ATP Oil & Gas Reports Third Quarter 2005 Results
ATP Oil & Gas Corporation (Nasdaq: ATPG) reports operations update and third quarter 2005 results.
Acquisitions: -- Acquired a 55% working interest in the producing property King's Peak, which consists of Mississippi Canyon blocks 173 and 217 and Desoto Canyon blocks 133 and 177; -- Submitted the apparent high bids on three blocks at the Western Gulf of Mexico Lease Sale; Two of the leases have been subsequently awarded; and -- Acquired a package of properties in a private transaction with current production of 25 MMcfe per day. Developments: -- Resumed development operations at Mississippi Canyon 711 following a more than two-month delay caused by Hurricanes Rita and Katrina. Approximately 50 days of well operations and facility hookup remain; -- Reached agreement to acquire the Rowan-Midland, which will initially be utilized as a floating production platform at Mississippi Canyon 711; -- Completed platform and pipeline installation at the Tors in the U.K. Sector North Sea and commenced well operations with the ENSCO 70 rig; and -- Tested L-06d in the Dutch Sector North Sea at 53 MMcf/d, completed the well, installed the pipeline, and began performing platform tie-in work at the host platform. Operations and Finance -- Achieved production of 14.5 Bcfe during the first three quarters of the year and 3.8 Bcfe during the third quarter; -- Recorded quarterly revenues of $26.3 million, cash flows from operating activities of $22.6 million, and a net loss available to common shareholders of $10.6 million; -- Recorded year-to-date revenues of $96.8 million, cash flows from operating activities of $61.4 million, and a net loss available to common shareholders of $12.9 million; and -- Issued $175.0 million in non-convertible perpetual preferred stock. Review and Outlook
The Gulf of Mexico oil and gas industry was hit hard by four Hurricanes during the third quarter; Dennis, Emily, Katrina, and Rita. As of November 1, 2005, according to the Minerals Management Service (MMS), more than 66% of oil production (1.0 million bopd) and 52% of gas production (5.3 Bcf/d) remained shut-in in the Gulf of Mexico. The storms negatively impacted ATP's third quarter production by approximately one Bcfe. The Company anticipates restoring production to 75% to 80% of pre-storm rates by the end of the fourth quarter. However, including recent acquisitions, production levels are presently above pre-storm levels at approximately 65 MMcfe per day. Regarding developments, Katrina in particular caused a more than two-month delay at our Mississippi Canyon 711 project. Now that development operations have almost resumed to pre-storm activity levels, we remain optimistic that we can still achieve first production at Mississippi Canyon 711 by December 31, 2005 and exit the year with a company-wide production rate in excess of 160 MMcfe per day.
ATP has also made substantial progress on its international developments. Tors in the U.K. Sector North Sea is currently scheduled to begin production early in 2006 or possibly very late in the fourth quarter of 2005. L-06d in the Dutch Sector North Sea is scheduled to commence production during the fourth quarter of 2005.
Results of Operations
Oil and natural gas revenues were $26.3 million from production of 3.8 Bcfe for the third quarter of 2005. Comparable amounts in the third quarter of 2004 for oil and natural gas revenues were $26.3 million from production of 5.2 Bcfe. Improvements in the prices of hedged volumes and overall higher commodity prices in the third quarter of 2005 resulted in a 37% increase in average realized prices to $6.91 per Mcfe, compared to $5.04 per Mcfe in the same period in 2004. Natural gas price realizations increased 41% to $6.94 per Mcf and oil price realizations increased 24% to $41.09 per barrel in the third quarter of 2005, compared to the third quarter of 2004.
Lease operating expense was $4.8 million for the third quarter, compared to $4.2 million in the same period in 2004. Lease operating expense per Mcfe increased to $1.26 in the third quarter from $0.80 in the same period in 2004. The increase per Mcfe was primarily attributable to a decrease in production while certain costs remained fixed. General and administrative expenses increased to $3.9 million for the third quarter of 2005, compared to $3.3 million for the same period of 2004. Compensation related costs during the third quarter included accrued costs related to the ATP Employee Volvo Challenge Plan.
