ATP Update
Yesterday after hours ATP released news that they discovered additional sands at the Mirage Prospect at Telemark, doubling their pre-drill estimates.
Putting this in context, before this find Telemark will double ATP’s production starting in 2010. Now, they are finding that their initial estimates are, well, a bit on the low side.
The stock price has been on a tear lately - but it is only beginning. I’ve documented tha value of this company very well. It has attracted big investors such as David Einhorn, shorts are at still 20% of the float. Short term movements are irrelevant, but I must say it is satisfying to watch it go up, while at the same time I’d love to be able to buy more back at the $3 level.
September 10th, 2009 at 1:49 pm
At the current price (17,50), 782 market cap, I think the company still is undervalued.
Still 20 percent of the float is short, new discoveries, 6 barrels of oil per stock, high growth rate, etc. Have you made up any thoughts on a price range you feel comfortable to sell ATP? I find this harder than knowing when to buy.
September 10th, 2009 at 5:35 pm
NAV as of 6/30/09 was $110/share. Since then oil has gone up and we have the doubling of the pre-sands estimate. This is going to be a growth stock for some time - look at the old presentations, with the reserves going up by a significant percentage year by year.
So, no real answer for you. If it hit $100 today in a short squeeze I’d sell it in a heartbeat, but otherwise I just plan to hold for a year minimum. I think in another year the story will be much better (debt totally paid off, huge free cash flows, quite a few new acquisitions). At that point it will be harder to value - how much to pay for future value - but not too hard. Remember their 98% success rate into turning reserves into producing fields. You don’t have to discount NAV much at all with that kind of success rate.
September 10th, 2009 at 9:10 pm
A word about growth. Look at what happened at Gomez. They initially bought it with 15 MMBOE of reserves in 2003. To date they have produced 15 MMBOE from it, and have another 41 MMBOE in P1 & P2 reserves remaining. It took 2.5 years to achieve payback, after that it has just been free money.
Yesterday’s announcement about the Mirage sands suggests the same sort of story is occuring with Telemark. Telemark, at the original reserve estimates, helps get the NAV to $114, and will double ATPG’s production in a year. If it ends up producing like Gomez (no guarantees), think of 1) the free cash flows it will generate. and 2) the amount of new leases and infrastructure ATP can acquire with that new cash flow.
At Telemark they are starting out with 16 sands, and they are not all accounted for in the reserve reports giving us the $114 NAV. In the deepwater they expect to develop quite a few more sands than these 16. Those 16 sands are based on 8 previously drilled wells - this is not exploration, it’s pure development. Yesterday’s announcement was about a well, one of three new ones currently being drilled by ATP towards TD. They found twice as much as expected, and it equates to 1-2 sands not in the 16 included in the reserve reports.
Meanwhile adjacent to Telemark (next field over) Shell made a major discovery called Vito. There is the opportunity for ATP to either acquire this field or provide infrastructure to Shell, but of course it depends on the scope of the find. Multi-hundred million barrels would mean that Shell would opt to develop it on it’s own. But, it’s a potential for ATP, and it underscores the kind of geology and potential they are dealing with in this area.
Over $100 value just as a stodgy value stock. And this ain’t no stodgy value company.
Buffett wrote about having a ticket with 10 punches available - you only get 10 investment decisions in a lifetime. ATPG would get a punch in that scenerio. Heck, it would get one if there were only 2 punches.
September 16th, 2009 at 5:34 pm
Don’t want to hijack this post or draw it away from ATPG but not sure where else to put it on your blog. Have you ever looked into BreitBurn Energy Partners? I saw them today as a holding Klarman has been adding to since 2007 and found it interesting. Just started looking at the financials this evening but haven’t had the time to read the 10K/Q’s yet as it popped up under a Seth Klarman google alert. Curious if you researched them at all while looking at other oil companies.
Wish I had added more to my position in ATPG when it was in the low single digits. Either way the last couple weeks have been a fun ride.
September 18th, 2009 at 1:16 pm
No, sorry, haven’t looked at them. Haven’t really been terribly interested in MLPs due to the tax burden they impose. Which is not to say it’s a bad thing - just that I focus my attention elsewhere.
