Atpg: IPAA OGIS 1-on-1 Q&A w/ Summary & Notes

The credit goes to ValuePEG:

http://boards.fool.com/ipaa-ogis-1-on-1-qa-w-summary-notes-28823812.aspx


First thing is everyone needs to look over the presentation and listen to the webcast:
http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetail...

Disclaimer: This Q&A was not a recorded interview, this is not to represent exact wording or chronology, the answers are from the best of my memory & notes, exact wording in quotes is used where possible to the best of my ability, but paraphrasing is likely to have also occurred. Parenthesis () are used for my opinions, insights, or where I feel further explanation is required. I do enjoy a significant Long position on this stock, I strongly encourage everyone to do their own DD.

ATPG Questions from 1-on-1 and during break-out session with Al Reese (CFO)

Q - Is the 7,000+ boe/d on MC941 #3 from 1 or 2 zones. What kind of decline rate do they expect on this well? % Oil?
A - In an effort to manage expectations after AT63#4 flow-rates vs actual production they will announce actual #\'s on MC943#3 @ next conference call. The well was completed into 2 zones and commingled, it far exceeded what they were expecting with better pressures and It is not producing 7k boe/d, it is producing \'greater than\' 7k boe/d (the company does not wish to state initial rates, but instead 30 day sustained rate.) At 3Q results and get into the CC and later this year we will begin to go through the actual monthly or daily production that we have and we honestly believe people will be very pleased with what we see - from presentation. (Whether this means 8k or 12k, I have no idea but they are sticking to the 30-40 mmboe/d exit rate from 21 mmboe/d prior so 9k may be a good guess for initial modeling). He thought it was like a 70/30 mix (3/23/10 presentation slide #26 - 68% oil 53MMBoe) and shallow decline but was trying to get an answer from George Morris because he didn\'t know specifically (I was the 2nd person to ask him this but he was still unable to get an answer even by the breakout after the presentation).

Q - The $250M draw ($150M 1st well, $100M 2nd well) on the Titan deal, will it be used to reduce other debt, for additional drilling, or just corporate needs?
A - First he confirmed they will be requesting the $100M 2nd draw, but he didn\'t know if they would request the 3rd or 4th $50M draws. He stated that it just made sense to take the draw as it\'s a lower interest rate. Didn\'t get into specifics as just cash on hand but they have plenty of things on their plate.

Q - Current NPI\'s / ORRI\'s, ie $ or % production or payback length?
A - Due to confidentiality reasons he couldn\'t give specifics but in the breakout it was discussed further they are working on a model for analysts to give payment projections etc but it has been very difficult to do so with any integrity as date of wells, expected production, etc have been too hard to forecast with everything going on. We should expect a detailed model before YE.

Q - Have you been able to increase hedges in the last week since oil was over $80/bbl?
A - He\'s looking to do more now that MC943#3 is online, he did note there were some additions in the latest schedule (slide 31 - but they are only for UK gas in 2012).

Q - What details can you release regarding the possible abandonment of SS358#A003 after the mishap?
A - He became aware of my post on this and went to George Morris to ask him what happened at SS358? George simply told him they did a work-over, cleaned out, swabbed it, put it back online & increased production. (It was due to my posting that was addressed in the presentation - IMO). I did admit there were several industry acronyms etc that I didn\'t understand i.e. WOW which he knew meant Waiting On Weather, so he stated George should be able to explain anything else I didn\'t understand.

Q - MC754 tie back, any updates?
A - The well is completed, the line is in place, on the Innovator they have to do a moon pool and some other modifications. He\'s sticking to this quarter production. (My impression is mid to late November)

Q - Completion of new Garrow well? Expected production?
A - He expects it to come online end of the quarter. (I didn\'t ask about production missed that one)

Q - When will 3D seismic information re: Entrada be released? When will reserves be added? When will development details be released?
A - For reserves to be booked there has to be an Understanding of the permitting process and there has to be a plan to develop. He believes now that things are becoming clearer that they will be able to get this done and add to YE reserves. They are looking at multiple options currently most likely an undersea tieback to one of 2 platforms one with significant more cost. As far as details we should see them next year, as far as timeline it\'s to early to tell ther\'s too much uncertainty w/ regards to government (permitting time-frame etc) it also depends on which plan they end up going with. (My target is 2012 production, with late 2011 or early 2012 start date)

Q - Current production of AT63#4?
A - Still around 4k boe/d to his knowledge, he explained that unless there\'s a major change he doesn\'t get updated (+/- 1k boe/d). He doesn\'t follow daily production from individual wells.

Q - MC943 Oasis - Does it still exist? No plans/mention recently by ATP.
A - No they have lost the lease, they had been in disagreement w/ the MMS for a long time there has now been a court ruling that they have lost the lease. Al did wish to state there were never any reserves booked on the lease so there will be no write-downs associated with it.

Q - MC348 sale of deepwater rights what can you tell me about it?
A - The Appomattox discovery does extend on to our property and it looks very promising, it will have to be drilled from MC348 and it is from those well(s) that we will receive the 10% override. (They wouldn\'t of paid $15M upfront if they didn\'t think it was significant) I would like to model very significant cash-flow from this but it is still very early on the project.

