't know
> how much bigger it is than the reserves booked, but I think it is
> safe to say that it is bigger.
> - Reserve value PV10 $5.3bil at the end of June, and this doesn't
> include the upside not yet recognized in the Dec 08 reserve reports
> that ATP alerted us to at Enercom last year
> - Sounds like they will be selling some partial interests in a couple
> of the properties (other than the infrastructure). This was mentioned
> twice, once by Leland and once by Al. Encouraging as the extra cash
> would be useful and I think it is pretty safe to say these guys won't
> sell for less than a decent price.
> - Hedged a good portion of the oil production over the remainder
> of this year at $67 plus. Good in my opinion as they have locked
> in cash flow to match their expected capital to be spent on Telemark.
>
> - The deal with Diamond and other vendors is going to be repaid over
> a period of about one year. It is a percentage of cash flows so the
> pace of repayment is adjusted based on production and commodity price
> levels
> - Still expect to be in compliance for the remainder of the year.
> Given that we are now well into August they should know for sure
> at this point.
>
>
> Other facts
>
> - $200million has actually been spent towards the Octobuoy/Cheviot.
> I didn't think they had spent this much
> - still focused on debt reduction and plan to have the 2011 debt
> repaid
> - They believe in considerably higher oil prices coming in 2010 and
> 2011. They will hedge in case they are wrong, but are leaving more
> upside than they have in the past
>

Aug 28 10:25 AM

[babajay:]

In light of this weeks news, I would expect that your many beleivers are expecting an update to your valuation. I rode the stock from 7 to 13 and I got out. I am looking for a spot to get back in (I didnt see the news when I sold the 12.5 calls against my long position). All in all, the company continues to prove that their model works and that management seems to be quite competent. Your faith in the company is obviously paying off in spades.

Sep 12 12:58 PM

[Devon Shire:]

Thanks for the comment.

Yes. It was a nice piece of news. Basically they found at least double what they expected when they drilled the Mirage well. Expecting 125 feet of pay, and found 250.

Don't know the exact impact to total reserves or the increase in production that we can expect from this specific well.

I suggest that you read the comment above from a geoscientist who went to ATP's analyst breakfast. He looked at their data and believes that they could have twice the reserves their that I had factored into my valuation. Of course the Mirage well verifies this as well.

So valuation wise. I thought at least $70 per share previously. Adding low cost reserves (no additional capital required than was expected before) only increases it obviously. If Telemark reserves in total turn out to be twice what I had factored into my initial valuation.....well that would be close to another 50 million BOE (about 80% of it oil). Since most of it simply relates to reserve extensions and not exploration that also means more capital spending required.....that could be worth maybe $30 per barrel to ATP in present value terms. Which would imply another $1bil to $1.5bil of value per share. 50 million shares outstanding, that would be another $20 per share plus (or more than the current stock price).

But too early to tell. I thought $70 was reasonable. Now it looks like considerably more. Even if I am way out to lunch (off by 100%) and it is really $35 you still have more than a double from $16 per share.

More importantly though. Al Reese just provided an update at a conference on Thursday. And the important takeaways:

1) Everything for Telemark is on schedule
2) They are already into the Titan monetization and are working out the exact legal structure that will be involved in the $300mil sale of half of it (in other words, they have a partner)
3) Gomez pipeline $80mil deal will be done soon
4) He still believes they will be fine with respect to debt covenant compliance. There is no doubt they will be if the Titan deal is done.

Think of it this way. The additional oil and gas they found this week likely only matched the share price increase since I wrote originally. So it is like the stock hasn't moved, and you still have multiples of upside.




On Sep 12 12:58 PM babajay wrote:

> In light of this weeks news, I would expect that your many beleivers
> are expecting an update to your valuation. I rode the stock from
> 7 to 13 and I got out. I am looking for a spot to get back in (I
> didnt see the news when I sold the 12.5 calls against my long position).
> All in all, the company continues to prove that their model works
> and that management seems to be quite competent. Your faith in the
> company is obviously paying off in spades.

Sep 12 03:22 PM

[Devon Shire:]

Well, not getting bored as an ATP shareholder.

Four press releases this week.

