ATP Oil & Gas (ATPG) -- an E&P company without the "E". This company follows behind the larger companies operating in the Gulf of Mexico and the North Sea (off the UK coast), picking up the small scaps they left behind. They get small Proved Undeveloped (PUD) and Proved Developed Not Producing (PDNP) properties and then do whatever is needed to get them producing. Usually, this is either a recompletion in a new zone or maybe a sidetrack off of an existing wellbore.
They do no exploration themselves and thus are less risky than most other E&P companies. Other companies have used this "acquire & exploit" strategy but this is the first one that I've seen that is doing it successfully offshore. They have around a 97% success rate in converting PUDs and PDNPs to proved developed producing (PDP) properties.
They have had some problems in the recent past but appear to now be turning the corner. CIBC put out an update on them about a month ago which called for $3.50/share in '03 cash flow. Given that their stock is trading around $4.10 (and was trading in the $3's when the report was written) you might think that CIBC would have a "strong buy" opinion on the stock. Instead, they are only at a "market perform".
The big reason for the disconnect with the fundamentals here is that this company had the misfortune of having a bad first year as a public company. They went public in 2/01 (remember that was right around when natgas was going nutty), at around $13/share. '01 turned out to be a pretty rough year for them, and the market cremated their stock (even taking it under $2 in Feb '02).
But now they have started to put the numbers on the board and the market is slowly realizing this. They have a significant amount of debt but it is well covered (CIBC projects a 9:1 EBITDA/Interest ratio for '03).
The catalyst that will move the stock over the near term, IMO, is that they should be announcing the test results of their first well ever in the North Sea sometime in early January (at their Helvellyn prospect). This well was drilled by British Petroleum in the mid '80's, but because it "only" discovered 32 BCFE of gas and "only" tested at 29 mmcf/d, they decided not to develop it. The initial well was a vertical well but ATP's well is going horizontal through the expected pay zone, so ATP's well should produce at a much higher rate.
Evidence of the high value of this Helvellyn play is that they were able to farmout a half interest in it for an astounding figure of $17 M. This appears to be several multiples of the all-in finding & development costs for this project. The farmee is a local privately held company. When the locals farm in to a prospect put together by a foreigner, and pay as high a promote as this, it is a good indication that this is a very good prospect!
I see this stock making a significant move come January when they announce the Helvellyn test results. After the initial pop and subsequent obligatory slide back on profit taking, I would expect CIBC to come out with an update report which would raise their opinion on the stock to a "Buy", after which I believe we will be looking at a $6 stock at least, maybe even $7. Since about 70% of their US production is gas the stock performance will probably be somewhat tied to natgas prices.
Even though I like Callon Pete more for the long term, I believe this one is gonna have more action over the next few months. I know a lot of BBR fans are looking for short-term plays so here you go.
Over the last month, mostly on the strength of the CIBC report, the stock has moved from around $3.50 to a tad over $4. It seems to have found a home at the $4 mark, so if you want to own this you will probably have to put in a bid starting with a "4". I would not chase it much higher though since it seems to sell off every time it goes over $4.20 or so. |
