A Big Piece Falls Into Place for ATP

On April 15, I was happy to report that Mr. Market had taken a shine to my top stock pick for 2010, ATP Oil & Gas (Nasdaq: ATPG). I concluded by noting that "plenty of risks remain." Alas, the fiery destruction of Transocean's (NYSE: RIG) Deepwater Horizon rig wasn't one I'd considered. Now, the disaster at BP's (NYSE: BP) Macondo prospect has thrown yet another wrench in ATP's plans.

Compared to the damage inflicted by the financial crisis, the impact of the Federal deepwater drilling moratorium on ATP has actually been relatively minor. Yes, some wells have been delayed. The second well at the new Telemark hub, Mirage No. 3, is slated to begin production any day now, but the next two wells have been pushed to 2011. ATP has lowered its 2010 exit rate of production to 30,000 to 40,000 barrels of oil equivalent per day, down from 48,000.

None of this has threatened the firm's financial position, however. On the second-quarter conference call, ATP's CFO stated, "For the remainder of this year, I think with the cash on hand and estimated production, we will be able to meet all of our expenditures, both those on the books today and those to be incurred." That phrasing actually left a lot to be desired, but a recent transaction has lifted any concerns I might have had about a 2010 cash crunch.

On Monday, ATP announced the monetization of the ATP Titan, the floating production facility at the Telemark hub. In my initial write-up, I noted that this behemoth cost more than $600 million, and that ATP should be able to raise around $300 million by selling a 50% interest in the platform, like the company did with General Electric (NYSE: GE) and the ATP Innovator.

Instead, ATP took a different path, placing the Titan into a subsidiary whose debt isn't guaranteed by ATP. The 100%-owned subsidiary has negotiated a credit facility with $150 million funded at closing, and another $200 million available with commencement of additional Telemark wells. The $350 million facility bears interest at a minimum of 8.75%.

The inability to monetize the Titan was one of the key risks I identified in my recommendation of this stock, so this is a major milestone. ATP is not on easy street, since it still has to bring a series of high-impact wells into production. The firm also has to navigate a new sea of regulations, the final form of which has yet to take shape. If the folks at ATP are up to the task -- and unlike Plains Exploration & Production (NYSE: PXP), which is fleeing the Gulf, I suspect they are -- shareholders may bag a double from here in the next 12 months.