Monday, 4 June 2012

ATP Oil and Gas - A New CEO

As noted earlier, ATP Oil and Gas had a lackluster first quarter, which prompted one analyst on the conference call to ask whether a leadership change was needed.   Since the question was directed at the three most senior leaders themselves, the question seemed more rhetorical than literal.  However, CEO Paul Bulmahn assured the frustrated analyst that he was not closed-minded about making changes at the top.  He wasn’t kidding.

On Friday, ATP announced that Matt McCarroll has joined the company as CEO.   According to the press release, McCarroll was the founder and CEO of “Dynamic Offshore Resources, LLC, a private company that focused on acquiring and developing properties in the Gulf of Mexico,” which was recently sold for $1.3 billion.  The press release also includes other background information, and creates a plausible impression that McCarroll has had an excellent career and is highly regarded within the industry.  Of utmost importance, he has experience operating in the challenging conditions of the Gulf of Mexico.  He must be reasonably confident that the company will remain a going concern, too, since he paid $5 million for 1 million shares in the company, though details on the precise terms of the deal will only become clear over time.

There has been scant coverage in the media on the move, so investors can only make an educated guess about what happened behind the scenes.   Clearly, the company’s production delays and operational missteps must have been a large factor in the decision, and the change doesn't come entirely as a shock.
Nobody could interpret the abrupt change in the company's highest office as an example of long-term succession planning, and most similar instances are cases of the CEO being forced out, even if assurances are made that the departure was due to pressing "personal reasons."  But there's reason to at least wonder if Bulmahn relinquished the CEO position willingly.  Bulmahn is the founder, largest shareholder and remains the Chairman of ATP, and may have been able to hold onto the CEO position if he’d wanted to.  This may have been a rare case of a CEO falling on his sword for the good of the company. 
Should the new CEO decide that significant changes need to be made on the operations side of the business, he will have a less difficult time making them than Bulmahn would have, since Bulmahn has ties with other senior managers in the company that go back decades and personally “hand-picked” some of them.   Wise and patient investors will be wary of major changes of on the financial side, though, either in terms of personnel or philosophy.  CFO Al Reese has proven that he’s extremely creative and resourceful and has managed to keep the company afloat –  though, admittedly, with little margin for error  –  without capitulating and doing a massively dilutive financing that would wipe out shareholders’ upside in the company.

The company should not cave to short-term, short-sighted shareholder pressure because of its disappointing stock price.  CEO's ought to hold a large block of their company's stock, and McCarroll's large purchase will align his interests with shareholders'.  However, the recent ATP press release states that he bought his block of stock directly from the company, which implies a 2% dilution to existing shareholders.  Hopefully, ATP's "equity offering" at the stock's current low price is a sign only of the desire to demonstrate the new boss's commitment, not a softening of their stance against a significant equity issuance.

The next few quarters will be very interesting ones for shareholders, both in terms of likely new production and any changes of direction operationally or philosophically.

(Here is my original write-up on ATP Oil and Gas).

Disclosure: The author was long ATP options at the time this article was published

Source: Company press release

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