What is meant by announcement that 33 wells permitted and being drilled are now being suspended - is that in fact an accurate account of part of what Obama said today? Is there a difference between exploratory wells and development wells? How is ATPG impacted?
Thanks for any input.
davidc257
ATPG + Obama announcement of 5/27/10
Re: ATPG + Obama announcement of 5/27/10
David;
All I have heard is that there is a freeze on new drilling permits and that the government will establish tougher safety standards for offshore drilling. Please let us know if you have additional details.
At ATPG's Telemark Hub the Nabors rig is now on the facility and waiting on some equipment needed to complete the MC 941 #3 well. This well has already been drilled to TD and cased. It should not take long to get it on-line. Following the #3 well they will re-enter two more wells (MC 941 #2 and #4) that have been drilled to 9,000 ft (just above the target zone). These wells do need to be deepened and cased before they can be tied in to the production facility. It was hoped the #3 well would be tied in by late June but it may slip into July because of delays in getting some necessary equipment. The #3 well is expected to quickly ramp up to near 10,000 boepd soon after it is on-line. The other two wells should be on-line by Q4. When all four wells are on-line (the discovery well is already on-line) the Telemark Hub should be producing near capacity, which is 35,000 boepd (primarily oil).
ATPG is also completing two more wells into their Canyon Express Hub that should give 2nd quarter production a lift.
Dan
All I have heard is that there is a freeze on new drilling permits and that the government will establish tougher safety standards for offshore drilling. Please let us know if you have additional details.
At ATPG's Telemark Hub the Nabors rig is now on the facility and waiting on some equipment needed to complete the MC 941 #3 well. This well has already been drilled to TD and cased. It should not take long to get it on-line. Following the #3 well they will re-enter two more wells (MC 941 #2 and #4) that have been drilled to 9,000 ft (just above the target zone). These wells do need to be deepened and cased before they can be tied in to the production facility. It was hoped the #3 well would be tied in by late June but it may slip into July because of delays in getting some necessary equipment. The #3 well is expected to quickly ramp up to near 10,000 boepd soon after it is on-line. The other two wells should be on-line by Q4. When all four wells are on-line (the discovery well is already on-line) the Telemark Hub should be producing near capacity, which is 35,000 boepd (primarily oil).
ATPG is also completing two more wells into their Canyon Express Hub that should give 2nd quarter production a lift.
Dan
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: ATPG + Obama announcement of 5/27/10
There is no word yet from ATPG as to how this may directly affect the Company. IMO the completion of the MC 941 #3 well (which has been drilled to TD, tested and cased) should not be halted since it is simply tying in a well that has already been drilled. The deepening of the MC 941 #2 and #4 may be delayed.
Again, there has been no official announcement from ATPG and they probably don't know yet. - Dan
Jennifer Loven and Tom Raum, Associated Press Writers, On Thursday May 27, 2010, 3:10 pm
WASHINGTON (AP) -- On the defensive more than five weeks into the nation's worst-ever oil spill, President Barack Obama insisted Thursday that his administration, not oil giant BP, was calling the shots in the still-unsuccessful response.
"I take responsibility. It is my job to make sure that everything is done to shut this down," Obama declared at a news conference in the East Room of the White House. The Gulf of Mexico oil spill dominated the hour-long session.
He called the spill an "unprecedented disaster" and blasted a "scandalously close relationship" he said has persisted between Big Oil and government regulators.
Obama announced new steps to deal with the aftermath of the spill, including continuing a moratorium on drilling permits for six months. He also said he was suspending planned exploration drilling off the coasts of Alaska and Virginia and on 33 wells under way in the Gulf of Mexico.
The president's direct language on being in charge of the spill response, which he repeated several times, marked a change in emphasis from earlier administration assertions that, while the government was overseeing the operation, BP had the expertise and equipment to make the decisions on how to stop the flow.
As recently as Monday, the top federal official in charge of dealing with the oil catastrophe, Coast Guard Adm. Thad Allen, declined to broadly say the federal government was "in charge." Instead, when asked about that, Allen told reporters that BP was responsible for the cleanup and the government was accountable to make sure the company did it. "I would say it's less a case of 'in charge,'" Allen said when asked about that phrase.
Yet with each passing day, public frustration with Obama's administration has grown, and his poll numbers on the matter are dropping.
Claiming control carries its own political risks for Obama, because any failure to stop the gusher will then belong to the president. But he could suffer politically if his administration is seen as falling short of staying on top of the problem or not working hard to find a solution.
