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.
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