DD&A for the third quarter was $12.3 million, compared to $11.7 million in the third quarter of 2004. As previously announced, ATP drilled an exploratory step-out well at its producing Eugene Island 30/71 complex that found non-commercial quantities of hydrocarbons, resulting in exploration expense of $5.6 million for the first nine months and $3.1 million for the third quarter. For the third quarter 2005, ATP incurred a net loss to common shareholders of $10.6 million or $(0.36) per basic and diluted share, compared to net income to common shareholders in the third quarter 2004 of $0.6 million or $0.02 per basic and diluted share. For the first nine months of 2005, ATP incurred a net loss available to common shareholders of $12.9 million or $(0.44) per basic and diluted share, compared to net income available to common shareholders of $5.1 million or $0.21 per basic and diluted share for the same period of 2004.
Below are the Company's selected operating statistics and financial information, which contain additional information on our activities for the three and nine months ended September 30, 2005 and 2004.
Three Months Ended Nine Months Ended September 30, September 30, 2005 2004 2005 2004 Selected Operating Statistics (unaudited) Production Natural gas (MMcf) 2,718 4,251 11,033 13,302 Oil and condensate (MBbls) 182 166 584 537 Natural gas equivalents (MMcfe) 3,808 5,245 14,537 16,521 Gulf of Mexico (MMcfe) 3,808 4,347 13,625 12,989 North Sea (MMcfe) - 898 912 3,532 Average Prices (includes effect of settled derivative activities) Natural gas (per Mcf) $6.94 $4.93 $6.55 $4.95 Gulf of Mexico 6.94 5.26 6.52 5.41 North Sea - 3.76 6.95 3.73 Oil and condensate (per Bbl) 41.09 33.15 41.67 32.18 Natural gas, oil and condensate (per Mcfe) 6.91 5.04 6.65 5.04 Lease operating expense (per Mcfe) 1.26 0.80 1.06 0.83 Other Expenses, per Mcfe Depreciation, depletion and amortization $3.23 $2.23 $3.30 $2.25 Selected Financial Data (In Thousands, Except Per Share Data) Oil and gas revenues, including settled derivatives (1) $26,342 $26,306 $96,810 $83,196 Net income (loss) (6,820) 597 (9,142) 5,130 Preferred dividends (3,756) - (3,756) - Net income (loss) available to common shareholders (10,576) 597 (12,898) 5,130 Per share, basic and diluted $(0.36) $0.02 $(0.44) $0.21 Weighted average shares outstanding Basic 29,109 24,572 29,005 24,542 Diluted 29,922 24,900 29,833 24,771 (1) See oil and gas revenue reconciliation on the last table of this press release. Acquisitions
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 producing reserves, proved undeveloped reserves as well as probable and possible reserves. The proved reserves associated with the transaction will be in the Company's year-end 2005 reserve report. In addition to the proved, probable and possible reserves, there are identified exploration opportunities on certain blocks. Total consideration paid at closing was $40.0 million. A contingent payment of an additional $10.0 million will be required if the properties achieve a designated production level. ATP will be the operator of most of these blocks. Currently, the net production from these properties is approximately 25 MMcfe per day.
ATP acquired a 55% working interest for $18.6 million in the producing property King's Peak in 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 proved producing and proved undeveloped reserves as well as probable and possible reserves. The proved reserves associated with the transaction will be in the Company's year-end 2005 reserve report.
ATP was the apparent high bidder on three blocks at the Western Gulf of Mexico Offshore Lease Sale 196 held on August 17, 2005 in New Orleans, Louisiana. 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. Two of the blocks, Garden Banks 228 and High Island A-391, were subsequently awarded. If the third block is awarded, ATP's acquisition costs for the three properties will be $2.8 million with the Company owning a 100% working interest and serving as operator of each of the blocks.