"The American people should know that from the moment this disaster began, the federal government has been in charge of the response effort," Obama said. He was reacting to criticism that his administration has been slow to act and has left BP in charge of plugging the leak.
Obama said many critics failed to realize "this has been our highest priority."
"My job right now is just to make sure everybody in the Gulf understands: This is what I wake up to in the morning, and this is what I go to bed at night thinking about. The spill."
"There shouldn't be any confusion here. The federal government is fully engaged," he said, underscoring his central point.
As he spoke, BP worked furiously to pump mud-like drilling fluid into the blown-out well.
It was an untested procedure but seemed to be working, officials said Thursday, even as new estimates showed the spill has surpassed the Exxon Valdez in Alaska as the worst in U.S. history.
Obama said while the "top kill" procedure being used by BP demonstrated his administration's willingness to try "any reasonable strategy" to stop the gusher, the process "offers no guarantee of success."
Asked about inevitable comparisons between his handling of the disaster with his predecessor's handling of Hurricane Katrina in 2005, Obama said: "I'll leave it to you guys to make those comparisons and make -- and make -- and make judgments on it, because -- because what I'm spending my time thinking about is how do we solve the problem?
"And I'm confident that people are going to look back and say that this administration was on top of what was an unprecedented crisis," he added.
"This has been our highest priority," he said. He conceded that "people are going to be frustrated until it stops."
As an example of the government's hands-on approach, Obama said that BP had wanted to drill a single "relief" well in an effort to eventually stop the leak in several months if all else failed. Instead, the administration insisted on two relief wells being drilled, Obama said.
Over and over, the president sought to counter criticism that the administration was giving too much leeway to BP PLC. "Make no mistake, BP is operating at our direction," he said.
"We will demand that they pay every dime they owe for the damage they've done and the painful losses that they've cost," he said. Still, he acknowledged, "We've got to get it right."
He denounced what he called "the oil industry's cozy and sometimes corrupt" ties with government regulators.
Sen. Frank Lautenberg , D-N.J., a critic of offshore drilling, said Obama had taken an important step to halt the most imminent environmental threat to the Atlantic coast, but he said the danger will remain until there is a permanent ban on drilling in the Atlantic.
"BP's oil catastrophe in the Gulf is a wake-up call for our nation. Giving Big Oil more access to our nation's waters will only lead to more pollution, more lost jobs and more damage to our economy," Lautenberg said.
Obama said the federal government "has acted consistently with a sense of urgency" on the spill. But, he acknowledged a "sense of complacency on the government's part in planning how to deal with the worst-case scenario" before it happened.
He said a cozy relationship between industry and government didn't change when he came into office.
Interior Secretary Ken Salazar "came in and started cleaning house. But the culture had not fully changed at MMS. And surely I take responsibility for that."
But, he added, "there is no evidence some of the corrupt practices that took place earlier took place under the present administration's watch."
He spoke shortly after the head of the troubled agency that oversees offshore drilling, Minerals Management Services Director Elizabeth Birnbaum, resigned under pressure.
"I found out about her resignation today. I don't know the circumstances under which this occurred," Obama said.
A senior administration official said that Salazar had informed the president Wednesday night that he had decided to replace Birnbaum at MMS, after Obama told the interior secretary to make sure that every person under him was capable of doing the job he had. However, Obama was not aware of how the replacement was carried out Thursday morning, said the official, speaking on condition of anonymity to describe private conversations.
Again, there has been no official announcement from ATPG and they probably don't know yet. - Dan
Jennifer Loven and Tom Raum, Associated Press Writers, On Thursday May 27, 2010, 3:10 pm
WASHINGTON (AP) -- On the defensive more than five weeks into the nation's worst-ever oil spill, President Barack Obama insisted Thursday that his administration, not oil giant BP, was calling the shots in the still-unsuccessful response.
"I take responsibility. It is my job to make sure that everything is done to shut this down," Obama declared at a news conference in the East Room of the White House. The Gulf of Mexico oil spill dominated the hour-long session.
He called the spill an "unprecedented disaster" and blasted a "scandalously close relationship" he said has persisted between Big Oil and government regulators.
Obama announced new steps to deal with the aftermath of the spill, including continuing a moratorium on drilling permits for six months. He also said he was suspending planned exploration drilling off the coasts of Alaska and Virginia and on 33 wells under way in the Gulf of Mexico.
The president's direct language on being in charge of the spill response, which he repeated several times, marked a change in emphasis from earlier administration assertions that, while the government was overseeing the operation, BP had the expertise and equipment to make the decisions on how to stop the flow.