1) More dilution through 5 million common at $18.50
2) More dilution through convertible preferred at $22.20
3) Sale of Gomez pipeline as promised $78 mil
4) Excellent drilling results at Mirage expanded upon. Should triple reserves booked there. Not sure how big that will be, but it will be material. Two big wells will help ramp up Q4 production (if they can get something done on time for a change)

Comment. We have traded some of the upside for far less risk on the downside. That was $300mil of cash raised and there will be another $300mil when they sell part of the Titan later this year. That is $600mil of cash, and should put debt fears to rest.

Value per share reduced somewhat by the dilution, but not a huge amount when you factor in the reserve additions that are coming at Telemark. I thought $70 before pretty easily. It's at $17 now, so lots and lots of upside.

Things should get pretty exciting starting soon. 6 big producing wells being added over the next 9 months. Gomez 1, then Canyon Express, then Mirage 2, Morgus and the Atwater subsea well.

I think we could be looking at production move from the current 100million cubic feet a day to close to 300 a day by June 2010. Should be rewarding if they can execute.

Wonder if the mind-geek is still reading ? He blasted me for my blog losing him money after he bought around $8. If he could have just held on for all of 2 months he could have doubled his money. Not a bad annualized return.


On Sep 12 03:22 PM Devon Shire wrote:

>
> Thanks for the comment.
>
> Yes. It was a nice piece of news. Basically they found at least double
> what they expected when they drilled the Mirage well. Expecting 125
> feet of pay, and found 250.
>
> Don't know the exact impact to total reserves or the increase in
> production that we can expect from this specific well.
>
> I suggest that you read the comment above from a geoscientist who
> went to ATP's analyst breakfast. He looked at their data and believes
> that they could have twice the reserves their that I had factored
> into my valuation. Of course the Mirage well verifies this as well.
>
>
> So valuation wise. I thought at least $70 per share previously. Adding
> low cost reserves (no additional capital required than was expected
> before) only increases it obviously. If Telemark reserves in total
> turn out to be twice what I had factored into my initial valuation.....well
> that would be close to another 50 million BOE (about 80% of it oil).
> Since most of it simply relates to reserve extensions and not exploration
> that also means more capital spending required.....that could be
> worth maybe $30 per barrel to ATP in present value terms. Which would
> imply another $1bil to $1.5bil of value per share. 50 million shares
> outstanding, that would be another $20 per share plus (or more than
> the current stock price).
>
> But too early to tell. I thought $70 was reasonable. Now it looks
> like considerably more. Even if I am way out to lunch (off by 100%)
> and it is really $35 you still have more than a double from $16 per
> share.
>
> More importantly though. Al Reese just provided an update at a conference
> on Thursday. And the important takeaways:
>
> 1) Everything for Telemark is on schedule
> 2) They are already into the Titan monetization and are working out
> the exact legal structure that will be involved in the $300mil sale
> of half of it (in other words, they have a partner)
> 3) Gomez pipeline $80mil deal will be done soon
> 4) He still believes they will be fine with respect to debt covenant
> compliance. There is no doubt they will be if the Titan deal is done.
>
>
> Think of it this way. The additional oil and gas they found this
> week likely only matched the share price increase since I wrote originally.
> So it is like the stock hasn't moved, and you still have multiples
> of upside.
>
>

Sep 24 05:21 PM

[bfras921:]

look,im long atpg but you are extremely bullish because you own alot of shares

first off, telemark is late, last year they said they would be producing in q3 09

2.you keep saying this thing is worth 5.0 b, will if its worth 5 billion sell off 20 % at 1 billion and pay all the debt off and stop diluting us

3. debt is out of control
4th. mgt could have bot back shares at 4. instead they issued more at 8 and some more this week. you said they would be buying back share. instead they did just the opposite, they issued shares
5. the interest on the debt is 100 m per year 1 m every 3 day's
6. when they sell of titan or innovator just means they have a new operating expense they didt have before

that like buying a bmw for 100,000 and you neeed cash so you sell the car and lease it back. he leas payment will exceed the acquisition cost

atpg spends the money first, then raises money after the fact to cover the invesment

they got it azz backwards. they should raise the money , thend spend it.

if they did that they could have sold 20 m shares at 50 and raised one billion in cash, now they are diluting everyone cause their back is against the wall

someone called it delution and i thinks thats what you are suffering from delusions of grandauer.

let say they do 600 m in cash flow next year 100 m goes to interest, 50 m to principle leaving 450 m for cap exp. they need another 1 b for octobuoy, so there is nothing for debt repayment even though production has soared

get real, please

Sep 26 02:41 PM

[Devon Shire:]

You are really cranking up the internet work Bill. I see you everywhere this morning.

