There have been billions of dollars in takeovers in the US oil patch recently, with the most active area by far being the Gulf of Mexico. Apache Corp (APA) made two acquisitions – buying some offshore properties from Devon Energy (DVN) for $1 billion, and then spending $3.9 billion for Mariner Energy (ME) the next week.
One of the largest independents in the Gulf is ATP Oil & Gas (ATPG), and with 200 million barrels in reserves, growing production and a new flexible debt facility – no significant repayments until 2015 – positions the company well for a major or large intermediate looking for a five year growth engine.
And of course, the question is, if ATP were to get bought out, what kind of price could investors expect? Mariner and ATP are similar enough – both having close to a 50/50 oil gas mix with oil in the Gulf of Mexico and natural gas assets elsewhere – that a rough valuation comparison is possible.
ATP’s new powerpoint shows an 2010 exit rate –how many barrels per day they will be producing on December 31 2010 – of 48,000 bopd (barrels of oil per day production). They are giving guidance of 7000 bopd on each of the four wells they expect to bring onstream at their Telemark hub in the Gulf of Mexico this year – which I would suggest is at the low end.
(However, management was disconcertingly vague on the actual production of the first one that just was put into production, the AT63 well. Nor do we know the terms of the new $1.5 billion debt facility.)
It’s good for this team to keep expectations low as they have missed guidance in each of the last quarter, and could miss again when they report Q1.
Analysts put the Mariner purchase in the range of $60,000 per flowing barrel (which means that if you multiply the barrels per day production of the company by $60,000, that will equal the sum total of the market cap of the company plus its debt – called the Enterprise Value – which is the price an acquiring company pays).
So if I want to guess at what I think a fair value for ATP might be at year end, here are a couple ideas: I would use (minimum) $65,000 per flowing barrel, as ATP has a higher oil weighting (65% oil at year end, vs 65% gas for Mariner), and therefore their cash flow would be greater per barrel and deserves a higher price.
Now multiply that by 48,000 bopd of year end production, which equals $3.12 billion. That is what I believe an acquiring company would pay. Now to determine what share price that works out to, subtract the $1.5 billion of debt that ATP has, to get $1.62 billion.
Divide that by the roughly 50 million shares to get a per share valuation of $32.40. An exit rate in 2011 of 65,000 bopd equals $54.50 a share. That does not take into account any of the $2 billion in infrastructure the company has between its 3 hubs (which is one of those huge offshore oil platforms) – Gomez, Telemark and the still being built Octabuoy, which will be deployed in the North Sea.
I find it odd that very low producing rates but long life onshore production gets valued significantly higher than Gulf of Mexico (GOM) production, but the annual threat of hurricanes, high capital costs and usually short life reserves combine to drive valuations lower.
Another metric is Net Asset Value. Many producers trade at or near their NAV, but in their powerpoint management shows a current enterprise value (market cap + debt) of $2.1 billion and an NAV of over $7 billion, for a very cheap 30% of NAV.
Disclosure: I own 1000 shares of ATPG.