As recently as Monday, the top federal official in charge of dealing with the oil catastrophe, Coast Guard Adm. Thad Allen, declined to broadly say the federal government was "in charge." Instead, when asked about that, Allen told reporters that BP was responsible for the cleanup and the government was accountable to make sure the company did it. "I would say it's less a case of 'in charge,'" Allen said when asked about that phrase.
Yet with each passing day, public frustration with Obama's administration has grown, and his poll numbers on the matter are dropping.
Claiming control carries its own political risks for Obama, because any failure to stop the gusher will then belong to the president. But he could suffer politically if his administration is seen as falling short of staying on top of the problem or not working hard to find a solution.
"The American people should know that from the moment this disaster began, the federal government has been in charge of the response effort," Obama said. He was reacting to criticism that his administration has been slow to act and has left BP in charge of plugging the leak.
Obama said many critics failed to realize "this has been our highest priority."
"My job right now is just to make sure everybody in the Gulf understands: This is what I wake up to in the morning, and this is what I go to bed at night thinking about. The spill."
"There shouldn't be any confusion here. The federal government is fully engaged," he said, underscoring his central point.
As he spoke, BP worked furiously to pump mud-like drilling fluid into the blown-out well.
It was an untested procedure but seemed to be working, officials said Thursday, even as new estimates showed the spill has surpassed the Exxon Valdez in Alaska as the worst in U.S. history.
Obama said while the "top kill" procedure being used by BP demonstrated his administration's willingness to try "any reasonable strategy" to stop the gusher, the process "offers no guarantee of success."
Asked about inevitable comparisons between his handling of the disaster with his predecessor's handling of Hurricane Katrina in 2005, Obama said: "I'll leave it to you guys to make those comparisons and make -- and make -- and make judgments on it, because -- because what I'm spending my time thinking about is how do we solve the problem?
"And I'm confident that people are going to look back and say that this administration was on top of what was an unprecedented crisis," he added.
"This has been our highest priority," he said. He conceded that "people are going to be frustrated until it stops."
As an example of the government's hands-on approach, Obama said that BP had wanted to drill a single "relief" well in an effort to eventually stop the leak in several months if all else failed. Instead, the administration insisted on two relief wells being drilled, Obama said.
Over and over, the president sought to counter criticism that the administration was giving too much leeway to BP PLC. "Make no mistake, BP is operating at our direction," he said.
"We will demand that they pay every dime they owe for the damage they've done and the painful losses that they've cost," he said. Still, he acknowledged, "We've got to get it right."
He denounced what he called "the oil industry's cozy and sometimes corrupt" ties with government regulators.
Sen. Frank Lautenberg , D-N.J., a critic of offshore drilling, said Obama had taken an important step to halt the most imminent environmental threat to the Atlantic coast, but he said the danger will remain until there is a permanent ban on drilling in the Atlantic.
"BP's oil catastrophe in the Gulf is a wake-up call for our nation. Giving Big Oil more access to our nation's waters will only lead to more pollution, more lost jobs and more damage to our economy," Lautenberg said.
Obama said the federal government "has acted consistently with a sense of urgency" on the spill. But, he acknowledged a "sense of complacency on the government's part in planning how to deal with the worst-case scenario" before it happened.
He said a cozy relationship between industry and government didn't change when he came into office.
Interior Secretary Ken Salazar "came in and started cleaning house. But the culture had not fully changed at MMS. And surely I take responsibility for that."
But, he added, "there is no evidence some of the corrupt practices that took place earlier took place under the present administration's watch."
He spoke shortly after the head of the troubled agency that oversees offshore drilling, Minerals Management Services Director Elizabeth Birnbaum, resigned under pressure.
"I found out about her resignation today. I don't know the circumstances under which this occurred," Obama said.
A senior administration official said that Salazar had informed the president Wednesday night that he had decided to replace Birnbaum at MMS, after Obama told the interior secretary to make sure that every person under him was capable of doing the job he had. However, Obama was not aware of how the replacement was carried out Thursday morning, said the official, speaking on condition of anonymity to describe private conversations.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: ATPG + Obama announcement of 5/27/10
I just talked to ATPG. As of this morning they have not been contacted by the MMS to shut down their development operations at Telemark or Canyon Express.
Keep in mind that Obama's announcement yesterday said that "Exploratory Drilling" would be shut down. The MC 941 #3 well has already been drilled to TD and cased. The operation that is about to start is just to clean out the wellbore, perf the well and tie it in to the production facilities. The Nabors rig is already on the Telemark platform and ready to start as soon as they get other service providers lined up. Completion operations could start in 7-10 days with first production expected in 30 days after they start. All of the MMS approvals necessary to complete the #3 well are in hand.
