ATP Announces Record Production, Q2 Results
ATP Oil & Gas Corp. on Thursday released an operations update and the company's second quarter 2006 results. Highlights include:
--Achieved record quarterly production of 13.5 Bcfe, an increase of 128% over first quarter 2006 production of 5.9 Bcfe --Recorded quarterly revenue of $108.9 million and net income available to common shareholders of $6.4 million --Improved the financial strength of our Term Loan by reducing the interest rate from LIBOR plus 5.50% to LIBOR plus 3.25% and increasing the size from $350.0 million to $525.0 million --Added new production in the second quarter from Tors and South Marsh Island 166, bringing to five the number of wells placed on production in the first half of 2006 --Acquired four deepwater properties (Mirage, Morgus, Oasis, and Telemark), bringing to five the number of deepwater blocks acquired in 2006 --Finalizing completion of the third well at Mississippi Canyon 711 - well tie-in early 2007.
Results of Operations
Oil and natural gas revenues were $108.9 million from production of 13.5 Bcfe for the second quarter of 2006. Comparable amounts in the second quarter of 2005 for oil and natural gas revenues were $33.5 million from production of 5.0 Bcfe. Improvements in the prices of hedged volumes and overall higher commodity prices in the second quarter of 2006 resulted in a 20% increase in average realized prices to $8.05 per Mcfe, compared to $6.73 per Mcfe in the same period in 2005.
Lease operating expenses (LOE) for the second quarter totaled $21.3 million or $1.57 per Mcfe compared to $6.0 million or $1.21 per Mcfe for the second quarter of 2005. The increase was primarily attributable to the aforementioned increase in production. Included in second quarter LOE was uninsured hurricane repairs performed on our oil and gas properties in the Gulf of Mexico. LOE in the Gulf of Mexico was $1.65 per Mcfe, of which approximately 19% was associated with properties that did not contribute to production for the period. For those properties with production, LOE in the Gulf of Mexico amounted to $1.35 per Mcfe. LOE in the North Sea was $1.35 per Mcfe for the second quarter.
General and administrative expenses (G&A) totaled $4.1 million for the second quarter, compared to $5.2 million for the second quarter of 2005. The decrease was primarily due to compensation related to the ATP Employee Volvo Challenge Plan which was charged to expense in 2005. The plan was satisfied in the first quarter of 2006 and no such provision was necessary in the second quarter of 2006.
Depreciation, depletion, and amortization (DD&A) per Mcfe was $3.20 for the second quarter, slightly above $3.07 for the second quarter 2005.
ATP recorded a tax provision during the second quarter, related to our foreign jurisdictions, based on the expected 2006 effective tax rate of each jurisdiction. The rates were determined based on the projected results of operations for the year, the valuation allowance that had previously been recorded at each jurisdiction and any permanent differences affecting the overall tax rate.
ATP recorded net income available to common shareholders of $6.4 million or $0.21 per basic and diluted share in the second quarter, compared to net loss available to common shareholders in the second quarter 2005 of $3.3 million or $0.11 per basic and diluted share.
Thus far in 2006, ATP has acquired five blocks, all with a 100% working interest and all operated by ATP. The blocks, Telemark (Atwater Valley 63), Mirage (Mississippi Canyon - "MC" - 941), Oasis (MC 943), Morgus (MC 942) and Green Canyon 37 are located in the Gulf of Mexico deepwater. These blocks demonstrate a continuing commitment by ATP to expand its inventory of future developments on projects where previous operations have shown the presence of hydrocarbons. Four of the five blocks have previous drilling where hydrocarbons have been discovered but have not yet been developed. In addition there are several identified exploration targets on these blocks. ATP is currently working with its independent reservoir engineers to determine their estimates of the amount and classification of the oil and gas reserves associated with these acquisitions.
ATP is finalizing the completion of the third well at MC 711 (100% WI). On August 2, 2006, the company flowed hydrocarbons to the surface to clean up the well. The well is scheduled to be tied back to ATP's production platform, located in the southern portion of the block, in early 2007. Upon completion of current well operations, the drilling rig will move to Ladybug (Garden Banks 409 - 50% WI), where it will spud a new well targeting an updip attic location to the currently producing zone. In addition, the company will move uphole in the existing wellbore at Ladybug to produce two zones that have been behind pipe since first production in 2001.
ATP has hedged an additional 1,216,000 barrels of oil for 2007 and 2008 since its first quarter earnings press release dated May 9, 2006. Included in these hedges are 365,000 barrels of crude oil puts for 2007 with $60 floors. The remaining 851,000 barrels were hedged with fixed forward contracts at prices ranging from $72.87 per barrel to $80.10 per barrel. With these additional hedges, ATP's weighted average crude oil hedge price including both puts and fixed forward contracts is $60.34 per barrel for the remainder of 2006, $66.08 per barrel for 2007, and $76.55 per barrel for 2008. A detailed listing of these new hedges as well as previously existing hedges is provided near the end of this press release.
Increased production in the second quarter and first half of 2006 was predominantly from the five new wells located at MC 711 (2 wells), Tors, L-06d, and South Marsh Island 166 as well as resumed production from Ship Shoal 358 and Ship Shoal 321. ATP expects daily production to average more than 150 MMcfe per day in 2006, an increase of more than 175% over 2005 production. Major development projects on the Gulf of Mexico Shelf, Deepwater Gulf of Mexico, and in the U.K. North Sea should continue to provide substantial production growth. Accordingly, the company expects production to average in excess of 200 MMcfe per day in 2007.
Capital Resources and Liquidity
On June 22, 2006, ATP announced that it had amended and improved the terms of its Term Loan by expanding the credit facility from its original $350.0 million to $525.0 million and reducing the interest rate. The company received proceeds of $167.4 million, net of related amendment costs. Significant terms of the amendment included:
- a decrease in the overall interest rate of the credit facility from LIBOR plus 5.5% to LIBOR plus 3.25%
- the amendment or removal of certain covenants within the credit facility to provide more flexibility to ATP
- the ability to refinance ATP's existing Series A and Series B Preferred securities
- the ability to buy back the company's common stock, provided certain ratios are met.
Cash flow from operating activities was $46.6 million for the six months ended June 30, 2006, compared to $38.8 million 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 a record $91.1 million for the six months ended June 30, 2006, compared to $39.2 million for the same period in 2005. At June 30, 2006, ATP had working capital of approximately $114.6 million, an improvement of $114.0 million over December 31, 2005. The improvement in working capital is primarily the result of the previously discussed financing and stronger cash flow from operating activities. ATP had $202.8 million in cash and cash equivalents on hand at June 30, 2006, compared to $65.6 million at December 31, 2005.
In the first half of 2006, ATP paid $203.4 million for acquisition and development of oil and gas properties, compared to $147.0 million for the same period in 2005. The company estimates that capital expenditures are expected to be approximately $575 - $600 million for the full year 2006.
ATP Oil & Gas is focused on development and production of natural gas and oil in the Gulf of Mexico and the North Sea.
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