Results of Operations
Natural gas and oil production was 5.9 Bcfe for the first quarter, compared to 5.8 Bcfe in the first quarter 2005. Compared to the first quarter 2005, first quarter U.S. natural gas price realizations increased 21% to US $7.40 per Mcf, North Sea natural gas price realizations increased 19% to US $9.48 per Mcf, and crude oil price realizations increased 11% to US $44.72 per barrel. As a result of an increase in average realized prices and average sales volumes, natural gas and oil revenues were US $45.2 million for the first quarter, compared to US $37.0 million for the first quarter 2005.
Hurricane related repairs continued to impact the first quarter 2006 with lease operating expenses (LOE) in the Gulf of Mexico totaling US $9.9 million and with approximately 30% associated with properties that did not contribute to production. For those properties with production, LOE amounted to US $1.28 per Mcfe. LOE in the North Sea was US $1.36 per Mcfe. For the first quarter 2005, LOE per Mcfe was US $0.74 in the Gulf of Mexico and US $1.24 in the North Sea.
General and administrative expense (G&A) totaled US $5.8 million for the first quarter, compared to US $4.2 million for the first quarter 2005. The increase was primarily due to higher costs for personnel, professional and legal fees, partially offset by lower administrative expenses associated with geological/geophysical activities.
Depreciation, depletion, and amortization (DD&A) per Mcfe was US $2.91 for the first quarter, compared to US $3.55 for the first quarter 2005. The lower rate for 2006 compared to 2005 is primarily due to one of our higher cost producing properties being shut-in during 2006 while awaiting the completion of hurricane related repairs.
ATP recorded a net loss available to common shareholders of US $9.9 million or US $0.34 per basic and diluted share in the first quarter, compared to net income available to common shareholders in the first quarter 2005 of US $1.0 million or US $0.03 per basic and diluted share. Results from the first quarter 2006 were impacted by the destructive aftermath of hurricanes Katrina and Rita, and the resultant industry rush to complete repairs and reconstruction efforts in an atmosphere of scarce resources and ever increasing costs due to the demand for such services.
The Company's selected operating statistics and financial information, included within this press release, contain additional information on our activities for the first quarter 2006 and comparable period in 2005.
NOTE: All figures are in USD unless otherwise stated.
Three Months Ended March 31, -------------------- 2006 2005 -------- --------- Selected Operating Statistics Production Natural gas (MMcf) 5,033 4,594 Oil and condensate (MBbls) 150 198 Natural gas equivalents (MMcfe) 5,935 5,779 Gulf of Mexico (MMcfe) 5,326 5,238 North Sea (MMcfe) 608 541 Average Prices (includes effect of cash flow hedges) Natural gas (per Mcf) 7.65 6.32 Natural gas (per Mcf) - GOM 7.40 6.10 Natural gas (per Mcf) - N. Sea 9.48 7.97 Oil and condensate (per Bbl) - GOM 44.72 40.15 Natural gas, oil and condensate (per Mcfe) 7.62 6.40 Lease operating expense (per Mcfe) 1.80 0.79 Lease operating expense (per Mcfe) - GOM 1.85 0.74 Lease operating expense (per Mcfe) - N. Sea 1.36 1.24 Other Expenses, per Mcfe Depreciation, depletion and amortization (DD&A) 2.91 3.55 DD&A - GOM 2.82 3.50 DD&A - N. Sea 3.67 4.03 Selected Financial Data (In Thousands, Except Per Share Data) Oil and gas revenues, including settled derivatives (1) 45,225 36,980 Net income (loss) (3,045) 1,000 Preferred dividends (6,818) - Net income (loss) available to common shareholders (9,863) 1,000 Per share, basic and diluted (0.34) 0.03 Average number of common shares outstanding Basic 29,435 28,924 ======== ========= Diluted 29,435 29,782 ======== ========= (1) See oil and gas revenue reconciliation on the last page of this press release.
Central Gulf of Mexico Offshore Lease Sale -- ATP acquired Green Canyon 37 at the Central Gulf of Mexico Offshore Lease Sale held in March. The block contains two hydrocarbon-bearing pay sands, an oil zone and a gas zone, with approximately 140 feet of net pay from both zones. Development of this property is scheduled to begin in late 2007 or 2008. ATP is the operator of Green Canyon 37 with a 100% working interest.
