shamapant (90.85)

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January 07, 2012 – Comments (10) | RELATED TICKERS: ATPG

So I'm research ATP Oil and Gas, and i know it has 2 Billion in debt due 2015. What I don't understand is the scenarios where ATP Oil and Gas survives. Would ATP Oil and Gas have to potentially bring in 1.7Billion(debt-current assets) in the next three years in order to survive, or would it only have to get a certain amount paid off so that it could take on more debt and survive a bit longer? How does that debt restructuring work?

10 Comments – Post Your Own

#1) On January 07, 2012 at 4:40 PM, portefeuille (99.74) wrote:

a recent article by swizzled.

ATP Oil And Gas - A $30 Million Hail Mary On A Trillion Cubic Feet Of Natural Gas

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#2) On January 07, 2012 at 4:44 PM, portefeuille (99.74) wrote:

#1 ATPG shares are currently the 7th largest long position of my "fund" (see here). There are currently 34500 ATPG shares in the fund with break-even of around 9.05 USD.

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#3) On January 07, 2012 at 5:07 PM, portefeuille (99.74) wrote:

ATPG.GE / CUSIP: 00208JAE8

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#4) On January 07, 2012 at 6:15 PM, shamapant (90.85) wrote:

Porte,

I did see that article, but it doesn't mention the debt except for vaguely..."they have lots of debt" "theyl have lots of cash unless the debt kills them first," and so on. Its interesting to see that you are long ATPG as well.

What I really want to know is the specifics on how they can escape the debt. Its very vague..."they will survive unless the debt gets to them first" Do they have to repay all of the debt to survive? Or can they just have enough capital to take on more debt and delay that?

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#5) On January 08, 2012 at 11:42 AM, Teacherman1 (47.64) wrote:

Shampant-

Stay away from this one. It would take a "miracle" for them to survive.

They have no working capital, since the current liabilities are almost twice their current assets.

They have not made a profit in 3 years.

Their debt to worth is almost 25 to 1.

They may be able to "squeak by" for a period of time, but unless an outside source comes in to partner with them, or buy some of their "claimed" reserves, they just don't have the money (or likely access to money) to develop what they have.

Their "cash flow" is virtually non existant, so there is nothing to pay down their debt with, and short of getting investors to believe in them enough to buy more shares, they likely don't have any way to get the money they need.

I think this is a case of them owing so much, that their creditors are afraid to press them, but likely won't lend them much, if any more.

If it could be bought cheaply enough, and one were willing to sit with dead money, someone could come along to buy the reserves on the cheap, and you might make money that way.

This one is just too risky to even consider.

Not sure if this answers your question, but since you didn't seem to be getting the answers you were looking for, thought I would go ahead and reply.

JMO and worth exactly what I am charging for it.

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#6) On January 08, 2012 at 12:20 PM, shamapant (90.85) wrote:

Actually, that makes a lot of sense. Their scenarios of survival are very slim. Thanks.

Shamapant

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#7) On January 08, 2012 at 12:38 PM, rd80 (99.32) wrote:

I don't follow ATPG, but there a few ways for companies to handle heavy debt burden.

- The company can pay off all or at least some of the debt from operating cash flows (assuming it has positive cash flow to work with). From just a quick look, ATPG will be hard pressed to make much of a dent in the debt burden before it matures in 2015.

- Issue new debt to pay off maturing debt. According to FINRA, ATPG's current bond issue is deep in junk territory. In order to pull off a successful new issue, I believe it would need to improve performance at least enough to up the credit rating by a few notches.

- Debt to equity conversion. The company offers to pay off some or all of the debt with company stock rather than cash. Since ATPG has decent operating income, this would probably be an option. However, bond holders normally demand a discount to market price for the stock and it would be very dilutive to current shareholder.

- Issue new shares to raise money.

- Sell off assets to raise money. There may be covenants in the debt agreements that limit what can be done here.

- Take over (or under). Another company with a stronger balance sheet may like the assets. If the acquirer has cash or the ability to borrow cheaply, it can buy the company and pull off the debt rollover at reasonable rates. If the company is in financial distress, the take under (deal below current market price for the stock) becomes more likely than a buyout at a premium.

I expect ATPG is planning on the 'issue new debt' approach. For the company and its investors, that means some of its projects need to pan out and bring cash flows up where the credit markets will lend at reasonable rates.

Based on just a quick look, a lot of good needs to happen for ATPG between now and 2015 to be able to deal with the maturing debt.

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#8) On January 09, 2012 at 12:24 AM, shamapant (90.85) wrote:

rd80- That was exactly what I was looking for. Thanks so much.

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#9) On January 12, 2012 at 12:44 AM, lovesstocks2 (78.72) wrote:

For starters they have a well coming on that should add 10,000 barrels of oil per day to production. Production will start probably in February but will take a while to ramp up. After that they have two more wells to bring online in late summer that should add more than 20,000 barrels of oil equivalent per day from the Clipper field.

Several of their past large wells ran into production problems, as sand problems are evidently not uncommon in the gulf of Mexico and this has decreased their current production below projected levels and made things tight.

Much of the future hinges on these three wells and how they produce, and whether they will run into unforseen problems. If these wells produce as expected, everything will be fine.

If the three have serious problems, then the company may not survive. There are all kinds of in-between scenarios.

Best scenario is the wells come on without a hitch and then refinancing the debt willprobably not be a problem.

But all three wells have been drilled and flow tested, now its just a matter of getting them producing.

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#10) On January 12, 2012 at 12:48 AM, lovesstocks2 (78.72) wrote:

The interesting thing about the debt is it does not encumber anything. So the company sells ORRI, and other pieces of the operation to survive right now. They also have a vendor deferral program in place. So despite the debt, they have a surprising number of financing options.

Also their succes rate is over 98%. The problem has always been disappointing production rates and of course the big spill which delayed them over a year and cost them lots of money. They could have survived the production disappointments much easier had they not had to wait for the moratorium to end.

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