Can ATP Oil & Gas Make a Comeback?

Sometimes future prospects aren't good enough for a company to sustain business performance. The state of the balance sheet also plays a big role in keeping up investor confidence. And that's exactly what has been plaguing ATP Oil & Gas (Nasdaq: ATPG  ) . With its first-quarter results proving to be quite a disappointment, should investors continue to harbor high hopes for this stock?

Skeptical so far
Analysts at the Fool have been debating the company's merits and demerits. While recommending a wait-and-watch-from-the-sidelines approach, their general opinion has leaned more toward the skeptical side. A debt load of $2.1 billion is proving to be the biggest block for investors. The unimpressive results, I think, justifies their reluctance.

Total production fell 13% from last year's first quarter to 2 million barrels of oil equivalent (Mmboe), and the proportion of liquids and condensate fell to 63% from 68% in the comparable periods. As a result, revenues slipped 12% to $147 million.

For the second quarter, management gave production guidance that's a little too vague. A range between 1.6 Mmboe and 2.3 Mmboe doesn't really show signs of improvement. Making matters worse, the company is looking at a two-week production shutoff at the company's Telemark Hub. Shell Pipeline Company, a subsidiary of Royal Dutch Shell (NYSE: RDS-A  ) , intends to close a pipeline for two weeks to connect a new platform. From an investor perspective, these signals aren't too encouraging.

A silver lining?
Looking beyond the second quarter, a production increase hinges on getting the Clipper wells online. At 16,000 Boe/day, 62% oil, a 50% increase from current production levels can't be ruled out here. But the question is, will investors have the appetite to undertake the risk and wait till the third or the fourth quarter?

That's where the company's Israel operations come to play. ATP began drilling an exploratory well last month in the Shimshon block in the Mediterranean Sea, where natural gas reserves are estimated to be between a staggering 1.5 trillion cubic feet (Tcf) and 3.4 Tcf. The initial results are expected in the third quarter, coinciding with the expected commencement of production from the Clipper wells.

Given the location's proximity to key Asian markets, this discovery could be a game-changer for ATP. The biggest reason to be bullish about the discovery is Noble Energy's (NYSE: NBL  ) continued success in the adjacent fields.

Foolish bottom line
Things do look risky, but I'm still willing to bet on a recovery. If the Clipper wells start adding to production as expected, then there is hope. It makes sense for investors to wait till the third quarter for a clearer picture to emerge. Meanwhile, you can keep abreast of the situation by adding ATP Oil & Gas to your free Watchlist.

If you like energy stocks, we have a stock idea that could knock your socks off. Read about it right here in The Motley Fool's special free report on the energy industry and its best prospects. It's free for a limited time.

Fool contributor Isac Simon does owns no shares of any of the companies mentioned in this article. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (3) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 18, 2012, at 10:18 AM, AirForceFool wrote:

    The recent share price drop has me a bit fluxed... I have acquired shares over the years such that now I have a postion equal to 6x my normal portfolio position... so overweight is an understatement. Always seeing the good news on the horizon, and hopeing (a bad strategy) that they will pull their heads out and pay down debt. Not willing to add at this point, but willing to hols shares a while longer to see how things play out. Chris

    Long ATPG but watching closely.

  • Report this Comment On May 18, 2012, at 2:51 PM, sydisquid wrote:

    europe is headed into a recession and much worse than that is on the horizon. disaster in europe would send the markets reeling and oil prices would tank on fears of weak demand in a recession environment. what would $50 barrel do to ATPG?

    long but worried.

  • Report this Comment On May 29, 2012, at 7:34 PM, tkell31 wrote:

    So when ATPG was 18+ it was a top stock, but now that it's sub $6 the fool is sitting it out. Lol, a guy could go broke listening to recommendations from foolish writers.

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