After the #3 well is completed the Nabor's rig was going to deepen the #2 and #4 wells. Those wells have been drilled and cased to about 9,000 ft. They need to be deepened another 6,000 to 7,000 feet. I think (but don't know for sure) that ATPG would need to get additional clearance from the MMC to complete these to wells.
Apparently, what's causing the selloff of ATPG is that their Mirage (MC 941) and Canyon Express projects appear on an MMS listing of deepwater projects that is being circulated as projects that could be shut down as result of Obama's announcement necessary. I doubt the MMS even knows what the heck is going on at this point.
Let me add that a complete shutdown of the deepwater area in the GOM will cost the industry somewhere near $75 Million per day. Will BP be invoiced for this cost or will the Feds pay for it (i.e. - the taxpayers). This is going to be lawsuit city.
Dan
Keep in mind that Obama's announcement yesterday said that "Exploratory Drilling" would be shut down. The MC 941 #3 well has already been drilled to TD and cased. The operation that is about to start is just to clean out the wellbore, perf the well and tie it in to the production facilities. The Nabors rig is already on the Telemark platform and ready to start as soon as they get other service providers lined up. Completion operations could start in 7-10 days with first production expected in 30 days after they start. All of the MMS approvals necessary to complete the #3 well are in hand.
After the #3 well is completed the Nabor's rig was going to deepen the #2 and #4 wells. Those wells have been drilled and cased to about 9,000 ft. They need to be deepened another 6,000 to 7,000 feet. I think (but don't know for sure) that ATPG would need to get additional clearance from the MMC to complete these to wells.
Apparently, what's causing the selloff of ATPG is that their Mirage (MC 941) and Canyon Express projects appear on an MMS listing of deepwater projects that is being circulated as projects that could be shut down as result of Obama's announcement necessary. I doubt the MMS even knows what the heck is going on at this point.
Let me add that a complete shutdown of the deepwater area in the GOM will cost the industry somewhere near $75 Million per day. Will BP be invoiced for this cost or will the Feds pay for it (i.e. - the taxpayers). This is going to be lawsuit city.
Dan
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
-
bearcatbob
Re: ATPG + Obama announcement of 5/27/10
"Let me add that a complete shutdown of the deepwater area in the GOM will cost the industry somewhere near $75 Million per day. Will BP be invoiced for this cost or will the Feds pay for it (i.e. - the taxpayers). This is going to be lawsuit city.
Dan"
I think I could be a claimant against BP's pledge to pay damages. Happily, my exposure to ATPG is minimal - I did a call on call spread.
A more painful example is PXP. PXP has a deep water discovery with Apache - I have no idea what is going on there. They also had an offshore deal in California to develop a known field and then shut down some existing platforms. The friggin hero of California - "The Terminator" - terminated that as soon as the spill started.
The economic impact of this seemingly very political decision will be huge. It almost seems like Obama felt he had to do something - do what - do anything - so he did!
I bet if the rig workers were UAW members the halt would not have happened!
Dan"
I think I could be a claimant against BP's pledge to pay damages. Happily, my exposure to ATPG is minimal - I did a call on call spread.
A more painful example is PXP. PXP has a deep water discovery with Apache - I have no idea what is going on there. They also had an offshore deal in California to develop a known field and then shut down some existing platforms. The friggin hero of California - "The Terminator" - terminated that as soon as the spill started.
The economic impact of this seemingly very political decision will be huge. It almost seems like Obama felt he had to do something - do what - do anything - so he did!
I bet if the rig workers were UAW members the halt would not have happened!
-
mdwitte
Re: ATPG + Obama announcement of 5/27/10
Two things...1) LA has a Republican gov, so the Feds are going to make LA "pay"...
2) Clobbering fossil fuels makes green energy seem more attractive...ethanol, wind, solar are financial sinkholes until oil and gas zoom...
ps Yes, I think national politics HAVE sunk to this level...
2) Clobbering fossil fuels makes green energy seem more attractive...ethanol, wind, solar are financial sinkholes until oil and gas zoom...
ps Yes, I think national politics HAVE sunk to this level...
Re: ATPG + Obama announcement of 5/27/10
Stick With Your Energy Plans, Spill or Not
By David Lee Smith, Motley Fool
May 28, 2010
It would be difficult to find anyone involved in BP's (NYSE: BP) Gulf of Mexico Macondo Prospect who, prior to April 20, deeply considered the possibility that danger lurked on the sea bed a mile beneath the surface. But the explosion that occurred on that date have now turned the world of oil and gas in the gulf topsy-turvy.