Operations and Development
Gulf of Mexico Shelf -- Since the beginning of 2006, development operations have occurred at South Marsh Island 166, High Island 74, and Ship Shoal 358 (SS 358). During the second quarter, we expect to spud two new wells, one at West Cameron 663 and another at West Cameron 462. Both of these wells are scheduled to be completed in the third quarter and on production before the end of the year. SS 358 resumed production on April 7, 2006, following hurricane related repairs.
Gulf of Mexico Deepwater -- On March 9, 2006, at MC 711, ATP announced first production from the MC 711 #4 ST 1 well. The second well, the MC 711 #6, commenced production on March 14, 2006; however, both wells did not flow simultaneously until March 30, 2006. The start-up phase of the field is progressing, and net production should reach approximately 100 MMcfe/d early in the third quarter. The highest daily production rate at MC 711 achieved as of the date of this press release occurred on April 28, 2006, at 85 MMcfe/d.
The second phase of development at MC 711 is scheduled to commence mid-2006 and will include additional developmental drilling plus the installation of a subsea manifold. ATP is the operator of MC 711 with a 100% working interest.
North Sea -- On April 3, 2006, ATP announced first production from the Kilmar K1 well at its Tors development located in Block 43/22 ("Kilmar" field) of the Southern Gas Basin of the U.K. North Sea. Net production in the second quarter at Tors is expected to average 30 - 40 MMcfe/d. A second well, Kilmar K2, is currently drilling and should be completed in the third quarter. When fully developed, Tors is expected to have at least four producing wells with net production of 50 - 75 MMcfe/d. ATP is the operator of Tors with a 85% working interest.
Platform and facilities construction at Wenlock (formerly Venture) is ongoing and should be completed during the third quarter. Drilling is scheduled to begin late in 2006, and first production is expected during the first half of 2007. ATP is the operator of Wenlock with a 100% working interest.
On February 27, 2006, we announced first production at L-06d in the Dutch North Sea. Net ATP production at L-06d is expected to reach a facilities limit of 15 - 20 MMcfe/d following completion of the start-up phase at the host platform, G-17. ATP is the operator of L-06d with a 50% working interest.
Second Quarter 2006 Production and Operations Update
The step change in second quarter production is well underway. For the month of April, production averaged approximately 155 MMcfe/d, compared to 70 MMcfe/d for March. On May 8, 2006 production hit a peak of 188 MMcfe/d. We are still in the start-up phases at MC 711, Tors, and L-06d, and we expect to build on these production volumes for the remainder of the second quarter. The Company anticipates that for the entire second quarter production will average in excess of 160 MMcfe/d. We also reiterate our 2006 production estimate of 150 - 200 MMcfe/d for the entire year.
LOE per Mcfe should continue to improve with our recent increase in production and SS 358, previously off production due to the hurricanes, returning to production on April 7, 2006. We reiterate an LOE rate approaching USD 1.00 per Mcfe for all of 2006.
Capital Resources and Liquidity
During the first quarter, ATP issued USD 150.0 million of Series B Cumulative Perpetual Preferred Stock. We received proceeds of USD 145.5 million from the offering, net of offering costs. The security does not have a stated maturity and bears a 12 1/2% non-cash dividend, which becomes payable in cash upon the earlier of full repayment of our existing Term Loan or April 15, 2011.
Cash flow from operating activities was US $28.8 million during the first quarter, compared to US $10.7 million in cash flow from operating activities for the same period in 2005. Cash flow from operating activities prior to changes in assets and liabilities, a non-GAAP measure frequently used by research analysts, was USD 19.5 million for the first quarter, compared to US $23.4 million for the same period in 2005.
At March 31, 2006, ATP had working capital of US $47.0 million, compared to US $0.6 million at December 31, 2005. ATP had US $138.1 million in cash and cash equivalents on hand at March 31, 2006, compared to US $65.6 million in cash and cash equivalents at December 31, 2005. Cash paid for acquisition and development activities for the three months ended March 31, 2006, was US $96.1 million, compared to US $42.3 million in the same period in 2005.
We have been active in the derivatives market this year. Since the beginning of 2006, we have purchased crude oil puts and entered into crude and natural gas swaps and fixed forward sales representing approximately 25 Bcfe of production at an average hedge price of US $10.94/Mcfe. In total for 2006 and 2007, we have 32 Bcfe hedged at an average price of US $10.75/Mcfe.
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