Oil and Gas Reserves
ATP's 2005 proved reserve reports have been prepared by independent third-party reservoir engineers. The proved reserve quantities and classifications contained in the reports prepared by the independent reservoir engineers conform to the definition provided by the Securities and Exchange Commission.
At December 31, 2005, the company achieved a record reserve replacement ratio of 1,367% for 2005. The Company's year-end natural gas and oil proved reserves were 527.5 Bcfe (67 percent natural gas) with a pre-tax PV-10 of $2.7 billion, compared to 275.2 Bcfe and a $733 million pre-tax PV-10 at year-end 2004. Proved developed reserves more than doubled (up 112 percent) to a record 128.4 Bcfe (72 percent natural gas) during 2005.
Proved Reserves Prepared by independent reservoir engineers December 31, 2005 Gulf of Mexico North Sea Consolidated ---------- ---------- ------------ Proved (MMcfe) Developed 114,379.5 13,989.2 128,368.8 Undeveloped 117,650.3 281,476.0 399,126.3 ---------- ---------- ------------ Total 232,029.8 295,465.2 527,495.1 ========== ========== ============ Pre-tax PV-10(1) ($'s in millions) Developed $784.8 $82.6 $867.4 Undeveloped $607.7 $1,209.2 $1,817.0 ---------- ---------- ------------ Total $1,392.5 $1,291.8 $2,684.3 ========== ========== ============ ---------------------- (1) See pre-tax PV-10 reconciliation at the end of this press release.
Top 5 Properties (Based on Proved Reserves) Prepared by independent reservoir engineers December 31, 2005 King's Cheviot MC 711 Tors Peak Venture -------- ------- ------- ------- -------- North Gulf of North Gulf of North Sea Mexico Sea Mexico Sea -------- --------------- ---------------- Proved Reserves (Bcfe) 182.3 93.1 72.9 55.7 26.3 ======== ======= ======= ======= ========
Results of Operations
Natural gas and oil production was 5.4 Bcfe for the fourth quarter and 19.9 Bcfe for 2005. Hurricanes Dennis, Emily, Katrina, and Rita severely disrupted oil and gas production during the third and fourth quarters of 2005 for all oil and gas companies doing business in the Gulf of Mexico. These hurricanes negatively impacted ATP's production by deferring approximately 9.0 Bcfe of anticipated production during this period. Natural gas and oil production was 5.9 Bcfe for the fourth quarter 2004 and 22.4 Bcfe for 2004.
Overall higher commodity prices and cash flow hedges resulted in improved commodity price realizations during the fourth quarter and full year 2005. Compared to the same period in 2004, fourth quarter 2005 U.S. natural gas price realizations increased 69 percent to $9.20 per Mcf, U.K. natural gas price realizations increased 198 percent to $15.06 per Mcf, and crude oil price realizations increased 13 percent to $43.03 per barrel. For 2005, US natural gas price realizations increased 35 percent to $7.31 per Mcf, UK natural gas price realizations increased 129 percent to $9.17 per Mcf, and crude oil price realizations increased 24 percent to $41.92 per barrel.
Natural gas and oil revenues totaled $49.9 million for the fourth quarter and $146.7 million for 2005, compared to $32.9 million for the fourth quarter 2004 and $116.1 million for 2004. Natural gas and oil revenues were higher primarily due to higher commodity prices and improved hedge prices during this period.
Lease operating expense (LOE) per Mcfe was $1.53 for the fourth quarter and $1.19 for 2005, compared to $1.00 for the fourth quarter 2004 and $0.87 for 2004. The increase in LOE per Mcfe was primarily attributable to uninsured hurricane-related expenses and generally higher service costs.
General and administrative expense (G&A) totaled $11.0 million for the fourth quarter and $24.2 million for 2005, compared to $4.7 million for the fourth quarter 2004 and $15.8 million for 2004. The increase in G&A was primarily attributable to year-end compensation related costs.
Depreciation, depletion, and amortization (DD&A) per Mcfe was $2.99 for the fourth quarter and $3.22 for 2005, compared to $3.12 for the fourth quarter 2004 and $2.48 for 2004. The increase in DD&A per Mcfe was primarily due to increased production from relatively higher cost properties developed in 2003 and 2004.
For the fourth quarter 2005, ATP recorded net income available to common shareholders of $0.3 million or $0.01 per basic and diluted share, compared to a net loss available to common shareholders in the fourth quarter 2004 of $3.8 million or $(0.14) per basic and diluted share. For 2005, ATP incurred a net loss available to common shareholders of $12.6 million or $(0.43) per basic and diluted share, compared to net income available to common shareholders of $1.4 million or $0.05 per basic and diluted share for 2004.
