Second quarter 2004 production of 6.6 Bcfe was a 45% increase over the comparable period in 2003 and exceeded previously announced guidance of 6.5 Bcfe. For the first half of 2004, ATP produced 11.3 Bcfe, an increase of 18% over the same period in 2003. During the second quarter 2004, ATP brought two wells to production:
Ship Shoal 358 (A-2 well) Gulf of Mexico On production April 29, 2004
Ship Shoal 358 (A-3 well) Gulf of Mexico On production June 29, 2004
These wells, along with four wells placed on production in the first quarter and the installation of a compressor at ATP's Brazos 544 A platform, were significant contributors to the Company's increase in production during the second quarter and the first half of 2004.
During the third quarter ATP will experience a recently announced shut down of approximately one month at the onshore gas receiving terminal that receives production from ATP's Helvellyn well and several recently announced maintenance shut downs at properties in the Gulf of Mexico. These shut downs are expected to impact third quarter production. As a result of these shutdowns, ATP projects third quarter 2004 production of approximately 5.0 to 6.0 Bcfe. Despite the expected shutdowns during the third quarter of 2004, ATP reaffirms the previously announced estimate of production for 2004 of 25 Bcfe, an increase of 46% over 2003.
Results of Operations
For the second quarter 2004, net income was $6.9 million or $0.28 per basic and diluted share compared to net income in the second quarter 2003 of $0.4 million or $0.02 per basic and diluted share. For the first six months of 2004, net income was $4.5 million or $0.18 per basic and diluted share. Included in the net income for the first six months of 2004 was a charge of $3.3 million on early extinguishment of debt and $1.9 million of credit facility costs incurred during the first quarter of 2004. For the first half of 2003, net income was $2.8 million or $0.13 per basic and diluted share.
Oil and natural gas revenues were $32.9 million from production of 6.6 Bcfe (82% gas) for the second quarter of 2004. Comparable amounts in the second quarter of 2003 for oil and natural gas revenues were $18.5 million from production of 4.6 Bcfe (58% gas). Primarily as a result of improvement in our risk management activities and overall higher commodity prices, ATP recognized a 32% increase in average price realizations in the second quarter of 2004, $4.96 per Mcfe, compared to $3.77 per Mcfe in the same period in 2003. From the second quarter of 2003 to the second quarter of 2004 natural gas price realizations increased 46% to $4.87 per Mcf and oil price realizations increased 23% to $32.27 per barrel.
For the second quarter of 2004, lease operating expense was $0.75 per Mcfe, a decrease from $0.81 per Mcfe in the same period in 2003 and a decrease from $0.96 per Mcfe in the first quarter 2004 and $1.37 per Mcfe in the fourth quarter 2003. As stated previously by ATP, it was anticipated that as production increased to the current levels, lease operating expense per Mcfe would decrease as demonstrated by the improvement from the fourth quarter 2003 to the second quarter 2004. General and administrative expenses increased to $3.7 million for the second quarter of 2004 compared to $3.1 million for the same period of 2003.
In February 2004, ATP entered into an agreement to sell an undivided 25% working interest in ten offshore blocks in the Gulf of Mexico. These blocks comprised seven developments and contained 10.56 Bcfe of which 93.5% was proved undeveloped. Proceeds of $10.5 million from the sale were received in February 2004 and the balance of $9.0 million was received in April 2004. In connection with the sale, the Company recognized a total gain of $6.0 million on the sale of which $3.0 million was recognized in the second quarter of 2004 and a similar amount in the first quarter 2004.
DD&A was $2.11 per Mcfe during the second quarter 2004 compared to $1.34 per Mcfe in the second quarter of 2003 and $2.41 per Mcfe in the first quarter 2004. A contributor to the increase during 2004 was production from ATP's Helvellyn well which had a rate of $2.95 per Mcfe. Helvellyn, located in the Southern Gas Basin of the North Sea, began producing during the first quarter of 2004 and thus had no impact in 2003.
Below are the Company's selected operating statistics and financial information, which contain additional information on our activities for the three and six months ended June 30, 2004 and 2003.
