Right now gas is trading at around $11 . Am I correct in assuming that with ATPG owning 715 billion cubic feet of gas, that each foot is worth $11 on the open market? If this is anywhere near true, this co. is trading at about 2 percent of book value. What am I missing here guys? Go easy, Im a virgin here. -)
Mince38: if you want to value this or any E&P. First figure out what price of gas you want to use. NG is one of the most volatile commodities, and although it has a long term trend line, it trades through several cycles within just one year. So, first off, it might not be wise to use $11 dollar gas, as your benchmark. Perhaps $8 gas might prove more realistic.
Then, using the given price of gas as your benchmark; add the following:
+value of hedges
Then subtract from that sum the following:
-long term debt
-preferred stock,(when not dilutive)
-net working capital
This gives you the "total shareholder value", then divide it by the total number of fully diluted shares
That gives you the NAV (net asset value) per share. All things being equal, an energy stock trading well below its NAV per share is generally a good buy at least for the long run. Lots of things from sector strength and other macro trends generally to such things as seasonality and, "dry holes" can influence the price short term. It is not complicated, but one does have to do a bit more than just adding and dividing two numbers. Syl
thanks for your reply. Most of you here have added some clarity. I thank you guys as well. However...something still does not make sense with all of the explanations. Why? According to the ATPG yahoo profile, this co has 715 billion cubic feet of prved natural gas reserves. So even if I take the lowest figure out of all of you guys here and say they can get $3 a cubic foot which seems very very low, the value of this co is over a ...no le tme not even say the number. It is 715 billion times 3!!!!!! This is an impossible valuation. So is yahoo mistaken? Does anyone have the hard copy 10Q that says what the provable reserves are and what is its net cost to sell/ship the gas. Include oil too if youd like. 715 billion? Even if it were 71 billion, take off a whole digit, this still doesnt make any sense! Anyone agree?
You'd have to ask -- how much would someone pay for that much reserves -- still in the ground and costly to extract?
Certainly far less than $11/cubic foot -- but at some fraction it's worth the price -- at $3 -- their NG reserves are worth the entire market cap -- and you get around 50 million of proven reserves of oil... for free?
Obviously the Street is in the process of assigning a new value to the company.
I am definitely not the best person to answer your question. But, here is my best guess: What you see quoted on CNBC for the price of natural gas represents what people are willing to pay for natural gas that has been extracted and is ready to use. Thus, you can't necessarily use that number to figure out the value of ATP's holdings, because it is necessary to also consider how much it will cost ATP to extract the gas. Analogy: If you buy a quarter pounder for $2, does that mean that a cow weighing a $1000 pounds is worth $4000? No. Because, not all of the cow's weight can be used for a quarter pounders and, even if it could, there are costs associated with getting that meat in a form and location where people will buy it for $2/quarter pound.
I am a rookie as well; but, I figured, people would much rather correct somebody (like me) who has given an incorrect answer than answer a question like yours.
Guys, this is getting too complicated. What is the difference between the total cost basis of each ctu or btu, whatever they use to measure gas, and what they sell it for? Period. You should then be able to multiply that number by how much they expect to sell in the next 12 months. That should give you the probable p/e. Reserves to me are important but secondary, because who cares if they have 5 trillion cubic feet in reserves if all natural gas users are going to switch to solar, geo-thermal and coal within 3 years. Right? On the other hand I believe natural gas demand is going to increase and ATPG has so much reserve it doesnt matter exactly whats in the ground at this exact moment. All these gas producers are going to wind up playing games with hedging, speculating...and acquisitions so over the next couple of years so reserves as i said are important...but secondary.
Now...can anyone answer my question? (thanks) all of you who tried)
There are several factors to consider when looking at oil/gas co “value”. One factor is the reserves, either proven or probable, with proven worth much more. Where are the reserves and how easily/costly is to to get it out of the ground. Look at reserve replacement – are they pumping more than they are replenishing through acquisitions or exploration. What is the reserve life – at current rates of production, how long before their reserves runs out (usually 7 – 11 yrs). Profits go up by 1. Nat gas price increase and 2. Increased in production. What is the increase in production yoy and ytd, and what is the trend. ATPG tanked when management overpromised and under delivered on production. Reserves are great, but investors pay up for the ability to get the stuff out of the ground and turn it into cash. How much debt does the co have and, if they are a small co, how are they going to finance capital expenditures to get new stuff out of the ground.
The answers to these questions will get you to a “value” vs market share price, and all info is readily available. Make sure you are also looking at the same corresponding units of measure – cubic feet vs oil equivalent.