Gulf of Mexico Acquisitions
ATP was active in both of the Minerals Management Service sponsored offshore lease sales during 2005. In addition, ATP closed three private company transactions during 2005. These purchases, which total $67.9 million in acquisition costs, resulted in recording 72.8 Bcfe of proved reserves, of which 40.4% were classified as proved developed.
Western Gulf of Mexico Offshore Lease Sale - ATP acquired three blocks for $2.9 million at the Western Gulf of Mexico Offshore Lease Sale 196 held on August 17, 2005. The blocks are located in approximately 200 to 750 feet of water. All three of the blocks have been previously drilled and the related logs indicate the presence of hydrocarbons. One of the blocks, High Island A-589, which was awarded to ATP in December 2005, has already been added to ATP's 2006 development program. ATP holds a 100% working interest and serves as operator of each of the blocks.
Central Gulf of Mexico Offshore Lease Sale - ATP acquired seven blocks for $2.4 million at the Central Gulf of Mexico Offshore Lease Sale held March 16, 2005. Two of the blocks are adjacent to the Company's wholly-owned Mississippi Canyon 711 development. Two additional blocks are contiguous to an existing ATP operated development in the West Cameron area and the remaining three blocks provide access to new development area opportunities. The blocks are located in approximately 125 to 2,900 feet of water. ATP owns a 100% working interest and serves as operator of each property.
South Marsh Island 166 - During the second quarter, ATP acquired South Marsh Island 166. We reentered and completed a temporarily abandoned well which had previously encountered hydrocarbons. As a result of this development work, proved developed reserves were recorded for this property at year-end 2005. ATP holds a 100% working interest in and operates South Marsh Island 166.
King's Peak - ATP acquired a 55% working interest in the producing property King's Peak in late September 2005. ATP operates this property located on Mississippi Canyon Blocks 173 and 217 and Desoto Canyon Blocks 133 and 177. King's Peak contains an estimated 55.7 Bcfe of proved reserves. In addition, the property contains additional development potential from unproved drilling locations. Net production from King's Peak is currently averaging 15-20 MMcfe per day.
Gulf of Mexico Shelf Package - On October 31, 2005, ATP acquired substantially all of the oil and gas properties of a privately held company. These properties are located on the Gulf of Mexico Shelf and contain proved developed producing and proved developed non-producing reserves. Net production from these properties is currently averaging 15-20 MMcfe per day.
North Sea Acquisitions
Tors - ATP increased its net working interest ownership to 85% in the Tors fields, Garrow and Kilmar, through two separate transactions. First, ATP Oil & Gas (UK) Limited, a wholly-owned subsidiary, acquired a 25% working interest ownership from its partner in the second quarter 2005, and then sold a 15% working interest ownership to a new partner in the fourth quarter 2005. This purchase and sale allowed ATP to reduce its capital exposure and lower its development cost per Mcfe, with the net result of improving the overall return for the project and our shareholders.
Venture - During the fourth quarter of 2005, our wholly-owned subsidiary, ATP Oil & Gas (UK) Limited, increased its working interest ownership to 100% in the Venture field (Block 49/12a North) in the Southern Gas Basin of the UK North Sea. The Venture field is located in 75' of water and has been defined by two vertical wells that have tested at rates of 35 MMcf per day and 74 MMcf per day. Development plans in 2006 include the design and construction of a production platform, the installation of a pipeline to an offset host platform, and the drilling of one to two wells. Planned production is for the first half of 2007.
Operations and Development
Gulf of Mexico Shelf - On the Gulf of Mexico Shelf during 2005, six wells were drilled, including one dry hole. Four of the wells, WC 432 #1, MI 709 A4ST1, HI 74 #1, and BA 578 #1, were completed and placed on production. The remaining well, the SMI 166 #1, will be placed on production following hurricane related repairs and tie-ins to third-party infrastructure.
Mississippi Canyon 711 (MC 711) - During 2005, two wells were completed and made ready for production from the southern portion of the block, two 27-mile pipelines were installed, and the drilling vessel, Rowan Midland, was converted into a floating production platform and moored on location. As of March 8, 2006, development work was essentially complete and we are awaiting first production. ATP operates MC 711 with a 100% working interest.
Tors (Kilmar and Garrow) - During 2005, the company constructed and installed the Kilmar jacket and deck, commenced well operations, and installed a 23-kilometer pipeline from Garrow to Kilmar and a 22-kilometer pipeline from Kilmar to an offsetting third-party platform. ENSCO 70 is completing the first of a five-well program after which production will commence. The Garrow platform is currently under construction and is expected to be installed later this year. ATP operates the Tors field with an 85% working interest.
