Friday, 27 July 2012

ATP Oil and Gas - Looming Bankruptcy?

Shares of ATP Oil and Gas have been further pummeled in recent days, as many investors – and bondholders – believe that the threat of bankruptcy has increased from possible to likely.  Though the largest chunk of ATP’s debt doesn’t come due until 2015, the worry is that the company will not be able to make its interest payment in November of this year.

Bloomberg reported yesterday that a group of bondholders has interviewed advisors about the best way to approach a restructuring.  In addition, reported today, “According to Bloomberg, a group of bondholders are forming a group following delay in payment of interest on held debt.”  This appears to be a mistake, however, as the Bloomberg article says nothing of an actual delayed payment, it only addresses the fear among some bondholders that it will be unable to make the next $89 million debt payment come November.  Adding to fears were reports earlier in the week that ATP has hired Jefferies to assist them in their efforts to avoid a cash crunch.  The company hasn’t responded to requests for comment.
According to past comments from management - perhaps something has since changed - between now and November, the company expects to: 1) complete a sleeve shift on the A1 well at Telemark; 2) close a deal to finance/monetize the Octubouy platform; and, 3) bring 16.2 mboe/day of oil-heavy production at Clipper by late September/early October.  (If Clipper meets expectations the company could be producing around 45 000 boe/day.  Assuming a $50 cash flow margin, ATP would be generating over $800 million in cash flow, not including royalties and overrides.  The key question, though, is how much cash will belong to ATP including these claims on their cash). 
The company has continued to be able to add to liquidity in recent weeks, though on less attractive terms.  Fears of bankruptcy are nothing new for ATP, fears that have so far not come true.  However, without discovering what - if anything - has changed, its impossible to tell whether these are the last dark days before a new dawn, or if the company is doomed.

My original write-up on ATP Oil and Gas is here.

Disclosure: At the time this article was published, the author was long ATP Oil and Gas options.

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