> first off, telemark is late, last year they said they would be producing
> in q3 09

So. Does that impact what the company is worth today ? Are you really surprised that when oil goes to $30 and natural gas to $3 that they have to slow things down. Imagine we cut your monthly income to 33% of where it currently is. Could you still spend at the same rate you do know ?

>
> 2.you keep saying this thing is worth 5.0 b, will if its worth 5
> billion sell off 20 % at 1 billion and pay all the debt off and stop
> diluting us
>

I'm not saying it is going to trade at $70 per day. You are going to have to wait more than 5 minutes to realize big stock price appreciation here. We've done ok since I started writing at $6. When Telemark is up and running cash flow per share is going to be $13 to $16. I would think the price per share might move up a little from $17, but you never know. The company is going to have to get production up and going to realize my valuation estimates.

> 3. debt is out of control
> 4th. mgt could have bot back shares at 4. instead they issued more
> at 8 and some more this week. you said they would be buying back
> share. instead they did just the opposite, they issued shares
> 5. the interest on the debt is 100 m per year 1 m every 3 day's<br/>6.

I agree they have to much debt for the current level of production. I think this is being addressed. $300mil raised last week. Another $300mil coming in a couple of months from the Titan. Another $160mil coming from the Telemark pipeline after that. $750mil of cash should get the debt under control wouldn't you think ?

Now saying they could have bought back at $4 is kind of stupid, and I think you know better. If they didn't have the debt issues that you refer to the shares would never have been $4. And because of those debt issues they didn't have any cash that they could part with.

Look. I'm not saying that everything has been perfect here. That is why we got to buy this thing under $10. They had too much debt for what happened in the commodity and capital markets. I thought that they would be able to work through there problems given the asset base they have. The dilution has been painful, but they do keep adding very signficant amounts of reserves as well, which is helping to offset it.

I'm very pleased to have been able to get very long this under $10 and now come out the other side with the balance sheet in much better shape ($300mil raised, another $450mil on the way) and Telemark just a couple of months from producing.

> when they sell of titan or innovator just means they have a new operating
> expense they didt have before
>
> that like buying a bmw for 100,000 and you neeed cash so you sell
> the car and lease it back. he leas payment will exceed the acquisition
> cost

Yes I know. What is your point, that it doesn't help this company to improve their balance sheet with hundreds of millions of dollars in cash ?


>
> if they did that they could have sold 20 m shares at 50 and raised
> one billion in cash, now they are diluting everyone cause their back
> is against the wall

Yes I agree 100%. You are an expert in the art of hindsight. If they had done that we could have been buying shares at $50 instead of the $6 that we were buying shares at. Again, I'm not saying this company is perfect. They had too much debt. That is why the stock went to $6. I wouldn't have bought any of it at $50. I had been watching them for quite a while with all of the pumping of the stock that WCAM had done over the years. I started buying too early last fall, but it has worked out well. If oil had stayed at $30 for all of 2009 it wouldn't have. But it did.

>
> someone called it delution and i thinks thats what you are suffering
> from delusions of grandauer.

The stock is $18 today. Why don't you tell me what you think it is worth ? I think they are going to triple production over the next 9months and have 4 times the current quarterly cash flow. Do you think that is something that might get the stock market's attention ?


On Sep 26 02:41 PM bfras921 wrote:

> look,im long atpg but you are extremely bullish because you own alot
> of shares
>
> first off, telemark is late, last year they said they would be producing
> in q3 09
>
> 2.you keep saying this thing is worth 5.0 b, will if its worth 5
> billion sell off 20 % at 1 billion and pay all the debt off and stop
> diluting us
>
> 3. debt is out of control
> 4th. mgt could have bot back shares at 4. instead they issued more
> at 8 and some more this week. you said they would be buying back
> share. instead they did just the opposite, they issued shares
> 5. the interest on the debt is 100 m per year 1 m every 3 day's<br/>6.
> when they sell of titan or innovator just means they have a new operating
> expense they didt have before
>
> that like buying a bmw for 100,000 and you neeed cash so you sell
> the car and lease it back. he leas payment will exceed the acquisition
> cost
>
> atpg spends the money first, then raises money after the fact to
> cover the invesment
>
> they got it azz backwards. they should raise the money , thend spend
> it.
>
> if they did that they could have sold 20 m shares at 50 and raised
> one billion in cash, now they are diluting everyone cause their back
> is against the wall
>
> someone called it delution and i thinks thats what you are suffering
> from delusions of grandauer.
>
> let say they do 600 m in cash flow next year 100 m goes to interest,
> 50 m to principle leaving 450 m for cap exp. they need another 1
> b for octobuoy, so there is nothing for debt repayment even though
> production has soared
>
> get real, please

Sep 27 08:24 AM

[Biotechboy6:]

Devon,

I want to thank you for your thoughtful analysis and patient responses to often poorly and hastily written criticisms.

