peachberry_tea

Fundamentals of Potash

Great information - this is the best piece I've read about potash to date. Thanks for the excellent research.

Silver Wheaton: Propelling Itself to the Top of the Food Chain

hey got a question for you: for the silver miners that SLW deals with, is there some sort of contractual obligation for the miners to produce a certain amount of silver per yr? or does SLW just get whatever they end up producing?

thanks

10 Upcoming Catalysts for ATP Oil and Gas

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

Seven Reasons Why the Coke-Huiyuan Deal Failed

Very insightful piece. Thanks for doing it.

Using Sector Weight Analysis to Identify the Next Bubble

siegel said something very similar about identifying bubbles - look at the market cap of all companies in a sector. if the value of the entire sector is growing too quickly then it's a bubble. agree with author on this much

but to say that energy isn't going to go up because it's close to its "long run average" % of the S&P is suspicious though.. because the weightings of sectors on the S&P/market changes over time.. and if you make the fundamental argument that over the long run the global economy is booming (and 2008 is just a hiccup) then it makes sense that materials and energy sectors will grow relative to the sectors on the S&P.. and therefore if these sectors are to grow then their weighing should also increase above and beyond the "long run average"

Three Compelling Chinese Stocks

Excellent analysis - thanks for the writeup.

Had a few questions for you if you don't mind:

NEP:
1. I was wondering how they came up with the 75m barrels of reserves. I understand that they had 3rd party assess their proven reserves but I'm not sure how they got their probable reserves numbers - are those management estimates? Do they have a PV10 for their probably reserves?
2. How did they arrive at that 35% extraction rate? Is that pretty typical for the industry/the type of oilfields they have? I don't know the industry so if you could provide a bit of insight into that

GSI:
1. Could you talk about their liquidity? Their current ratio is looking a bit ugly though you make a really good case for their value.

10 Upcoming Catalysts for ATP Oil and Gas

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.

China North East Petroleum Catapults to the Next Level

Hmm I'm going to try and answer my own question now that I've actually gotten a chance to look at their 10K

Their proven developed reserves were determined by an independent party.. and that's 5.4mil barrels like you mentioned. How bout their probable/possible reserves? Were those management estimates or where did those reserve figures come from?

China North East Petroleum Catapults to the Next Level

Hmm one more question.. where does that 35% recovery rate come from? Is that typically how much they expect to recover from their fields or is it just some very conservative number used to estimate reserves? If it's a very conservative recovery rate then what's a more realistic recovery rate?

China North East Petroleum Catapults to the Next Level

Hey Nawar, thanks for the great article.

Wanted to get your thoughts on how reliable their reserve numbers are or where those numbers come from. Do they hire 3rd party engineers to determine the reserves? Or did they know how much oil was in the ground when they got they leased the stuff from PTR or whoever? If you could shine a bit of light on that that'd be great.

Thanks again

10 Upcoming Catalysts for ATP Oil and Gas

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?

10 Upcoming Catalysts for ATP Oil and Gas

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

ATP Oil & Gas's Forgotten Infrastructure Value

Hey Devon,

Thanks for the reply. You make some really good points and it shows you’ve really done your homework. This discussion has been a breath of fresh air compared to what usually passes for discussion on boards.

Would you mind linking me to the credit agreement if you have that handy? I just knived thru what you copied onto the msg and I’ll need a closer look, but it looks like it doesn’t it includes any short term payables, etc.

This’ll bring us to (1.3b-1m)/300m so they’re still out but a lot closer than what I had before. Once they pay down the 300m asset facility that’ll bring it manageably close to 3/1. So they’re fine if they pull off that sale-leaseback deal with the Titan because that should take net debt down to 1.0b. They’ll need oil/gas prices help their ebitdax out (hopefully those rumours of high oil inventories/lack of demand doesn’t send prices down again).

Hmm.. I guess the conclusion is we can’t be completely certain at this point that they’ll comply with the covenants. It’s possible for them to make it but it’s going to take some work. There’s always the risk that a storm could hit them and they’ll lose production in the latter part of ’09 and that could hurt their ebitdax in Q4. Of course, all this wouldn’t matter if they could secure a waiver. I’d really like to see them get a waiver because it’s still too close for my liking (I’m a value investor and I like sure wins), or even cut down on capex. It would've been good if the CFO addressed this openly too, and just said they were going to work wit the bank or do what's necessary to meet the covenant.

But anyhow, worst case scenario is they sell some assets to make the ebitdax number. Their valuation is good enough that even selling off some properties at firesale prices and it's still a bargain. And as you pointed out if there’s a sale then they should be able to generate at least some gains. Either on the pipelines or one of their properties (I assume it’s on their books cheap enough to generate a gain).

Devon are my conclusions now in line with what you’re seeing?

ATP Oil & Gas's Forgotten Infrastructure Value

hmm.. i've been looking into ATPG for the past few days.. i agree with most of your assessment that this is a fantastic value but there's also a catch - i'm not sure how they'll keep from breaching their net debt/ebitdax covenant, once their gain on sale is removed from the calculations in '09 Q4

if you project their Q1 EBITDAX over '09 (around $50M in Q1 * 4 = $200M for 2009) and compare it to net debt ($1.7M) then you'll see that practically no amount of debt reduction will get them under 3/1 net debt/ebitdax. even if they pay off the $296 left on their asset facility it's still only $1.4M/$200M, which is 7/1.. at this point they'd have to earn or sell of assets (at a gain) for about $300M to make the 3/1 (i.e. 1.4M/(200+300M) ~3/1)

another cause for concern is how the CFO handled the EBITDAX question in their conference call.. when asked about their covenants and what EBITDAX ATPG were using that has staying within the their covenants in '09, the CFO said EBITDAX was "driven off our internal estimates of production and we have not revealed that at this point". this was a huge red flag for me. while i haven't looked at their production figures in detail, it seems like a stretch to make a $500M ebitdax figure that'll keep them in compliance with covenants.

you can see the conference call transcript here: seekingalpha.com/artic...

now i know you've stated that the lender shouldn't have problems even if the covenants are breached because ATPG should be able to make its debt repayment. as a general statement i'd completely agree with it. to simply shrug off a potential covenant violation based on such a general statement tho - i think that's dangerous. i don't know who their lender is (i haven't looked) but it's entirely conceivable the lender may have its own liquidity issues and will use the covenant breach to call in its loan. now this is a very extreme case, but i think to invest in ATPG you have to realize that this risk is there, however remote, because this changes yoru risk/reward tradeoff in the invesetment

overall, i still think ATPG is has a very good risk/reward tradeoff despite what i've pointed out above. i think the upside and value that ATPG represents is probably worth the risks i've mentioned above. i haven't forgotten about the 20% insider ownership, or the fact that the CEO knew all about their covenants when he made that 80k share purchase. i also believe that ATPG should be able to secure a waiver from its covenants if necessary.

hmm if there's any disagreement with what i've presented above i'd love to hear it. in fact, i'd love to be completely wrong, because ATPG is a screaming value and a multibagger in 5 yrs or so, no matter how you valuate it, and i'd like to put money into this

disclosure: no positions

ATP Oil & Gas's Forgotten Infrastructure Value

Devon,

Thanks for the clarification. Where did you get the pv10 for their p2 reserves if you don't mind me asking. Was that also in their 10k? I'm new to following ATPG so I'm just getting oriented.

I think you have a pretty good investment thesis though. Thanks for the article.