Q - Telemark IRR\'s were missing from last presentation? Why was it missing - not enough data?
A - Sorry we both had to laugh at this question, there simply was not enough information, there was only 1 well online, 1 being put online, and 2 others awaiting permits that you don\'t know how long it will take to get. He said he could of put one out there but it just wouldn\'t be credible. (Similar to thowing a dart)

Q - Now that the moratorium is lifted, are you ready to submit drilling plans?
A - He believes that permits for the next 2 Telemark wells can be obtained by YE, so it is possible (not necessarily likely) that MC941#4 is started on before YE. He anticipates that those wells will come online 1Q/2Q 2011 but it really depends on the permits. (My feeling is end of 1Q/2Q)

Q - Do you see a permitting backlog, due to paperwork?
A - In the announcement of the lifting of the moratorium Bromwich stated Open for business, in all of Al\'s dealings with Washington recently and reading between the lines that implies that prior they were Closed for business. Further it has been reported that all permits had to go through Washington lawyers for review previously, he believes that Bromwich\'s comments are a Buck stops here statement and now he\'s in charge and that they will no longer go through Washington speeding up permitting. He does agree that there has been a lot of BOEMR actually not knowing what the rules and procedures needed to be and most of that should be over or at least ending. (I believe this is very good insight but I wouldn\'t expect it to be back to usual speed for a while, hopefully early 2011)

Q - I\'ve heard statements that the offshore industry will now be under Dynamic Regulation, what does that imply?
A - That is not going to happen, there will be small revisions as time goes on, but there will not be an ever moving target as far as regulations. Stop and think if a project takes 5 or so years on average to put in place and will require billions in funding who in their right mind would start a project that the rules on might completely change before you get 1/2 way done.

Q - Is there work that can be done to prepare for bringing on Morgus while waiting for the re-entry permits
A - No, as it will be drilled from the Titan. (It starts from that end is the way I understand it)

Q - Is the Titan and its drilling rig CURRENTLY in compliance with the new requirements? If not, how long until they can get in compliance?
A - Yes, there is nothing in the new rules that wasn\'t already a part of NTL 5/6 or September Safety Memorandum.

Q - Financing of the topside of Octabuoy?
A - We are literally in China now finishing those contracts with COSCO & Sinosure, they will be virtually identical to the $99M previous deal. So topsides are ~$200M+, $100M will be cash, $100M deferred upon delivery. So in 2012 they will need to write a check for $200M when they take delivery of the completed Octabuoy. Actually instead of writing a check what he sees is a larger subsidiary housing the infrastructure (all?, definitely Titan and Octabuoy). That subsidiary would actually write the check as it would be rolled directly into it upon delivery.

Q - Any credence or information to the rumors of GE\'s buyout offer? (This question was brought up in the 1-on-1 and in the breakout session)
A - The company has a standing policy of non-disclosure and no comments on pending deals. So I can tell you 2 things, in regards to the NY Times article If the article got everything right every fact straight or if the article was total BS and never occurred my reply would be the same - \'No comment\'. He restated that making a comment confirming or denying any statement in part or whole or even to state that it was entire BS would be making a comment and that would set a precedent that they do not wish to do. (Read into it what you will, as far as my opinion - No comment)

Q - 2011 Capex?
A - ~$500M = $300M GOM + $200M UK. This breaks down as Telemark $100M cash, Gomez $100M NPI + $50M cash, GOM other $50M cash, Octabuoy $100M cash + $100M COSCO/Sinosure.

Q - Insurance availability? Impact of insurance rates in GOM?
A - We\'ve talked to our insurance company and we will have no problems obtaining insurance. No significant change in Cost per unit, but we will require higher coverage of $150M due to larger worst case scenario as a result. This year has been a busy year as far as number of hurricanes, but it was relatively quiet in the gulf which will help. He was unable to give specific numbers yet but said it will not be a problem.

Q - How do the new regulations affect ATPG?
A - The new regulations are broken down into 3 areas:
1. Safety - we have an excellent record and it shouldn\'t be of any concern
2. Spill containment - Each company does not have to provide this as they can contract this with a spill response service, which we do.
3. Blow-out prevention - Our only drilling is from the Titan where we have a sub-sea SID (Shut-In-Device) a SBOP (Surface Blow-Out Preventer) with dual shear valves. We more than meet requirements.

Additional things covered of importance:

As far as # of well bores in deep-water ATP is #2 of Independents & #4 including super-majors, this was actually a total surprise to both myself and Al Reese. Now I pointed out that it must be production wells, not test wells or evaluation wells, in the presentation he stated operated wells not sure if he went back and checked. This is important though as it increases our expertise value as it has been discussed that other companies have been coming to us with possible JV\'s. ATP is currently being courted by others, ATP is looking at other areas around the globe. In the presentation he stated that they had some very interesting targets for 2011 & 2012.

As far as 2011 permits MC941#4 and MC942#2 paperwork will be in this year and Al believes there is a chance of getting them back by YE, MC711#9 & MC711#10 paperwork submission may fall into early 2011.

Very large shift in reserves coming at YE currently a large percentage is in Proved Undeveloped, a large portion of that will be transferred into Proved Developed. This is important for a variety of reasons from company valuation Proved Developed is typically valued close to PV-10, while Proved Undelveloped might be priced close to PV-20 or PV-30. It also helps with credit & financing rates. Obviously there will also be a large shift from Possible to Proved as they 2 Telemark wells came on this year which is equally beneficial. This should help how people look at the balance sheet also as only Proved reserves are included.

Because of new permitting rules & confusion Al believes there will be an abundance of equipment available which should put downward pressure on price.