ATP Oil and Gas - Exploration Success in Israel

Frazzled shareholders of ATP Oil and Gas received good news Monday, as the company announced success at its Shimshon well in offshore Israel.  The press release wasn't long on details, but the company discovered natural gas as hoped for.  Natural gas is a regional market, and the European and Asian markets currently offer significantly higher prices than the depressed North American one. 

The exploratory drilling represented a cheap, high-upside call option for the company.  Indeed, management has suggested that success in the Mediterranean has the potential to double the company's reserves, which are already strikingly large and valuable compared to its market capitalization.

It's unclear at this point how and when the cash-strapped company will proceed with developing its newfound asset, but more color will come in the third quarter, the company said.  However, since a portion of the company's liquidity is tied to the value of its reserves, it may mean added access to cash in the not-too-distant future.

If the company is able to successfully complete its Telemark workovers (they pledged to do so before June 30th, and, not for the first time, have failed to deliver on time) and its crucial Clipper wells, then the company is only suffering from a short-term liquidity crunch.  If not, there are fatal threats to its long-term solvency, though as long as they remain current on their interest payments, not until 2015.

In short, this was much needed good news, but white-knuckled shareholders are impatiently waiting for more of the same from Telemark in the coming days.

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

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

Disclaimer: The host of this blog shall not be held responsible or liable for, and indeed expressly disclaims any responsibility or liability for any losses, financial or otherwise, or damages of any nature whatsoever, that may result from or relate to the use of this blog. This disclaimer applies to all material that is posted or published anywhere on this blog.