ATP Oil and Gas Corporation, Both a Value and Momentum Play

ATP Oil & Gas Corporation (ATPG) is small ($178 million market cap.) oil and natural gas acquisition, development, and production company engaged (mostly) in the Gulf of Mexico.  It also has a significant presence in the North Sea.
Competitors in the Gulf include Apache (APA), Forest Oil (FST) and Newfield (NFX).
Reserves: ATP Oil & Gas Corporation’s estimated net proved reserves on December 31, 2008 were 713.6 billion cubic feet equivalent.  At $4 per 1000 cubic feet this works out to a reserve value of $2,582 billion or roughly $70 a share.  The reserves were “comprised of 321.7 billion cubic feet of natural gas and 65.3 million barrels of crude oil.” or approximately 2/3 oil and 1/3 natural gas by value.  For more detailed reserve reports see the Ryder Scott reports for the Gulf area here and the North Sea area here (pdf formats).  A press release on March 2, 2009 claimed that ATPG replaced 214% of its oil and gas production in 2008 (see here).
Financials: Total cash is $215 million or $5.97/share.  Note, that as of March 25 cash per share is more than the share price.  Total debt is $1.37 billion.  Trailing PE is 1.46 and forward PE is 5.37.  Of course, forward PE’s are only estimates and can be wildly off.  $472 million in recent asset sales have boosted the cash position, so debt should be manageable in today’s low oil and gas price environment.
Insiders: According to Yahoo Finance there are no publicly reported insider sales since the first of the year. There has been over $900,000 acquisitions and purchases since the first of the year.
Summary:  Reserve data, financials, and insider transactions all look bullish to me.  Both oil and gas have been rising the last few weeks.  Even as I write this post, ATPG is on a tear.   The stock bottomed at $2.75 in early March.  Now, on March 25, at over $5 a share, it is up over 80%.   With close to $70/share in reserve value, the stock still seems significantly undervalued.  This could be both a resource and momentum play.
The company seems to have weathered to the 2008 oil and gas price downturn well with asset sales and decreased production.
It should be noted that, due its large Gulf of Mexico presence, ATP Oil & Gas is susceptible to hurricane damage.  The company claimed that Hurricane Ike in 2008 had “minimal impact”.
Disclosure: Long ATPG

A Clash of Cultures: AIG's New Owners

Most Americans cannot even remotely fathom why a company that is near bankruptcy will hand out bonuses.  This is especially true when those companies only exist today because they were bailed out by taxpayers.
Apparently in “Wall Street Culture” bonuses are an integral part of compensation.  But, in “Main Street Culture” bonuses, if they even exist, are reserved only for extraordinarily good job performance.  But now, suddenly, thanks to TARP, Main Street owns Wall Street, or at least some of it.
Companies such as AIG, Citigroup, Bank of America and to a lesser extent, other TARP recipients have a new owner: “We the People”.  And, unlike the former owners, the wiped out share holders, these new owners have fiery spokesmen in Congress.
The culture of entitlement is now being told what to do by Joe the plumber, Jill the waitress and Mike, the laid off auto worker.  They don’t vote proxies but they can and do email and write their congressmen.
Well, Congress is having a real hissy fit.  Thursday night I watched representative Earl Pomeroy from North Dakota grandstanding on TV.  Earl told AIGFP employees “you disgust us, by any measure you are disgraced professional losers…”.  On and on he went.  He must have been either an attorney or an actor in his pre congressional days.  Probably an attorney,  I don’t think North Dakota has many actors.
Reportedly, 11 AIG executives have resigned over the bonus brouhaha.  And now, Thursday evening, the House passed a bill - boy, that was fast - to tax bonuses up to 90%.  Apparently, there is to be a surtax, on bonuses paid to employees earning more than $250,000 if the institution received  more than $5 billion U.S. in bailouts.
Congress is doing what it does best (or worst): passing legislation.   Congressional members can’t wait to tell their constituents they voted against the “outrageous bonuses” come next election.  It would be political suicide to be on the other side of this issue.
Of course, all this is mostly show.  The bonus amounts are minuscule compared to bailout amounts.  The country would much better served by debating how to avoid future AIG type debacles.
So, AIG and other TARP companies:  Welcome to government ownership.  You will have to play by different rules from now on.  Instead of a free wheeling entrepreneurial culture you will have to learn to deal with red tape, committees, delays and political pandering.  Get used to it.
Yet, look at it this way.  None of the AIGFP employees and many of the AIG’s non Financial Products employees would probably even have jobs if it wasn’t for the US taxpayer.  Would you want “Derivatives Trader at AIG” on your resume?  AIG and other TARP recipients, you brought this on themselves.  Now you guys are morphed into beauraucrats.  Take your cue from Mr. Pomeroy.  Speech lessons anyone?
Disclosure: Taxpayer ownership only.

