On Thursday, not for the first time, ATP Oil and Gas reported a disappointing quarter. The stock closed down by nearly 10%, and lost slightly more Friday. On the conference call, one analyst lambasted the executives for underperformance and demanded meaningful management change. There's little doubt that he spoke on behalf of many unimpressed shareholders.
Though production for the quarter was within management's prior guidance, it was lower than in the year-ago period, and the second quarter figures to be lower still. The stock's swan dive, however, probably resulted from reported troubles with the Telemark workovers. Specifically, a piece of tubing is stuck in the A2 well, and they're having difficulty dislodging it. Though management reaffirmed their expectation for a boost to production of 4-7 mboe/day by the end of the second quarter, it was a stomach-churning reminder to shareholders that the debt-addled company has little room for error. Either the Telemark field is not the gem it was made out to be, or the steaming analyst was correct in his judgment of the ATP operations team.
Still, if the workovers are successful, production is expected to reach 29-32 boe/day. When the Clipper wells come on line early in the fourth quarter - everything remains on schedule - production should reach 45-48 boe/day, and the company will be generating cash flow well above capex requirements. With two wells at Gomez, one small-fry at Tors, and possibly more at Entrada in 2013, the company stands to increase production substantially in the not-too-distant future.
While operations caused more headaches, there was continued progress on the financing side. Al Reese, the miracle-working CFO, secured added liquidity - the cash balance reached $225 million - and made further progress on financing and monetizing the Octabuoy platform. At minimum, it seems likely that ATP will strike a deal to offload the last few hundred million dollars of capital spending onto a partner.
In an earlier post, I mapped out ATP's road to 2015. Though littered with obstacles, if the company is able to bring the next few wells online and close one or more significant financial deals, shareholders will be handsomely rewarded. However, a crushing debt load means the company has little room for error, in a challenging, unpredictable business. It's no wonder the company’s shares are almost evenly split between longs and shorts.
Sources: 2012 Q1 conference call, press release, available at http://www.atpog.com/
Disclosure: The author was long ATP options at the time this article was posted.
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