Operations and Development
Gulf of Mexico - Hurricanes Rita and Katrina caused minimal direct damage to most of the Company's platforms with some platforms, primarily in the Western Gulf, sustaining no damage. A platform at Ship Shoal 358 appears to have sustained the most damage, although preliminary estimates indicate the platform can be repaired and resume production in early 2006.
Repairs to third-party infrastructure will largely determine the rate at which our shut-in properties in the Gulf of Mexico resume production. The Company estimates that essentially all of our remaining Gulf of Mexico production, except for Ship Shoal 358, will be restored during the fourth quarter of 2005.
The drilling vessel Ocean Voyager is back on location at Mississippi Canyon 711 after approximately two months off location to repair damage caused by Hurricane Katrina. Modifications to the Rowan-Midland, the production facility, continue with module hookup in progress. The Rowan-Midland is scheduled to arrive on location at Mississippi Canyon 711 near the end of the month after completion of well operations by the Ocean Voyager. The construction of the two 27-mile oil and gas pipelines has already been completed. ATP estimates that approximately 50 days of well operations and facility hookup remain.
ATP recently entered into an agreement to acquire the Rowan-Midland, which was previously retained under an operating lease agreement. The acquisition of the Rowan-Midland provides significant operating flexibility which should allow for optimal exploitation of the reserves at Mississippi Canyon 711 and the surrounding areas. ATP also acquired Mississippi Canyon 667/668 at a recent lease sale, two blocks adjacent to and north of Mississippi Canyon 711. The Rowan-Midland is the only immediately viable infrastructure capable of receiving and processing production in the Mississippi Canyon 711 area, therefore the Company believes the Rowan-Midland could be a likely host for third party tie-ins and other opportunities.
North Sea - On-site development at Tors (Kilmar and Garrow) continues with the possibility of achieving first production at the end of the fourth quarter of 2005. The pipeline lay is complete and the jacket and deck for Kilmar have been installed. The ENSCO 70 rig arrived on location October 7, 2005 and is currently sidetracking the first well at the Kilmar platform. Following completion of this well, ATP plans to use the ENSCO 70 for four additional wells in the U.K. Sector North Sea. Two of these wells will complete the development at Kilmar, and the remaining two wells of the rig contract will be drilled at Garrow and/or our Venture project. Helvellyn, the Company's first North Sea development, is expected to resume production during the fourth quarter of 2005.
ATP reentered and sidetracked the #1 well at L-06d, the Company's first Dutch Sector North Sea development. The well reached total depth of 8,859' and logged 88' of net gas pay in a high quality Terschelling Sandstone, 26' structurally high to the original well. The pipeline and umbilical lay have been completed. Final hookup to the third-party host platform is underway with initial production expected in the fourth quarter of 2005.
Capital Resources and Liquidity
During the third quarter, ATP issued $175.0 million of non-convertible perpetual preferred stock. We received net proceeds of $169.4 million from the offering. The security pays a non-cash dividend of 13.5%. Dividends become payable in cash upon the earlier of full repayment of our existing Term Loan or April 15, 2011, whichever comes first. This security does not have a stated maturity. Additional details of the preferred equity security can be found in the Company's Form 8-K related to the security.
Cash flow from operating activities was $61.4 million for the nine-month period ended September 30, 2005, compared to $7.5 million in cash flow from operating activities for the same period in 2004. Cash flow from operating activities prior to changes in assets and liabilities, a non-GAAP measure frequently used by research analysts, was $49.9 million for the nine-month period ended September 30, 2005, compared to $45.8 million for the same period in 2004.
At September 30, 2005, ATP had working capital of approximately $102.4
million, compared to $68.3 million at December 31, 2004. The improvement in
working capital during the first nine months of the year was primarily the
result of the previously discussed preferred offering as well as an amendment
in the second quarter that increased the amount outstanding under the
Company's credit facility to $350.0 million. ATP had $167.4 million in cash
and cash equivalents on hand at September 30, 2005, compared to $102.8 million
in cash and cash equivalents at December 31, 2004. Cash paid for acquisition
and development activities for the nine months ended September 30, 2005 was
$272.6 million, compared to $49.4 million in the same period in 2004.
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