ATP Oil & Gas Co.
Understanding the Downside

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By IdiotSuivant
February 12, 2010

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This has to be one of the best boards in Fooldom. Swizzled, the time you've been with and spent on this company is impressive and much appreciated. I'm encouraged to see DB and C9 here, as well. I read all your (and a few others') posts back to the beginning, listened to last week's presentations, and bought a position the day before yesterday.

With $336m in liquidity, Titan un-half-sold, and $420m in capex spending that they can't let up on--and that, as DB notes, will likely be spent swiftly--they really can't afford any hiccups.

I'm not savvy enough about debt to understand why "unsecured senior debt" means a convertible, but I assume it's what C9 said: this is the only sort of debt on which they'd be able to get reasonable terms. (I get what a convertible is and why it's cheaper money.) Please (anyone) correct me if I'm missing something (or everything!) here.

And Swizzled (great name, btw): you say above that the non-asset-sale-facility loan--the one with $1b and change left on it--doesn't carry the 75% debt-paydown requirement (sweep-aside? what's the term for this? garniture? heh), but the Second Amendment refers to the term loans, plural. It sounds as though this requirement is now being applied to the first loan--if they issue unsecured senior debt, 75% of the proceeds will have to go toward repayment of both loans. (We think there's call it $50m left on the $600m loan, so further proceeds would have to go toward repaying the $1b loan. Otherwise, why the plural? C9--if you're there--can you speak to this? (And you're a money-manager, aren't you? Can you tell me anything about Blackrock's reputation?)

They're obviously sitting on a lot of oil, but it isn't flowing yet and they're also sitting on a lot of debt. The fact that this year's capex budget is 90% of current book value is attention-getting. (Of course, equally so is the fact that their market cap--and BV!--is a tenth of their reserves' PV-10 and their infrastructure.) Dilute by 50% and you've only raised $700m, and only $175m if 75% has to go toward debt repayment. How many hiccups before further dilution still would be required?

Not nay-saying, here, but wondering how well I understand the downside, because I'd like to buy twice what I did. If things go well, this will be the investment of my year. My step-father was a wildcatter, though, and I remember how much can go wrong, even after the casing's laid. If three of the wells that are expected to begin producing in the next six months for whatever reason fail to do so, could these guys end up someone else's lunch for $2/share?

Thanks in advance for any responses, and for everyone's work already: it was a pleasure to read through it all.

Cheers-- Beau