McMoRan Exploration Company, Bonanza or White Elephant?

McMoRan Exploration (MMR) is small ($300 million market cap.) exploration and production company that owns or controls interest in some 603 oil and gas leases in the Gulf of Mexico and onshore Louisiana and Texas.  Proved oil and natural gas reserves as of December, 2007 totaled 363.9 bcfe (billion cubic feet equivalent).
McMoRan Exploration has its origins in Freeport-McMoRan Copper & Gold Inc.’s (FCX) oil, gas and sulpher operations which were split off in the 1990s.  Several board members serve on the boards of both companies.
McMoRan has been engaged in the development of the Main Pass Energy Hub, an offshore Liquid Natural (LNG) gas distribution and storage facility (see www.mpeh.com).  The hub is intended to function as a port to offload and store LNG.
As of December 31, 2007 the company had $93 million total cash ($1.327 cash per share) and $374 million in debt.  Like many energy companies, McMoRan reported a loss the last two quarters of 2008.
Researching the company I found potential negative and  potential aspects.
The Negative: It was difficult to find much information on McMoRan’s Main Pass Energy Hub.  The mpeh.com website, has lots of pictures, but the most recent update that I could find, under the “Whats New” link at the top of the home page, had a 2008 heading but the latest post was April 4 of 2007 — not very new and not in 2008.  Either they have a very poor web people or the site is suffering from profound neglect.
Of course, imported LNG no longer is as important to the US as predicted just a few years back.  Significant natural gas reserves have been found domestically in recent years.  Current low gas prices (now under $4 per 1000 cubic feet) have to be a negative for LNG activity.  The hub site’s home page prominently cautions the project is “subject to significant risks, including determining the feasibility of developing the project, securing significant project financing, and obtaining regulatory approval“. From the photos it looks like a lot may have already been invested in this former sulphur mining site,
I am open to the view that this hub may be a gem, waiting to be uncovered, rather than a white elephant.  The company could help with new website updates or press releases concerning the hubs current status.
The positive (maybe): Business Week, in their February 16, 2009 article on Exxon, mentioned that McMoRan took over a deep, abandoned Exxon well (Blackbeard) and, drilling even deeper, found significant oil deposits.   The article says Mr. James R. Moffett, co-chairman of the company, declared that McMoRan “… may have found , between a half-billion and several billion barrels of oil” in Blackbeard.
It is also worth noting that Mr. Moffett on March 4 and 5 of 2009, purchased some $2 million dollars worth of common stock in the company at prices of $3.76 and $3.90 a share (Yahoo Finance).  This may explain the recent uptick in stock price.
I would be cautious with McMoRan.  It will be interesting to see if the former Blackbeard well is as rich in reserves as Mr. Moffett seemed to think.  If so, score one for McMoRan over Exxon.  If not, maybe the rumored discovery is just good PR in a down market.  I look forward to reading the 2008 annual report to see the latest on the former Exxon well.
Disclosure: Long MMR (for now)

