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ATP Announces Second Quarter 2010 Results and Operations Update
ATP Oil & Gas Corporation announced second quarter 2010 results and an update on ATP’s developments. General Overview The second quarter of 2010 and the early part of the third quarter has been one of the more
challenging periods in the company’s history, including the following events:
– Production increased 29% from the first quarter of 2010;
– In the North Sea, ATP was awarded Blythe in the U.K. 25th Oil &
Gas Licensing Round, which is expected to add proved and probable
reserves to its year-end 2010 report. ATP’s drilling program continued
at Tors and will add production in both 2010 and 2011. The construction
of the Octabuoy Hull, which will be initially deployed at Cheviot, ATP’s
largest development in terms of proved and probable reserves in the
North Sea, remains on schedule for delivery of the hull and topsides in
late 2012;
– ATP completed a $1.5 billion high yield and $150.0 million first lien
term loan offering that refinanced its prior term loan facility,
eliminated all financial maintenance covenants, and raised $303.3
million in additional liquidity. As a result, ATP expensed $78.2 million
in costs related to previous financings;
– As a result of the BP oil spill and regulatory fallout, the Bureau of
Ocean Energy Management ordered ATP on June 8, 2010 to stop drilling at
its Canyon Express Hub. This action resulted in ATP recording an $8.7
million expense. ATP will pursue full recovery for this expense;
– The above items contributed to a quarterly loss of $82.9 million; and
– ATP sold its interest in the deep exploratory rights in Mississippi
Canyon (“MC 348″), which is adjacent to the third party Appomattox
discovery announced earlier this year, for an initial 10.005% ORRI and
other consideration.
Results of Operations
ATP recorded a net loss attributable to common shareholders of $82.9
million or $1.63 per basic and diluted share for the second quarter of
2010 compared to a net loss of $4.4 million or $0.12 per basic and
diluted share for the second quarter of 2009.
Production for the second quarter 2010 averaged 21.3 MBbls/day, an
increase of 24% from the comparable quarter in 2009 and a 29% increase
from the first quarter of 2010. The increase was driven primarily from
the first well at ATP’s Telemark Hub which was placed on production on
March 28, 2010 and new wells in the company’s Canyon Express Hub placed
on production in March 2010. Revenues from oil and gas production were
$101.1 million for the second quarter of 2010 compared to $80.9 million
for the second quarter of 2009. Oil continued to represent a majority of
revenues, accounting for 70% of revenues in the second quarter 2010 and
77% in the comparable 2009 period.
Lease operating expense for the second quarter of 2010 was $32.3
million, compared to $17.4 million for the second quarter of 2009. Lease
operating expense for the second quarter of 2010 included non-recurring
workover expenses of $6.6 million. The increase in recurring operating
expense was primarily due to the new production from the Telemark and
Canyon Express Hubs. ATP began recording lease operating expenses at its
Telemark Hub in the second quarter 2010 with the commencement of
production from the Atwater Valley 63 #4 well.
General and administrative expense increased $1.0 million from the
second quarter of 2009 to $8.1 million, including $1.7 million of
noncash stock-based compensation. The increase was primarily due to the
2009 reversal of approximately $1.0 million of accrued compensation
associated with a terminated employee bonus plan.
Other expenses incurred in 2010 that were not incurred in the comparable
period in 2009 were $8.7 million associated with the termination of a
contract as a direct result of the recently announced moratorium on
drilling in the Gulf of Mexico and $78.2 million associated with a
complete refinancing of ATP’s bank and term debt. The latter two items
are discussed below.
With the completion of the installation of the ATP Titan at the Telemark
Hub and the commencement of production at this location on March 28,
2010, ATP’s Telemark Hub no longer qualifies for interest
capitalization. Interest expense for the second quarter 2010 was $64.6
million compared with $10.2 million in the second quarter of 2009 when
$22.9 million of interest expense was capitalized. Additional interest
expense is recorded for other liabilities.
Acquisitions and Divestitures
In July, ATP’s wholly-owned subsidiary ATP Oil & Gas (UK) Limited
received an award in the U.K. 25th Oil & Gas Licensing Round from
the Department of Energy and Climate Change.
ATP UK will receive a 50% working and net revenue interest, and serve as
operator of Blythe located in Blocks 48/22b and 48/23a with the other
50% assigned to Ebor Energy Ltd. Blythe contains an undeveloped gas
opportunity which was discovered in 1966 in 76 feet water depth. This
gas discovery is in a Rotliegend sandstone interval at 7,200 feet water
depth. ATP expects to record both proved and probable reserves at Blythe
in its year-end 2010 reserve report.
In April, the then Minerals Management Service (“MMS”) accepted ATP’s
bid of $0.2 million for Garden Banks Block 782, also known as Entrada.
ATP made the bid at the Central Gulf of Mexico Offshore Lease Sale 213
held in March 2010. Previous exploration drilling on Garden Banks 782
found logged hydrocarbons and Entrada is in the vicinity of existing
infrastructure owned by others. ATP will serve as operator with a 100%
working interest in Entrada, which is located in 4,531 feet of water.
In July 2010, ATP sold its interest in the deep rights in MC 348. The
deep rights at MC 348 are unexplored but adjacent to the third party
Appomattox discovery announced earlier this year. In addition to the
cash proceeds, ATP retained a 10.005% overriding royalty interest that
decreases to 1.6675% following the conclusion of deepwater royalty
relief.
