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
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
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
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.
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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.