ATPG: Sending Mixed Messages
Every stock has its pros and cons. However, there are some stocks where the two sides are much more distinct. ATP Oil and Gas is one of those stocks. They have some negative aspects going on, but they also have some positives that create an encouraging view point for investors. Devon Shire explains the two sides, and where he thinks ATPG will come out in the end.
The Concerning
- This quarter included higher than expected operating costs because of a $17.3 million workover expense on the MC 711 #5 well at Gomez. The company explained this as being an one-time item and the normal operating expense run rate would be lower by roughly this amount. I have to be honest, I can’t recall an ATP quarter that didn’t have some sort of unexpected workover expense. Perhaps such workovers are simply just the nature of the business and should be factored into what is considered a normal run rate for operating expenses?
- The capital raising seemingly never ends and the reliability of capital expenditure estimates is potentially an issue. The ATP folks are very creative when it comes to funding their projects, which is great, but the balance sheet has become so complicated I can’t figure out how much of their future production belongs to them and how much belongs to their NPI and ORRI partners. Here are the details from the earnings release…
The Encouraging
- In a word…Clipper – an ATP property that I’ve long been aware of but hadn’t paid too much attention to, thinking it was not going to be of a large enough size to make much of a difference. Here was the update on Clipper from the day prior to the earnings release (operations update(.pdf)):
ATP commenced well operations with the Diamond Ocean Victory drilling vessel at the Green Canyon (“GC”) Block 300 (“Clipper”) #2 ST#1 during the second quarter of 2011. In July 2011, ATP successfully completed and flow tested the well at 45.6 MMcf per day plus condensate of 4,656 Bbls per day. The well is scheduled to be placed on production in the middle of 2012 after completion of the pipeline and tie-back to existing infrastructure.
In the conference call, management spoke further about the successful test well, indicating that they believed this property could produce at 15 to 20 thousand barrels of oil equivalent per day, two thirds being oil. This is a company that produces only around 25,000 barrels of oil equivalent in total right now, so this was a big and welcome positive surprise.
- ATP’s Israel venture has to be considered encouraging. Because ATP has more Deepwater drilling experience than virtually any other non-major they were approached about helping drill some wells offshore Israel. For a small up front capital outlay ATP has a significant piece of what could be a massive natural gas field (with potential for oil under the gas play). A successful strike here and ATP becomes an entirely different company over night. Just how big is the potential in Israel?
ATPG seems to be at a bit of a rocky point right now. They have a few things to figure out before they become rock solid. Once these items are ironed out they will be in much better shape. Let’s hope they can get their act together so oil investors are ready to buy in again.
Quotes taken from report by Devon Shire, Read the entire article here.
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