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Value of ATPG's MC 348 Deepwater Exploratory Rights?

|Includes: ATP Oil & Gas Corp. (ATPAQ)

"In July 2010, ATP sold its interest in the deep rights in MC 348. The deep rights at MC 348 are unexplored but adjacent to the third party Appomattox discovery announced earlier this year. In addition to the cash proceeds, ATP retained a 10.005% overriding royalty interest that decreases to 1.6675% following the conclusion of deepwater royalty relief."

I have been thinking about the potential value of this divesture. I believe it is quite meaningful that ATPG will receive a little more than 1 out of every 10 boe produced for the deepwater exploratory rights for ATPG's 67% interest in MC 348. And yes, I confirmed that ATPG receives 10.005% from the field for their 67% interest in MC 348.

So how large could this be and for how long does ATPG receive the 10.005%? Under the Deepwater Royalty Relief Act if the depth is greater than 800m then the first 87.5MMBOE is royalty free. Looking up the total production on the BOERME site I found that over its life MC 348 has produced 150k barrels of condensate and 111bcf of NG. That means that 68.8MMBOE is left in royalty relief. So the potential, future value dollars, is for the rights sale to be worth price per barrel*68.8mil. Granted it won't be 100% oil, but one can easily see in future value dollars that the overriding royalty interest could be worth half a billion dollars. Oh and what is the odds that a find exists under MC 348? Obviously someone thinks the odds are pretty high or they would not have pursued the deal and paid some unknown amount of money upfront. Don't forget the Appomattox find is on MC 391 and MC 392, and if you are wondering the location of MC 348 relative to that find look at slide 22 of http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9Mzc2Mjk1fENoaWxkSUQ9Mzc1MDA0fFR5cGU9MQ==&t=1

Again, I wonder how much money ATPG received in July and one must ask themselves why they wouldn't just accept a complete buyout of their MC 348 interest if they were so desperate for cash as many claim instead of the potential to receive more than half a billion in future royalties. Mmmmmmm. It does make one wonder, doesn't it?

Best,
Sam



Disclosure: Long ATPG and others