L-06d - On February 27, 2006, we announced first production at L-06d in the Dutch North Sea. ATP now enjoys flowing production in all three of its core areas: the U.S. Gulf of Mexico, the U.K. North Sea, and Dutch North Sea. L-06d production is limited by the capacity of the facilities to 40 - 45 MMcf per day gross.
Cheviot - During 2005, we evaluated the 3-D seismic survey acquired in 2004, which along with comprehensive Geological and Geophysical (G&G) studies, helped to form a more detailed geologic picture of the Cheviot field. We then incorporated this information into a reservoir simulation model and completed the history match of the previous four-year production history of the field. Following optimization studies, we presented all data to a third-party reservoir engineering company, who ultimately assigned 182 Bcfe of proved reserves to the field. ATP operates Cheviot with a 100% working interest.
Capital Resources and Liquidity
The tremendous progress we made in 2005 moving our projects closer to commercial production, despite a difficult hurricane season, was supported by three financings. During the second quarter, we amended and improved the terms of our Senior Secured Credit Facility by expanding it to $350.0 million, reducing the interest rate, and extending the maturity to April 2010. Net of transaction costs, this amendment added $121.0 million in additional liquidity. During the third quarter, we issued $175.0 million of non-convertible perpetual preferred stock, which raised net proceeds of $169.4 million. The security does not have a stated maturity and pays a non-cash dividend of 13.5%, which becomes payable in cash upon the earlier of full repayment of our existing Term Loan or April 15, 2011. During the fourth quarter, we structured a $44.8 million capital lease to finance the purchase of the drilling vessel, Rowan Midland, to serve as the floating production platform at our Mississippi Canyon 711 property.
Cash flow from operating activities was $51.9 million for the year ended December 31, 2005, compared to $41.2 million in cash flow from operating activities for 2004. Cash flow from operating activities prior to changes in assets and liabilities, a non-GAAP measure frequently used by research analysts, was $69.0 million for year ended December 31, 2005, compared to $62.3 million for the same period in 2004. A reconciliation of this measure is included at the end of this press release.
We had working capital at December 31, 2005 of $0.6 million, a decrease of approximately $67.8 million from December 31, 2004. This decrease is attributable to our active 2005 capital program, which includes our two relatively large projects Mississippi Canyon 711 and Tors.
We had $65.6 million in cash and cash equivalents on hand at December 31, 2005, compared to $102.8 million in cash and cash equivalents at December 31, 2004. Cash paid for acquisition and development activities for the year 2005 was $420.5 million, compared to $87.4 million in 2004.
2006 Operational and Financial Objectives
We will continue to devote considerable resources to our developments in 2006. During the early part of the year, efforts will be spent completing and bringing to production two of our major developments begun in 2005, Mississippi Canyon 711 in the Gulf of Mexico and the Tors fields in the UK Sector of the North Sea. As of February 27, 2006, L-06d had been placed on production. The first of three wells planned at the Kilmar portion of Tors fields has reached total depth and the well is going through completion activities. Additional drilling and completion activities are scheduled at both Mississippi Canyon 711 and at the Garrow portion of the Tors fields later in 2006.
In addition to these developments, projects with proved undeveloped reserves at December 31, 2005 that are scheduled for 2006 development, include Venture in the UK North Sea and South Marsh Island 189/190 and other properties in the Gulf of Mexico. We also have scheduled for drilling or completion properties in which previous drilling into targeted reservoirs indicates to the Company the presence of commercially productive quantities of hydrocarbons, although these reservoirs did not meet the SEC definition of proved reserves at the end of 2005. For example, High Island A-589 is a property that the Company believes to have commercially productive hydrocarbons and intends to develop in 2006 that is not included in our reserve report at year-end 2005.
We have commenced engineering and procurement activities on our Cheviot property in the UK North Sea. Cheviot, our largest property in terms of proved reserves, is a multi-year development with first production targeted in 2008. Other potential developments for 2006 in the Gulf of Mexico and North Sea are currently being evaluated. We believe that 2006 production will far exceed that of 2005 as a result of our 2003 through 2005 development programs and projects scheduled for development in 2006.
Our production may command higher realized oil and gas prices in 2006 than in recent years, based on our current hedge position and relatively strong commodity prices. Our revenues, profitability and cash flows are highly dependent upon many factors, particularly our production results and the price of oil and natural gas. During the first quarter of 2006, we have been active in the futures market. We have purchased floors at $57.50 for 962.5 thousand barrels of crude oil in 2006 and 315.0 thousand barrels of crude oil in 2007. We also entered into swaps at $67.76 for 182.5 thousand barrels of crude oil for 2007. Including these recent hedges, we have hedged 13.6 Bcfe for 2006 and 3.4 Bcfe for 2007. To mitigate future price volatility, we may hedge additional production.
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