EOG Resources and the Bakken Shale

EOG Resources (EOG), a large oil and gas exploration and producing company, is a major driller in North Dakota’s Bakken Shale.  The companies’ former name was Enron Oil and Gas.  It was spun off in 1999 from Enron Corporation (yes, that Enron).  Unlike its disgraced parent, EOG has prospered and now has a market capitalization of $14 billion.
EOG is active in the US, Canada, offshore Trinidad, and the North Sea.  In the US it has interests in the intercontinental region, Fort Worth Basin, Upper Gulf Coast area,  Permian Basin,  Rocky Mountain area, south Texas. Gulf of Mexico, and  Appalachian Basin with approximately 3,204,000 net undeveloped acres.
As of December 31, 2007 EOG’s reserves were roughly 75% natural gas (7.75 trillion cubic feet equivalent) and 25% oil and natural gas liquids (179 million barrels).  In the intercontinental US region the company has a strong presence in North Dakota’s Bakken Shale play.   This, because of the massive reserves found right here in the US, has been in the news a lot in recent years.
The Bakken shale underlies some 200,000 square miles of land in North Dakota, Montana and Saskatchewan in depths up to 10,000 feet.  Basically it consists of shale overlain by sandstone and dolomite, overlain by more shale.  The oil tends to accumulate in the porous siliciclastic dolomite layer.  OIl is not new here as it was discovered back in 1951, but until recently, due to cost, recovery has been slow.  In 2007 EOG produced 1,452,789 barrels of oil from the shale.  Just one year later, in 2008, EOG wells produced 8,613,534 barrels of oil, a 493% increase (see bakkenshale.blogspot.com).  New technology, such as horizontal drilling, has allowed greater exploitation of this formation in recent years.
L.C. Price, a geologist working for the U. S. Geological Survey (USGS) estimates Bakken shale may hold as much as 500 billion barrels of oil. This is a massive, almost like Saudi Arabia!  However, even under the best conditions, the previously linked report says extraction is profitable only at a price of $50/barrel or more.  Even with the latest technology, the USGS in their April 2008 report says only  3-4.3 billion barrels may be recoverable, less than 1%.  Nonetheless, the USGS says Bakken shale “is the largest “continuous” oil accumulation ever assessed by the USGS”.
Some of EOG’s oil wells near Parshall, North Dakota rank among the most prolific land drilled wells in the US, producing over 1000 barrels a day.  This bonanza has made the rural area around Parshall quite prosperous, almost in a Beverly Hillbilly manner.
If you have confidence (as I do) that technology will continue to improve and the price of oil will go up, you may wish to invest in companies active in Bakken Shale.  In addition to EOG check out ConocoPhillips (COP).  ConocoPhillips, with their Burlington Resources acquisition, has a large Bakken presence.  As an aside, ConocoPhillips also owns some 13% of LUKOIL CO (LUKOF.PK), a Russian company with massive oil reserves. That, of course, is a story for some other time.  Also, check out Continental Resources (CLR) and Hess Corporation (HES) as they also have stakes in the Bakken.
Disclosure: No positions at this time.

