ATP Oil & Gas Corp (ATPG)

ATP Oil & Gas Corporation (ATP) is a small cap independent oil and gas company with properties in the Gulf of Mexico and the United Kingdom and Dutch Sectors of the North Sea (the North Sea).  As of December 31, 2009, the Company owned leasehold and other interests in 62 offshore blocks and 104 wells, including 19 subsea wells, in the Gulf of Mexico. ATP operates 93 (89%) of these wells, including 95% of the subsea wells. It also has interests in 11 blocks and three Company-operated subsea wells in the North Sea.  ATP has estimated net proved reserves of 135.2 million barrels of oil equivalent (MMBoe), of which approximately 91.3 MMboe (68%) were in the Gulf of Mexico and 43.9 MMBoe (32%) were in the North Sea. 


On March 12, ATPG.O posted a fourth-quarter loss due to delays related to a well re-completion, but forecast a sequential increase in first quarter production volumes, sending its shares up 12 percent.  On a conference call, the company said it expects production of 1.5 million barrels of oil equivalents (mmboe) in the first quarter, 15 percent higher than the fourth quarter.  The company's deepwater Gulf of Mexico development, the Telemark Hub, is on schedule for first production later this month.  With the start of production at the Telemark Hub, ATP expects a further rise in its oil revenue as a percent of total revenue as well as its oil to gas production ratio during 2010.  


This forecast of sequential rise in production volume turned a few analysts positive on the company.  One boutique firm, Wunderlich, raised price target from $21 to $25.  JPM still maintains Neutral rating.  The stock is reasonably valued trading at 12x forward earnings.  Based on FY2011 estimates, the stock actually trades at 4x for earnings.  Whether 2-years out estimates will materialize, it is yet to be seen, but if it is true the stock could double from here within 2 years.  


Right now, more than fundamentals, I find technical picture very interesting.  The daily chart shows a clean breakout of resistance line on above average volume.  With oil continuing to trade around $85/barrrel, I think ATPG is starting a new leg up which could propel to $25-30 range down the road.  I am buying the following call spread:


- Buy to open June $20 calls
- Sell to open June $25 calls


Just filled the order for $1.60 net debit.  


Good luck!