ATP Sees 15% Production Increase in 3Q11
ATP announced third quarter 2011 results. Oil and gas production for the third quarter 2011 was 2.2 million barrels of oil equivalent (Boe), or 24,200 Boe per day, compared to 1.9 MMBoe (21,100 Boe per day) for the third quarter 2010, reflecting a 15% increase. Revenues from oil and gas production were $170.1 million for the third quarter 2011 compared to $102.1 million for the third quarter 2010. Increased revenues from production were attributable to higher production volumes and higher oil prices. Oil represented 69% of total production for the third quarter 2011, compared to 58% of total production for the third quarter 2010. ATP continues to sell a majority of its oil production at prices close to Louisiana Light Sweet pricing (LLS), currently trading at a substantial premium to West Texas Intermediate pricing (WTI).
The Mississippi Canyon (MC) Block 942 #2, located in approximately 4,000 feet of water, was completed at a measured depth of 21,400 feet in the Miocene S sand at ATP's deepwater Telemark Hub in the Gulf of Mexico. This will be the fourth well tied back to the ATP Titan floating drilling and production platform located at MC Block 941. ATP encountered 167 feet of additional net pay sands above pre-drill estimates. These sands are in addition to the 72 feet of logged net oil pay seen in the original target sand at the Morgus well located at MC 942 #2. Because of the considerable additional hydrocarbon-bearing sands, ATP is adjusting its completion plan to include two new gravel packs which will extend the projected completion time to late January 2012, and ATP expects a positive effect on production by extending the production life and third-party reserve estimates associated with MC 942. ATP operates the deepwater Telemark Hub with a 100% working interest and owns 100% of the subsidiary that owns the ATP Titan and associated pipelines and infrastructure.
The second Clipper well, located at Green Canyon (GC) 300 #4, in approximately 3,450 feet of water, encountered 56 feet of logged net oil pay confirming reserves previously booked. The 9-5/8 inch casing has been set at 15,778 feet measured depth through the pay intervals. The well will now be completed and tested. In July 2011, ATP successfully completed and flow tested the first Clipper well, GC 300 #2 ST #1, at a rate of 45.6 MMcf per day and 4,656 Bbls per day. The pipeline lay barge for the Clipper wells is contracted for third quarter 2012 and will tie in both the GC 300 #4 and #2 wells to the Murphy Oil operated Front Runner production facility. ATP operates Clipper and presently owns a 100% working interest.
Lease operating expense for the third quarter 2011 was $27.7 million ($23.5 million recurring and $4.2 million workover expenses) compared to $27.5 million ($21.6 million recurring and $5.9 million workover expenses) for the third quarter 2010. Recurring operating expenses per Boe for the third quarter 2011 were $10.55 compared to $11.10 for the third quarter 2010, a 5% decrease. Per-unit costs improved as fixed costs were spread over increased production volumes. Workover expenses in the third quarter of 2011 were primarily from well work and pipeline remediation at the company's Gomez Hub.
ATP recorded a net loss attributable to common shareholders of $5.6 million or $(0.11) per basic and diluted share for the third quarter 2011, compared to $58.4 million or $(1.15) per basic and diluted share for the same 2010 period. The net loss attributable to common shareholders for the third quarter of 2011 and 2010 was impacted by items analysts sometimes exclude from their published estimates. For the third quarter of 2011, those items include workover expenses of $4.2 million, a loss on abandonment of $2.7 million, and $77.2 million related to unrealized derivative income for the quarter. For the third quarter of 2010, those items include a gain on disposal of properties of $15.0 million, a property impairment of $3.0 million, and workover expenses of $5.9 million.
Cash flow from operating activities for the third quarter 2011 was $86.3 million compared to $20.2 million for the same period a year ago.
During September 2011, ATP's wholly owned subsidiary, ATP Titan, LLC, entered into a Second Amendment to its term loan agreement. The lender advanced the remaining $50.0 million ($44.5 million, net of transactions costs and discount) under the terms of the original agreement.
At September 30, 2011, ATP's net profits interests (NPI) and Override obligations amounted to $388.0 million. This increased from $379.7 million as of June 30, 2011, primarily from ongoing drilling at Clipper. Both Diamond Offshore Drilling and another supplier carry a significant portion of these costs and recoup them through their NPI's with ATP.
During the third quarter, ATP made payments under its NPI's and Overrides of $60.0 million. Payments for the fourth quarter of 2011 are expected to be comparable to those in the third quarter. The exact payments ATP makes each quarter under its NPI's and Overrides are dependent on the location, quantity, and pricing of production.
ATP incurred $400.0 million of capital expenditures ($379.4 million excluding capitalized interest) on oil and gas properties during the first three quarters of 2011 of which $103.2 million was funded through vendor deferral and net profit interest programs. These capital expenditures were predominantly related to the Gomez and Telemark hubs, Clipper, and the Octabuoy production platform. In the remainder of 2011, ATP anticipates incurring $70.0 million to $120.0 million in total capital expenditures, excluding capitalized interest, of which $35.0 million to $75.0 million will be contributed by vendors through existing NPI programs or deferral programs.
In the third quarter of 2011, ATP terminated certain oil swaps and received $10.7 million in proceeds. The transaction terminated 322,000 barrels swapped in 2011 and 915,000 barrels swapped in 2012. The weighted average barrel price was $91.50. Subsequent to the transaction, in the fourth quarter ATP added swaps for additional volumes of 214,000 barrels swapped in 2011 and replaced the 915,000 barrels swapped in 2012. The weighted average barrel price was $101.45. The primary purpose of the transactions was to re-price the oil swaps from a WTI basis to a LLS basis which more accurately reflects the pricing received for ATP's oil sales.
During July, September and October 2011, ATP entered into crude oil prepaid swap transactions for 274,500, 292,800, and 146,400 barrels, respectively, at net prices of $111.84, $107.92 and $100.41 per barrel, respectively. ATP received $30.7 million, $31.6 million and $14.7 million for these swaps, respectively, at closing. During the future settlement months, ATP will deliver cash to the counterparty based on prevailing prices in the settlement months, which may be higher or lower than those at which ATP was paid.
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