As you know, Transocean's (NYSE: RIG) semisubmersible Deepwater Horizon exploded and went up in flames that night, killing 11 crew members and setting loose an oil spill that now ranks as our nation's worst.
That oil has now found its way to the Louisiana shore, where the time and money required for cleanup could be measured in years and untold BP shekels.
BP is pumping heavy mud into the blown-out well in a "top kill" procedure intended to halt the spill. But, it appears that it'll be well into the weekend before we have a realistic handle on the procedure's result. That sort of pokey pace and attendant environmental damage on Thursday unleashed a frustrated President Obama, who announced several new measures to deal with the crisis and prevent others:
•A six-month moratorium on new deepwater development in the gulf and halting 33 deepwater exploratory wells currently in progress.
•Cancellation of a lease sale planned for August in the western gulf and another proposed sale off the Virginia coast.
•Suspending a planned drilling program in Alaska's Chukchi and Beaufort seas, where Shell (NYSE: RDS-A) has an ambitions effort set for this summer.
Among the companies active in the Gulf of Mexico and thereby likely to be affected by the extended moratorium are Anadarko (NYSE: APC) and Chevron (NYSE: CVX), while smaller operators like ATP Oil & Gas (Nasdaq: ATPG) have been hit particularly hard. But a friend of mine who has more than 30 years of oil industry experDisney Buys Marvel! David Gardner called it. He’s up 1,334%! See what David’s recommending that you buy NEXT in Motley Fool Stock Advisor.
Try it Free Foience and writes a blog called The Daily Hurricane feels that six months is insufficient. He points in particular to the time required for the development of new technologies needed to deal with deepwater blowouts.
I'm inclined to urge Foolish energy investors to maintain their pre-April 20 approaches to the sector. While gulf production levels may be affected somewhat, increased oil and natural gas prices should provide some offset in the meantime.
By David Lee Smith, Motley Fool
May 28, 2010
It would be difficult to find anyone involved in BP's (NYSE: BP) Gulf of Mexico Macondo Prospect who, prior to April 20, deeply considered the possibility that danger lurked on the sea bed a mile beneath the surface. But the explosion that occurred on that date have now turned the world of oil and gas in the gulf topsy-turvy.
As you know, Transocean's (NYSE: RIG) semisubmersible Deepwater Horizon exploded and went up in flames that night, killing 11 crew members and setting loose an oil spill that now ranks as our nation's worst.
That oil has now found its way to the Louisiana shore, where the time and money required for cleanup could be measured in years and untold BP shekels.
BP is pumping heavy mud into the blown-out well in a "top kill" procedure intended to halt the spill. But, it appears that it'll be well into the weekend before we have a realistic handle on the procedure's result. That sort of pokey pace and attendant environmental damage on Thursday unleashed a frustrated President Obama, who announced several new measures to deal with the crisis and prevent others:
•A six-month moratorium on new deepwater development in the gulf and halting 33 deepwater exploratory wells currently in progress.
•Cancellation of a lease sale planned for August in the western gulf and another proposed sale off the Virginia coast.
•Suspending a planned drilling program in Alaska's Chukchi and Beaufort seas, where Shell (NYSE: RDS-A) has an ambitions effort set for this summer.
Among the companies active in the Gulf of Mexico and thereby likely to be affected by the extended moratorium are Anadarko (NYSE: APC) and Chevron (NYSE: CVX), while smaller operators like ATP Oil & Gas (Nasdaq: ATPG) have been hit particularly hard. But a friend of mine who has more than 30 years of oil industry experDisney Buys Marvel! David Gardner called it. He’s up 1,334%! See what David’s recommending that you buy NEXT in Motley Fool Stock Advisor.
Try it Free Foience and writes a blog called The Daily Hurricane feels that six months is insufficient. He points in particular to the time required for the development of new technologies needed to deal with deepwater blowouts.
I'm inclined to urge Foolish energy investors to maintain their pre-April 20 approaches to the sector. While gulf production levels may be affected somewhat, increased oil and natural gas prices should provide some offset in the meantime.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: ATPG + Obama announcement of 5/27/10
ATP Oil & Gas (ATPG) ($10.16) has provided stock investors with one wild ride, going from $56 in October ’07 to $3 in March ’09, and then to $22 in April ‘10 to $12 yesterday, May 27th , when 26% of the available float traded. ATPG is an small-cap offshore oil and gas development firm with big infrastructure and reserve assets. ATPG focuses on the North Sea and Gulf of Mexico. While future Gulf of Mexico exploration is currently wrought with uncertainty, ATPG’s unique business approach may prove to be very beneficial for long-term investors.