September 22nd, 2009 at 2:09 pm
A slew of announcements today - more dilution, debt reduction, and asset sales (Gomez pipe) - I guess they wanted to strike while the (equity) iron was hot so to speak to accelerate the deleverage process.
September 23rd, 2009 at 5:50 am
Do you know how the preferred stock is doled out? The wire says the preferred stock is offered to “eligible buyers” or a private offering. I wonder who is eligible for this and what the conversion price will be. I imagine these are normally done by large buyers or financial institutions compared to individual investors? Just curious how the process would work. Once again not real thrilled about the dilution and don’t know how to calculate the overall potential dilution aside from the common offering. I guess it doesn’t change the fact the stock is still undervalued but makes it harder to calculate by how much.
Thoughts?
October 25th, 2009 at 8:45 am
Not to digress, but are you reading any investing literature at the moment?
November 10th, 2009 at 8:55 am
Sorry, been busy with work and now a new puppy. I’m sure the preferred stock question is answered by now. Yes, it’s normally offered to institutional money. The investment bank shops the issue around to see who’s interested, along with sharing all of the corporate’s information. Yes, it’s no fun to see dilution, but on the other hand the new buyers are buying into that dilution. This is still way undervalued as a ‘failed’ company (fold up tomorrow, sell off all the assets), let alone as a value company, not to mention as the growth company it actually is.
As for reading, I’m not doing too much. Too much information has been shown to reduce your decision making abilities. I just read the quarterly reports, and have google alerts sent to my inbox daily on the companies I own and the investors I track (Berkowitz, Buffett, etc). To date I have been content with my portfolio, but it feels like it is about time to start sniffing around and looking for another bargain. Unfortunately, that is just a ton of work, not much fun, but when you find it, oh boy! The main reading I need to do at the moment is get back to my Fundamentals of Oil & Gas Accounting textbook (highly recommended as a reference, if you are buying other oil&gas companies)
December 20th, 2009 at 6:40 pm
I have a question about what would happen to ATP if there was a catastrophic event (large pipe leak followed by a vapor cloud explosion that kills all the people on the rig and damages infrastructure) on one of their large projects? Would ATP be responsible for incurring all of the lawsuits and environmental costs, as well as the costs of shutting in production and major repairs?
They contract out a lot of their engineering and operations, so would the fact that they own the assets make them liable, or would that risk be undertaken by their contractors?
I know these are small probability events, especially considering the improvements in safety technology in the past few decades, but it would be useful to know if a major incident could cause bankruptcy in a probability based evaluation of ATP.
December 23rd, 2009 at 12:23 pm
Absolutely - their annual report specifically points out in the risk section that there are events that can occur that they are not insured for. As for the very specific scenerio you spelled out, I have no idea - I am not a lawyer, nor am I privy to the details of the limitations of their insurance coverage. But, yes, in general the company could be destroyed by a suitably large event.
January 5th, 2010 at 7:25 pm
It seems Al Reese sold about 20% of his shares of company stock. My figures are of his shares remaining listed on MSN so that may be off a little. I figure it’s a substantial amount though. I also saw today that they canceled a conference due to his upcoming back surgery. Doesn’t appear to be a lot of additional insider selling though but a few developments to watch.
May 31st, 2010 at 7:29 pm
Hey Joshuat,
It’s been a while since you’ve made a post. I just wanted to thank you for bringing ATP to my attention in October 2008. I spent a lot of time analyzing their liquidity and history in order to understand what I would calculate as probabilistic fair values for ATP in the past few years. I bought a lot, and I am beginning to buy more right now.
Sure the memoratium might delay some drilling of wells and therefore cash flow but ATP has the titan online and at least 600 MM of liquidity (300 from debt, 300 from titan monetization) and the wherewithal to live within their cash flows. I did end up buying the Fundamentals of Oil & Gas Accounting Textbook and it has helped immensely.
Thanks again,
Chris
PS. If you come across another stock selling at 0.05 to 0.35 of asset value with good management incentives, a business moat, short term difficulties, and a large amount of uncertainty I would be more than happy to research and understand the risks and benefits to determine appropriate ranges of estimated intrinsic value. Even if you come across a typical undervalued security and you would like some fundamental research help let me know; I owe you one!