Many of the critics seem to be agitated by the share dilutions. While annoying, one has to understand that the debt issue has to be dealt with. It is my opinion that management recognizes that the future value in the infrastructure and reserves is most likely much higher than the conservative estimates. When faced with the option of selling more infrastructure vs selling shares, I think that the latter option is preferable as it does not preclude the realization of larger than expected reserves and higher future oil prices.

Disclosure: I own shares of APTG

Sep 27 12:10 PM

[HarryW:]

Devon,
I'd like to echo the remarks made by Biotechboy. I started acquiring ATP stock after reading the second of your excellent articles on the company. I've been diluted twice now, and I must admit it's painful. Even so, management is in the best position to judge what is best for the company and its shareholders, so I'm backing them and putting my faith in their superior knowledge. Whatever the final outcome, I won't be blaming you for it. Many thanks for drawing my attention to this rare investment opportunity.

Oct 03 11:32 PM

[HarryW:]

Devon,
Forgive my poor use of English. I meant to say that I will give you full credit if this turns out well, and take responsibility for my own investment decisions if it doesn't.

While I'm here again, let me ask you a question. Have you come across a convincing projection of 2010-2011 cash flows in different production and oil/NG price scenarios. If not, do you think it would be a worthwhile exercise? (P.S. I'm thinking of doing so).

Oct 03 11:58 PM

[Devon Shire:]

Harry,

Thanks for the comments.

I think your approach of trusting management with making the right decisions is all that we can really do. CEO Paul stands to lose more than any other person when they dilute, so I believe they make the decsisions carefully in the best interests of shareholders.

I was actually to the point of kind of hoping for the latest dilution. At $20 a share taking the debt issues of the table in exchange for losing some value per share was a good trade in my opinion.

I have done some pretty detailed work on cash flow for next year. I'd encourage you to do some of your own. I've posted some if it on the Motley Fool ATPG board.

Production is going to ramp up in a big way and very soon. There are six big wells that are going to come on production in the next 9 months. 1) Gomez sleeve shift - adds 5,000 BOE per day in Q4 2) Canyon Express - drilling right now, will add likely 20 million or so cubic feet per day to ATP 3) Mirage #1 - 5,000 BOE early 2010 4) Mirage #2 - 5,000 BOE 5) Morgus #1 - 5,000 BOE 6) Atwater 63 subsea 7,000 to 10,000 BOE per day

Current production is 100 million per day. These combined are over 180 million per day and over 70% oil combined (Canyon is all NG, the others close to 80% oil).

Because the shift to a higher percentage of oil, this triple in production will have an even bigger impact on revenue and cash flow. By the time they get to Q3 2010 their annual run rate of revenue will exceed $1bil (using current commodity prices). Cash flow from operations will be 70 to 80 percent of this.

I just can't imagine a company with a better chance of having a large share price increase over the next year, even after the rise from when I started writing. Nothing is guaranteed. But what I see is.

1) Further balance sheet improvements with $300mil from the Titan and $160mil from the Telemark pipeline. Another $200mil of debt will be repaid from this.
2) Production takes large steps up almost every other month and will be 3 times the current level by the middle of next year
3) Revenue and cash flow will increase even more than this as the company moves to a higher oil component
4) I believe they will be selling their oil and gas at higher prices than today, and today's prices is all that I have considered in my numbers
5) We are going to get reserve increases at Telemark (we already know Mirage is much larger than they have on the books) and I believe both Morgus and Atwater have potential for signficant increases
6) We will realize that there is another big step change coming after Telemark, as they are continuing with Cheviot with a target of 2012 and it will produce at a rate similar to Telemark

Oct 04 11:14 AM

[HarryW:]

Thank you, Devon. I will do some digging of my own and publish the findings here when they are ready.

Oct 04 05:55 PM