ATPG approaches the oil industry much like Apache (APA) did back in the late 1990s, purchasing cast-off reserve assets from other oil companies, cutting overhead, and further developing the asset. 87% of ATPG’s oil and gas reserves are classified as “proven and undeveloped.” Within these large undeveloped fields lies the opportunity to increase stated reserves as they become developed. When purchased, these fields were assigned a reserve total based on the previous owner’s development history. However, by drilling deeper and using newer techniques, ATPG has the opportunity to increase the amount of oil and gas recovered.
Management’s success ratio in converting undeveloped reserves into developed reserves is 98%, making ATPG more of a development company than most of its E&P peers. For example, ATPG is currently deploying a new large development platform in the Gulf of Mexico named the Titian in order to rework a previously producing field. ATPG has spent $1.2 billion on the Titan and a new production hub called the Telemark Hub. In September ’09, ATPG announced the Hub's Mississippi Canyon lease with 941 wells, and encountered 266 feet of net pay, or triple the amount found in the original results from the previous owner. This was accomplished by drilling deeper into the reserves.
ATPG takes on big projects, needing large investments in infrastructure and capital expenditures. Unlike some, APTG has historically used debt to finance asset acquisitions, infrastructure, and capital expenditures. In “normal” credit times, banks were accommodative to ATPG’s business plan, albeit with expensive and restrictive credit terms. However, when credit became difficult to obtain in early ’09, along with temporary low oil prices that reduced cash flow, ATPG’s business plan became a victim of the times. Assets were monetized, bank fees were paid to loosen loan covenants and, for some, ATPG’s survival was in doubt.
Management spent 2009 and early this year righting the ship – they raised capital through a series of common and preferred share offerings, obtained vendor-provided cap ex financing in the form of NPI (working interests) tied to production, and replaced bank debt with private capital debt. The reward of their efforts is the deployment of the Titan drilling and production platform along with the development of the Telemark Hub.
This asset is the most technologically advanced platform in the world, with a useful life of over 40 years. The Titan/Telemark capital expenditure investment has been $1.2 billion so far, with $300 million allocated for this year. The Telemark Hub is critical to ATPG’s projected production increase from an average 16 mboe/d (35 mmcfe) in ’09 to an exit rate of about 50 mboe/d (58-61 mmcfe) this year, and, by some estimates, over 80 mboe/d (99-117 mmcfe) in 2011.
So far this year, management has been focused on re-working previous wells and tying them into the Titan infrastructure. Production targets are for new wells brought to commercial production in each quarter. Progress was moving ahead and the Street was beginning to notice, exemplified by its stock price rising to the low $20s.
Oil companies are best valued in terms of operating cash flow rather than earnings. ATPG’s substantial production increase is estimated to generate operating cash flow per share of $4.30-$6.60 in 2010 and $13-$16 in 2011.
However, then came the BP (BP) oil spill – and the political and operational uncertainties now associated with the future of Gulf of Mexico exploration along with it. As investors hate uncertainty, the stock has sold off hard, down 45%.
There will be changes in the Gulf of Mexico exploration business going forward that will increase the costs to do business. There will be delays on projects slated for this year. However, for those who believe there will continue to be increasing oil production out of the Gulf of Mexico, ATPG could provide interesting opportunities at its current stock price, but with risk.
As of today, there is confusion on which specific wells and issued permits will be affected by a moratorium, along with the timing/process/requirements for future approval of permits. ATPG utilizes some re-entry of existing wells that may be subject to fewer restrictions.
The production profile outlined in ATPG’s latest investor presentation lays out the medium-term opportunity for growth. Cash flow estimates are based on this profile. The issue for APTG going forward is not its production profile, but the timing of achieving these rates.
ATPG has the ability to generate more cash flow than its current share price. Today’s new investors will be well rewarded by accepting the risk of the timing of higher production. ATPG is a higher risk / higher reward opportunity with current share prices selling at a 55% to 65% discount to its NAV of $27 - $35, and as low as 0.75 x cash flow at production rates of 80 mboe.
It is important to adequately conduct due diligence with ATPG. Management carries plenty of leverage that is more than offset by substantial project-oriented assets. There is a large short position on ATPG, some as a hedge associated with the recently issued preferred offering and some betting against the company. The ability to monetize its assets provided a safety net for management and investors during very, very tough times, and may be needed again. A good place to start a review is their upcoming annual shareholders meeting and the latest presentation.
