ATP Oil & Gas Co.
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By Swizzled
March 26, 2009

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I'm afraid I've sunk so low that I do a considerable amount of posting on the yahoo ATP message board. I'm going to have to wait a long time to realize the value I hope to here, so I guess constantly revisiting this helps pass the time.

I am truly amazed at this point about the 5.5mil shares short out of a total of 36mil. Consider that insiders hold 20% and another 30% at least is held by pretty long term institutional holders and we are talking a big percentage of the available float being short. And that is just the known short holdings.

I tried to come up with a NAV 3 different ways for ATP. Mostly the same old stuff I have posted before and has been discussed elsewhere. The results of the different approaches are pretty consistent and seem crazy next to a $5 share price.

I just keep reminding myself that we have just had the worst and fastest top to bottom crashes in both the stock market and energy prices. So if we are ever going to see an absurd valuation it is going to be now and it is going to be on a highly leveraged oil and gas company.

The important question is can they handle their debt, and every passing day the answer seems more and more to be yes.

I also take some comfort in looking at where the stock traded from 2005 to mid 2008 when energy prices were really not much higher than they are now. The range was $20 to $50 with almost all of the time $30 plus.

So here is my latest post on the yahoo boards for this thing going to $100:

I'm amazed that the short interest keeps growing.

The best case scenario for a short here is obviously the stock going to zero. I think that is highly unlikely given that they are in compliance with debt covenants, successfully monetizing assets again and again for very good prices, have a strong liquidity position of over $200mil in cash and will have a massive increase in cash flow and production next year as Telemark comes on.

On the other hand, if you are short and are wrong what is the potential loss on being short ATP from here ?

The potential loss is enormous.

There are 3 pretty easy ways to put a value on ATP's net assets which I will detail below. The value of the net assets is many, many multiples of today's stock price.

Why someone is willing to take this kind of risk being short here is hard to understand.

Net asset value Estimates:

1) PV 10 of Proved and Probable

Per independent 3rd party Dec 08 analysis, ATP has $4.7bil of proved and probable reserves. Add to that $1bil in infrastructure and deduct $1.1bil of net debt

Total is $3.6bil / 36mil shares = $100 per share

Now imagine if oil and gas return to $90 and $8. This $100 figure is going to be way too low.

2) Acquisition rule of thumb

Common rule of thumb in the industry is that value per barrel of oil is $20. ATP has 250mil barrels of oil equivalent.

$20 times 250mil = $5bil
Plus $1bil of infrastructure, less $1.1bil of net debt

Total is $4.9bil / 36mil shares = $136 per share

3) Value based on recent company asset sales

We have two of these to work from. Most recent is the sale to EDF of 9% of ATP's oil and gas reserves for $400mil

If 9% equals $400mil then 100% of oil and gas reserves would be worth $4.4bil

Value of oil and gas $4.4bil
Value of infrastructure $1bil
Less net debt ($1.1bil)

$4.3bil / 36mil common shares = $119 per share

The other transaction was last July when oil prices were peaking. The sold half of one percent of their reserves for $80mil. This would imply that at these prices the total value of reserves is $16bil. I'm not going to quantify that in per share terms but you get the idea.

So there it is. Three different ways to value this using methods that are not unreasonable, all of which come up with values of the company's net assets as being over $100 per share.

How can you be short these shares with the potential to have to cover at 25 times today's price ? And what if oil and gas really explode upward as many of the smartest investors in the world believe ?

Have a look at my numbers, and even cut all my estimates in half. It's a big risk to be short this thing.

If you are short you are betting against a company where insider's own 20%, the CEO is buying shares, there is documented interest in it's infrastructure assets from GE, is onside all covenants and will be for all of 2009, is deleveraging very quickly without accepting anything but good prices for it's assets ($630mil sold in 9 months), has announced a stock buyback, will double production next year, has over $200mil in cash, has no debt maturing until 2011, and almost all debt not maturing until 2014.

I think being short here is a chance to lose a lot of money very quickly.