Devon Shire's  Instablog

I've written twice before about ATP.    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:

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 it’s 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 great source of fee income going forward, but they could let it go for $200mil plus (estimated replacement cost) if they decide they'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.

I own shares of ATP