Three Months Ended Six Months Ended June 30, June 30, 2004 2003 2004 2003 Selected Operating Statistics (unaudited) Production Natural gas (MMcf) 5,434 2,632 9,051 5,566 Oil and condensate (MBbls) 199 322 371 665 Natural gas equivalents (MMcfe) 6,630 4,564 11,276 9,559 Gulf of Mexico (MMcfe) 4,851 4,564 8,642 9,559 North Sea (MMcfe) 1,779 - 2,634 - Average Prices (includes effect of settled derivative activities) Natural gas (per Mcf) $4.87 $3.33 $4.96 $3.16 Oil and condensate (per Bbl) 32.27 26.19 31.74 27.62 Natural gas, oil and condensate (per Mcfe) 4.96 3.77 5.03 3.77 Lease operating expense (per Mcfe) 0.75 0.81 0.84 0.77 Other Expenses, per Mcfe Depreciation, depletion and amortization $2.11 $1.34 $2.27 $1.45 Selected Financial Data (In Thousands, Except Per Share Data) Oil and gas revenues, including settled derivatives (1) $32,875 $17,207 $56,704 $35,972 Net income 6,926 431 4,533 2,829 Per share, basic and diluted $0.28 $0.02 $0.18 $0.13 Average shares outstanding Basic 24,530 22,481 24,526 21,413 Diluted 24,715 22,584 24,706 21,558
Developments, Acquisitions and Sales
During the second quarter of 2004, the Company placed on production two wells in the Gulf of Mexico bringing the total number of wells placed on production in the first half of 2004 to six of which five are in the Gulf of Mexico and one is in the North Sea. At the end of the second quarter of 2004, ATP was drilling a fourth well at Ship Shoal 358. This well was completed and placed on production July 28, 2004. Ship Shoal 358, originally scheduled as a two well development has expanded to four wells as a result of the success of the first two wells. ATP operates Ship Shoal 358 with a 51% working interest. The Matagorda Island 709 A-1 ST1 well, that commenced production in March 2004 and was taken off line in April 2004 due to third party pipeline repairs, was placed back on production on July 29, 2004.
In addition to the Ship Shoal 358 and Matagorda Island 709 activity, ATP continues its development operations at West Cameron 237, Eugene Island 30/71 and West Cameron 101. Later this summer ATP expects to initiate a 3-D seismic survey at the Cheviot Field, formerly known as the Emerald Field, in the North Sea. Results at each of these locations will be announced throughout the year as operations are completed.
During the second quarter, ATP acquired an interest in Ship Shoal 351 which is located adjacent to Ship Shoal 358. ATP intends to develop Ship Shoal 351 utilizing the ATP operated Ship Shoal 358 platform. ATP operates Ship Shoal 351 with a 50% working interest. ATP was also notified in July 2004 by the current operator of Vermilion 408 that ATP's royalty interest in the property became effective March 2004. ATP's interest is a 5.3125% non- operating, non-expense bearing royalty interest which is capped at $5.0 million. This property, acquired by ATP in 1998, was sold as part of an exploration package in 1999. This is the third such royalty interest in these exploration blocks that has become effective since the 1999 sale.
For the first half of 2004, ATP incurred capital expenditures of $32.5 for development operations for its oil and gas properties and $0.2 million for acquisitions. For the first half of 2003, development and acquisitions costs were $40.9 million. After deducting the net proceeds from the previously discussed sale, ATP utilized cash in investing activities of $13.5 million for the first half of 2004 related to oil and gas acquisitions and capital expenditures.
Capital Resources and Liquidity
At June 30, 2004, ATP had working capital of approximately $17.4 million, an improvement of $63.9 million over the deficit experienced at December 31, 2003. The improvement in working capital is primarily the result of the previously discussed property sale and a new $185.0 million Senior Secured Term Loan that closed on March 29, 2004 which replaced the previous credit facility. At closing, this new term loan provided ATP with $56.0 million in net proceeds. Details of the term loan can be found in the Company's 2003 Form 10-K.
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