peachberry_tea

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.

ATP Oil & Gas's Forgotten Infrastructure Value

hmm where did you get your PV-10 figure of $4.7 billion? it says $1.3 billion in their 10K, if i'm not mistaken

ATP Oil & Gas: Value After a Stock and Commodity Collapse

This is excellent liquidity analysis and valuation. If only more articles were like this.

Disclosure: no positions