Is ATPG A Potential Takeover Target?

 |  About: ATP Oil & Gas Corp. (ATPAQ)
by: Gedeon Heller

The first thing I do when analysing ATPG (ATPG) is tear up its balance sheet – literally. That is, print it off, glance it over, and then physically tear it up.

All I care about is how much oil is in the ground,- proved reserves.

Here is the simple business summary of the company taken from Yahoo Finance:

“ATP Oil & Gas Corporation engages in the acquisition, development, and production of oil and natural gas properties in the Gulf of Mexico, the United Kingdom, and the Dutch sectors of the North Sea. As of December 31, 2010, it had estimated net proved reserves of 126.4 million barrels of crude oil equivalent (MMBoe), of which 83.9 MMBoe were in the Gulf of Mexico and 42.5 MMBoe were in the North Sea. Its reserves comprised approximately 75.1 million barrels of crude oil or other liquid hydrocarbons, and 307.8 billion cubic feet of natural gas. The company also owned leasehold and other interests in 51 offshore blocks and 88 wells comprising 24 subsea wells in the Gulf of Mexico, as well as had interests in 13 blocks and 3 company-operated subsea wells in the North Sea. ATP Oil & Gas Corporation was founded in 1991 and is based in Houston, Texas.”

Okay, so 126.4 million barrels. Last time I checked, WTI was trading at around $100/barrel. Lets ignore that ATPG sells its oil for a substantial premium over WTI (20%+). Lets also ignore all of ATPG’s unproved reserves and value them all at 0, even though they have the potential to be worth billions. Using some simple arithmetic:

$100 x 126.4 million = $12.6b

Below are ATPG’s platforms as described in their annual report:

“As of the date of this report, we own an interest in 29 platforms, including two floating production facilities in the Gulf of Mexico, the ATP Titan at our Telemark Hub and the ATP Innovator at our Gomez Hub. These floating production facilities are fundamental to our hub strategy and business plan. The presence of these facilities allows us a competitive advantage for additional acquisitions in a large area surrounding each installation. A third floating production facility called an Octabuoy is under construction in China for initial deployment at our Cheviot Hub in the U.K. North Sea. We operate the ATP Innovator and the ATP Titan and also expect to operate the Octabuoy when it is placed in service. The floating production facilities have longer useful lives than the underlying reserves and are capable of redeployment to new producing locations upon depletion of the reserves. Accordingly they are expected eventually to be moved several times over their useful lives.”

Most the money borrowed by ATPG (around $2b) was used to pay for all that stuff listed above. To me that sounds like a good deal.

ATPG currently has a market cap of around $380m. This figure is completely random. It has no meaning. The only thing I get from this number is that it’s low, really low. If someone offered $1b for the company they would be getting it for damn cheap.

Enough has been written on the amount of short selling of the stock so I’m not going to go there. But I will say, the company is heavily shorted and this obviously hurts the share price. Let’s ignore the shorts though, I really don’t care about their strategies or why they are shorting or if they will ever cover. Good luck to them.

I am, however, a lot more interested in ATPG’s creditors (who ironically are some of the same people shorting the stock). ATPG has a very complex and intricate web of financing which has been primarily debt fuelled. I’m not going to even try to break it down or explain it. I’m just going to simply ask the question, if I were a creditor would I give ATPG more time, or would I force them into bankruptcy? Personally, I would give them more time, because bankruptcy takes even longer, and I would have a much greater chance of recovering my money by allowing ATPG to monetize their reserves instead of fighting it out in bankruptcy court where the lawyers become the main beneficiaries (shiver).

Yes, ATPG could go bankrupt. If I had the money I would take over the whole company, pay off the creditors and then watch myself move up the Forbes rich list, maybe even make the top ten with those sorts of reserves. ATPG is so speculative but it has potential. It is definitely an all or nothing play which could lead to a nice payoff at these prices. I see it as a potential takeover target although only time will tell.

Good luck

Disclosure: I am long ATPG.