Disclosure: Author long ATPG
ATPG approaches the oil industry much like Apache (APA) did back in the late 1990s, purchasing cast-off reserve assets from other oil companies, cutting overhead, and further developing the asset. 87% of ATPG’s oil and gas reserves are classified as “proven and undeveloped.” Within these large undeveloped fields lies the opportunity to increase stated reserves as they become developed. When purchased, these fields were assigned a reserve total based on the previous owner’s development history. However, by drilling deeper and using newer techniques, ATPG has the opportunity to increase the amount of oil and gas recovered.
Management’s success ratio in converting undeveloped reserves into developed reserves is 98%, making ATPG more of a development company than most of its E&P peers. For example, ATPG is currently deploying a new large development platform in the Gulf of Mexico named the Titian in order to rework a previously producing field. ATPG has spent $1.2 billion on the Titan and a new production hub called the Telemark Hub. In September ’09, ATPG announced the Hub's Mississippi Canyon lease with 941 wells, and encountered 266 feet of net pay, or triple the amount found in the original results from the previous owner. This was accomplished by drilling deeper into the reserves.
ATPG takes on big projects, needing large investments in infrastructure and capital expenditures. Unlike some, APTG has historically used debt to finance asset acquisitions, infrastructure, and capital expenditures. In “normal” credit times, banks were accommodative to ATPG’s business plan, albeit with expensive and restrictive credit terms. However, when credit became difficult to obtain in early ’09, along with temporary low oil prices that reduced cash flow, ATPG’s business plan became a victim of the times. Assets were monetized, bank fees were paid to loosen loan covenants and, for some, ATPG’s survival was in doubt.
Management spent 2009 and early this year righting the ship – they raised capital through a series of common and preferred share offerings, obtained vendor-provided cap ex financing in the form of NPI (working interests) tied to production, and replaced bank debt with private capital debt. The reward of their efforts is the deployment of the Titan drilling and production platform along with the development of the Telemark Hub.
This asset is the most technologically advanced platform in the world, with a useful life of over 40 years. The Titan/Telemark capital expenditure investment has been $1.2 billion so far, with $300 million allocated for this year. The Telemark Hub is critical to ATPG’s projected production increase from an average 16 mboe/d (35 mmcfe) in ’09 to an exit rate of about 50 mboe/d (58-61 mmcfe) this year, and, by some estimates, over 80 mboe/d (99-117 mmcfe) in 2011.
So far this year, management has been focused on re-working previous wells and tying them into the Titan infrastructure. Production targets are for new wells brought to commercial production in each quarter. Progress was moving ahead and the Street was beginning to notice, exemplified by its stock price rising to the low $20s.
Oil companies are best valued in terms of operating cash flow rather than earnings. ATPG’s substantial production increase is estimated to generate operating cash flow per share of $4.30-$6.60 in 2010 and $13-$16 in 2011.
However, then came the BP (BP) oil spill – and the political and operational uncertainties now associated with the future of Gulf of Mexico exploration along with it. As investors hate uncertainty, the stock has sold off hard, down 45%.
There will be changes in the Gulf of Mexico exploration business going forward that will increase the costs to do business. There will be delays on projects slated for this year. However, for those who believe there will continue to be increasing oil production out of the Gulf of Mexico, ATPG could provide interesting opportunities at its current stock price, but with risk.
As of today, there is confusion on which specific wells and issued permits will be affected by a moratorium, along with the timing/process/requirements for future approval of permits. ATPG utilizes some re-entry of existing wells that may be subject to fewer restrictions.
The production profile outlined in ATPG’s latest investor presentation lays out the medium-term opportunity for growth. Cash flow estimates are based on this profile. The issue for APTG going forward is not its production profile, but the timing of achieving these rates.
ATPG has the ability to generate more cash flow than its current share price. Today’s new investors will be well rewarded by accepting the risk of the timing of higher production. ATPG is a higher risk / higher reward opportunity with current share prices selling at a 55% to 65% discount to its NAV of $27 - $35, and as low as 0.75 x cash flow at production rates of 80 mboe.
It is important to adequately conduct due diligence with ATPG. Management carries plenty of leverage that is more than offset by substantial project-oriented assets. There is a large short position on ATPG, some as a hedge associated with the recently issued preferred offering and some betting against the company. The ability to monetize its assets provided a safety net for management and investors during very, very tough times, and may be needed again. A good place to start a review is their upcoming annual shareholders meeting and the latest presentation.