Gulf of Mexico Oil Spill and Drilling Moratorium Update
On Tuesday, April 20, 2010, a semi-submersible drilling rig operated by
BP p.l.c. in the deepwater Gulf of Mexico exploded, burned for two days,
and sank, ultimately resulting in an oil spill. In response to this
crisis, the U.S. Secretary of the Interior, on May 6, 2010, announced a
moratorium on U.S. offshore drilling permits issued after April 20, 2010
until May 28, 2010 when a report on the accident was expected to be
completed. Effective May 30, 2010, the Minerals Management Service
issued a Notice to Lessees (NTL No. 2010-N04) ordering a second
moratorium, originally scheduled to last for six months, that
essentially halted all drilling in water depths greater than 500 feet in
the Gulf of Mexico. On June 7, 2010, a lawsuit was filed by a supplier
of services to Gulf of Mexico exploration and production companies
challenging the legality of the six-month moratorium. This challenge was
successful and on June 22, 2010 a Federal District Court issued a
preliminary injunction preventing the moratorium from taking effect. The
Fifth Circuit Court of Appeals is scheduled to hear the injunction case
in late August. On July 12, in response to the court’s actions, the
U.S. Department of Interior issued a Decision Memorandum establishing a
third moratorium and essentially canceling all permits for drilling at
locations using a floating drilling rig or platform. Although lawsuits
have been filed challenging the moratorium, there is no resolution to
the challenge as of the date of this release.
The moratorium forced ATP to cancel on June 9 an ongoing drilling
operation at its MC 305 location, which had begun based on a permit for
the operation issued on May 12, 2010. The termination of the drilling
contract cost ATP an additional $8.7 million. ATP is seeking
reimbursement of this, and other moratorium related expenses, from BP
p.l.c. The third moratorium has caused ATP to delay the third and fourth
Telemark Hub wells and a drilling operation at its Gomez Hub.
Telemark Hub
The completion of the second well (MC 941 #3) at ATP’s Telemark Hub is
in its final stages. ATP is currently in the process of perforating 180
feet of pay sands in two zones. Following perforation, ATP will complete
and flow test the well. Once testing is complete, ATP will connect the
well to export pipelines and place the MC 941 #3 well on production.
These operations are expected to be completed before the end of the
third quarter.
The third and fourth wells at the Telemark Hub, the MC 941 #4 and the MC
942 #2, were both drilled to 12,000 feet in 2009 and are scheduled to
be drilled to total depth and completed in the first half of 2011
instead of the second half of 2010 as a result of the drilling
moratorium mentioned above.
ATP operates the deepwater Telemark Hub with a 100% working interest and
owns 100% of the ATP Titan and associated pipelines and infrastructure.
Gomez Hub
Development operations to tie in the Anduin West (MC 754 #3 well) are on
track to achieve first production in the fourth quarter 2010. The MC
754 #3 well was originally drilled and completed in the second quarter
of 2008. ATP operates MC 754 with a 75% working interest.
Tors Hub
ATP drilled and tested an appraisal well on Kilmar in May. The company
is currently drilling a sidetrack to this well into a separate fault
block. Upon completion of this activity, the rig will move to Garrow to
drill a second development well. The Garrow well is expected to commence
production in late 2010 while the Kilmar well is expected to begin
production in late 2011 after the installation of pipelines. ATP
operates the Tors Hub in the UK North Sea with a 17% working interest.
Liquidity and Capital Resources
In April 2010, ATP issued 11.875% senior second lien notes in an
aggregate principal amount of $1.5 billion, due May 1, 2015. Proceeds
from the second lien notes were used to repay the entire amount
outstanding under ATP’s prior credit facility and for general corporate
purposes. In conjunction with the senior second lien notes, ATP entered
into a first lien revolving credit facility with an initial borrowing
base of $100.0 million. In June 2010, ATP replaced the first lien
revolving credit facility with a $150.0 million first lien Term Loan
agreement that has an 11% interest and matures May 15, 2014. The senior
second lien notes and the first lien Term Loan do not contain financial
maintenance covenants that had been part of the prior credit facility.
Cash and cash equivalents were $205.9 million and $109.0 million as of
June 30, 2010 and December 31, 2009, respectively. ATP had a working
capital deficit of approximately $39.7 million and $26.4 million as of
June 30, 2010 and December 31, 2009, respectively.
2010 Revised Guidance for Production and CAPEX
The impact from the BP oil spill and the resulting moratorium discussed
above have caused significant adjustments to ATP’s previously announced
production estimates and CAPEX program. ATP incurred CAPEX costs of
$513.3 million during the first six months of 2010. Of this amount $46.2
million was capitalized interest and $107.6 million was financed by
suppliers. For the second half of 2010, ATP recommends the preliminary
guidance provided in the schedule below. The guidance is based on
completing the second well at Telemark which is scheduled to begin
production before the end of the third quarter and bringing to
production the well at MC 754 in ATP’s Gomez Hub late in 2010. All
additional drilling and well operations in the Gulf of Mexico are
deferred until 2011. In the UK North Sea, ATP anticipates bringing to
production the new Garrow G2 well at Tors before the end of the year and
continuing the development program of the Octabuoy, the floating
drilling and production facility destined for Cheviot.
Source: ATP Oil & Gas Corporation
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