Quicksilver Resources's Barnett Shale Gamble

No, Quicksilver Resources (KWK) is not a silver or mercury mining outfit.  Nor is it to be confused with Quiksilver Corp. (ZQK), an apparel company.  Rather, it is a $900 million, market cap., independent energy company.  Quicksilver acquires, explores for, drills for and produces natural gas.
Quicksilver’s big story in 2008 has been its foray into Barnett shale gas of the Fort Worth basin of Texas.  Here it competes with much larger companies such as Devon Energy (DVN), Chesapeake Energy (CHK) and XTO Energy (XTO).
In August, 2008 Quicksilver spent $1.3 billion for Barnett Shale assets in Denton and Tarrant counties, just as  natural gas prices were peaking.   For a billion dollars in cash plus 10,400,468 shares of common stock the company picked up 13,000 net acres potentially “containing more than 1 trillion cubic feet of recoverable natural gas resources including approximately 350 billion cubic feet of proved reserves” (see report here).  At the time, natural gas was around $13 per 1000 cubic feet.  Now, the price is only a little above $4 per 1000 cubic feet.  Not surprisingly,  Quicksilver, in the 4th quarter, took an impairment charge totaling $633.5 million on its oil and gas properties and lost $2,79 per diluted share.
This ill timed foray into the Barnett has in all likelihood contributed to the severely impacted the stock price.  Currently, at $5.20/share, the stock is down almost 90% from its 52 week high of $44.98.  Total debt of $2.61 billion dwarfs total cash of $2.85 million.   Quicksilver was downgraded by Jefferies and Co. from buy to hold on February 26 of this year.
The Barnett shale is composed of sea deposits laid down in the Mississippian age, some 350 million years ago.   New technology ,such as horizontal drilling, has opened up the Barnett shale to production in recent years.  The “tight” structure of the shale has trapped a plentiful supplies of gas, but with the shale’s structure and 7,000 depth, it can be difficult and costly to tap.
Some of the most plentiful gas reserves in the Barnett shale are found directly under the city of Fort Worth.  Churches, parks, the American Cancer Society, golf courses, residential areas and even the girl scouts have participated in the bonanza. Since the bust in natural gas prices in the last half of 2008, however, much of the bloom has come off the boom.
Drilling in the Barnett, as elsewhere, is down considerably.  Companies like Quicksilver, with heavy investments in natural gas, may be just hanging on, waiting for higher prices to improve their balance sheets.  The gas has been there hundreds of million years, it can afford to wait.   The question is: can  Quicksilver afford to wait?
Disclosure: No positions

Things That Go Bump in the Night

The party was a great success!  All talked of the spectacular time they had.   A wonderful blend of music, camaraderie, exquisite wine and food, enchanting women.  A truly memorable day in the country, warm in the late summer sun.
But now, the the band is gone, the last of the guests have left.  Having finished cleaning up, you are alone.  Peace and quiet settles in on the old, secluded country house,  a spur of the moment purchase a few years ago.
A hush.  A pause.  Something.  A small gust of wind, a stirring of leaves, you look up.  There, off to the northwest, low on the horizon, thick dark clouds are gathering.  Remembering half-heard murmurings during the party of coming evening storms you hasten to secure the windows.  Afterward, in the deepening twilight, flashes of lightning reveal distant, towering thunderheads.  A vague sense of unease, quickly dismissed, sweeps over you.  Tomorrow, with the morning sun, its back to the city, friends, and home.
Later, settled on the sofa watching TV,  a bulletin scrolls across the screen.  There was a prison break.  Several men from the nearby penitentiary,  armed and dangerous, they say.  The proximity of the prison had been a troubling thought when purchasing the old house.  However, a flush bank account, a great price and the beautiful setting sold you.  You start thinking:  What to do?  The lights flicker once, twice, then darkness.   Ever more brilliant, lightning now heralds the approaching storm.  Thunder rumbles ominously.  The feeling of unease is back.  This time it stays.
With only candles throwing a feeble light, you know morning will come.  It always does.   The crashing thunder, and now outside, a flit of shadow,  some rasping at the gate.  Dawn suddenly seems impossibly far off.
So, here we are.  The party is long over, the financial storm is on us.  Crashing markets, unemployment, bankruptcy, are no longer just rumors.  Talk of Depression is rampant.   Banks, guardians of our wealth, are floundering, even in danger of collapsing.  Commentators talk imminent demise and terrifying deficits.   Our houses are suddenly liabilities.  The best: General Electric, Johnson and Johnson, American Insurance Group and Pfizer totter on news of large dividend and stock value reductions.  Authorities warn precautions need to be taken but go silent on what, where, when and how.  We are left uncertain, questioning, hoping, fearful.
Disclosure:  None, I don’t dare own any of the above.