Disclosure: Author long ATPG
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
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celtic
Re: ATPG + Obama announcement of 5/27/10
The following is from Seeking Alpha. I have been questioning if there is a ban of off shore drilling what is the long term effect on the US economy? And even with a 6 month ban how will that effect oil reserve - esp if there is a cold winter. Sven Del Pozzo, until recently a senior oil and gas analyst with C.K. Cooper and Co., is nothing if not honest. In this candid interview with The Energy Report, Del Pozzo discusses the importance of Gulf of Mexico oil exploration to the U.S. economy, the need for more reflective oil price markers, how shale gas is keeping investors awake at night and oil and gas companies that could be ripe for the picking. The Energy Report interviewed Del Pozzo in late May, prior to his leaving C.K. Cooper.
The Energy Report: The massive oil slick from the Macondo well in the Gulf of Mexico could result in a ban on offshore oil exploration. What's your take on the fallout from the spill?
Sven Del Pozzo: There's obviously been irresponsibility on behalf of more than one party, mostly BP (NYSE:BP). BP is a British company. These are U.S. waters. Typically we left the waters open to foreign operators, but in this case you'd like to see the bad operators get out of town and the good operators stay. Norwegian companies have an excellent track record of not having injuries and not having spills because they rely on fishing a lot in Norway and they drill where fishermen fish. They make sure there aren't any oil spills. It can be done. I say get rid of the companies that can't do the job. They don't deserve to drill over here.
TER: Do you think there will be a ban?
SDP: I think it's very difficult for the U.S. to ban offshore, exploratory drilling. That's a kind of death for us, because the Gulf of Mexico is the only place where we had production growth enough to cause our production to rise about 2% in 2009. Basically, the Gulf of Mexico allows us to be less dependent on foreign imports. To ban offshore drilling in the best place the U.S. has for oil exploration is really going to hurt our balance of payments and make us more and more dependent on foreign oil. That's going to be a very sour pill to swallow, and it makes me think the economic necessities of the United States are going to prevail over the environmental ones. Rather than saying, "No, you can't drill here anymore," you need to regulate better and make sure the companies that come here are fulfilling certain guidelines for safety and health.
TER: Are you seeing any investment opportunities as a result of the spill?
SDP: ATP Oil and Gas Corp. (NASDAQ:ATPG). It has been really banged up, and I think a lot of it is related to this debacle. It has a big offshore deepwater development called Telemark. Essentially, the future of the company depends on the performance of this one field, at least in the near term. They're in the development phase, so that means they're not exploring. If there's a ban on offshore exploratory drilling, then ATP shouldn't be affected too much because they're already in development and they've never really been known to have exploratory success anyway. If it achieves its production targets, I think it is going to come out from this debacle a winner.
The Energy Report: The massive oil slick from the Macondo well in the Gulf of Mexico could result in a ban on offshore oil exploration. What's your take on the fallout from the spill?
Sven Del Pozzo: There's obviously been irresponsibility on behalf of more than one party, mostly BP (NYSE:BP). BP is a British company. These are U.S. waters. Typically we left the waters open to foreign operators, but in this case you'd like to see the bad operators get out of town and the good operators stay. Norwegian companies have an excellent track record of not having injuries and not having spills because they rely on fishing a lot in Norway and they drill where fishermen fish. They make sure there aren't any oil spills. It can be done. I say get rid of the companies that can't do the job. They don't deserve to drill over here.
TER: Do you think there will be a ban?
SDP: I think it's very difficult for the U.S. to ban offshore, exploratory drilling. That's a kind of death for us, because the Gulf of Mexico is the only place where we had production growth enough to cause our production to rise about 2% in 2009. Basically, the Gulf of Mexico allows us to be less dependent on foreign imports. To ban offshore drilling in the best place the U.S. has for oil exploration is really going to hurt our balance of payments and make us more and more dependent on foreign oil. That's going to be a very sour pill to swallow, and it makes me think the economic necessities of the United States are going to prevail over the environmental ones. Rather than saying, "No, you can't drill here anymore," you need to regulate better and make sure the companies that come here are fulfilling certain guidelines for safety and health.
TER: Are you seeing any investment opportunities as a result of the spill?
SDP: ATP Oil and Gas Corp. (NASDAQ:ATPG). It has been really banged up, and I think a lot of it is related to this debacle. It has a big offshore deepwater development called Telemark. Essentially, the future of the company depends on the performance of this one field, at least in the near term. They're in the development phase, so that means they're not exploring. If there's a ban on offshore exploratory drilling, then ATP shouldn't be affected too much because they're already in development and they've never really been known to have exploratory success anyway. If it achieves its production targets, I think it is going to come out from this debacle a winner.