ATP Oil & Gas Reports 3Q06 Results
ATP Oil & Gas Corporation (Nasdaq:ATPG) released its operations update and third quarter 2006 results:
--Achieving a second consecutive quarter of record production with an average rate of 174.1 MMcfe/d, exceeding guidance of 170.0 MMcfe/d;
--Recording quarterly revenue of $132.8 million and net income available to common shareholders of $1.2 million;
--Adding six wells to production during the first nine months of 2006, with nine additional near-term wells scheduled to come online, three in the fourth quarter 2006 and six in the first half 2007;
--Acquiring seven blocks in the Gulf of Mexico in 2006 and executed the contract to build a MinDOC floating production platform, which will service the company's deepwater properties - Mirage, Morgus, and Telemark.
Results of Operations
As a result of the continued ramp-up in production at ATP's Mississippi Canyon ("MC") 711 and Tors properties, production for the third quarter of 16.0 Bcfe (174.1 MMcfe/d) was 18% higher than the second quarter 2006 (148.6 MMcfe/d) and 321% higher than the third quarter 2005 (41.4 MMcfe/d). Price realizations of $8.30 per Mcfe in the third quarter were 3% above the second quarter and 20% above the third quarter 2005. Revenues for the third quarter of $132.8 million were 22% above the second quarter and 404% above the third quarter 2005. Production for the nine months ending September 30, 2006 was 35.5 Bcfe, an increase of 144% over the same period in 2005. Revenues during the nine month 2006 period were $287.0 million, an increase of 196% over the comparable 2005 period.
Lease operating expense (LOE) per Mcfe was $1.43 for the third quarter of 2006, compared with $1.57 per Mcfe in the second quarter of 2006 and $1.26 in the third quarter of 2005. LOE per Mcfe has improved from the second quarter of 2006 (9% lower) and from the first quarter of 2006 (21% lower) primarily due to our rapid increase in production this year and our focus on reducing costs at properties with low production rates. The increase in LOE per Mcfe compared with the third quarter of 2005 (13% higher) was primarily due to increases in insurance and other operating costs and costs of uninsured hurricane repairs. With our expectation of significant near-term production growth and our focus on reducing operating costs, we anticipate further improvement in the company's per unit LOE.
General and administrative expenses (G&A) of $4.6 million for the third quarter were 14% above the second quarter 2006 and 19% above the third quarter 2005. The increase is primarily attributed to legal, professional and consulting fees, partially offset by the prior year provision that was recorded for the successful ATP Employee Volvo Challenge Plan.
Depreciation, depletion, and amortization (DD&A) per Mcfe was $3.44 in the third quarter, 7% above the second quarter and 6% above the third quarter 2005. The overall DD&A expense increase is mainly due to increased production from newly developed properties in 2006. In addition to DD&A, ATP also recorded a noncash charge for impairment of $11.8 million related to three properties acquired in a package of properties in late 2005. While ATP believes that it could have performed additional activities at these three locations that, over time, might have resulted in added revenue, the decision was made to forego these capital expenditures.
ATP recorded a tax provision during the third quarter relating to its 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 $1.2 million or $0.04 per basic and diluted share in the third quarter 2006, compared to net income of $6.4 million in the second quarter and a net loss of $10.6 million in the third quarter 2005. For the nine months ending September 30, 2006, ATP recorded a net loss available to common shareholders of $2.3 million or $0.08 per basic and diluted share compared with a net loss available to common shareholders of $12.9 million or $0.44 per basic and diluted share during the same nine-month period in 2005.
Third quarter net income available to common shareholders was impacted by the impairment expense noted above. Research analysts typically exclude this charge from their published estimates. Accordingly, after adjusting for this item, ATP had net income available to common shareholders before impairment expense of $12.9 million or $0.44 and $0.43 per basic and diluted share.
ATP's selected operating statistics and financial information, included within this press release, contain additional information on the company's activities for the third quarter 2006 and comparable period in 2005.
Three Months Ended Nine Months Ended September 30, September 30, ------------------ ------------------ 2006 2005 2006 2005 ------------------ ------------------ Selected Operating Statistics Production Natural gas (MMcf) 8,726 2,718 22,380 11,033 Oil and condensate (MBbls) 1,215 182 2,181 584 Natural gas equivalents (MMcfe) 16,017 3,807 35,469 14,537 Gulf of Mexico (GOM, in MMcfe) 11,836 3,807 27,151 13,625 North Sea (MMcfe) 4,181 - 8,318 913 Average Prices (includes effect of cash flow hedges) Natural gas (per Mcf) $ 7.22 $ 6.94 $ 7.29 $ 6.55 Natural gas (per Mcf) - GOM 7.35 6.94 7.47 6.52 Natural gas (per Mcf) - N. Sea 7.07 - 6.98 6.95 Oil and condensate (per Bbl) 57.52 41.16 56.74 41.67 Natural gas, oil and condensate (per Mcfe) 8.30 6.92 8.09 6.65 Other Expenses, per Mcfe Lease operating expense (per Mcfe) $ 1.43 $ 1.26 $ 1.55 $ 1.06 Lease operating expense (per Mcfe) - GOM 1.46 1.17 1.61 1.02 Lease operating expense (per Mcfe) - N. Sea 1.34 - 1.34 1.63 Depreciation, depletion and amortization (DD&A) 3.44 3.23 3.26 3.30 DD&A - GOM 3.50 3.22 3.24 3.26 DD&A - N. Sea 3.24 - 3.31 3.97 Selected Financial Data (In Thousands, Except Per Share Data) Oil and gas revenues, including settled derivatives (1) $132,822 $ 26,342 $286,952 $ 96,810 Net income (loss) 12,709 (6,821) 27,024 (9,142) Preferred dividends (11,536) (3,756) (29,340) (3,756) Net income (loss) available to common shareholders 1,173 (10,577) (2,316) (12,898) Net income (loss) per common share - basic and diluted $ 0.04 $ (0.36) $ (0.08)$ (0.44) ================== ================== Average number of common shares outstanding Basic 29,776 29,109 29,643 29,005 ================== ================== Diluted 30,406 29,922 30,342 29,833 ================== ================== __________________ (1) See oil and gas revenue reconciliation
Acquisitions, Development and Operations Update
Thus far in 2006, ATP has acquired seven blocks in the Gulf of Mexico, all with a 100% working interest and operated by ATP. Four deepwater blocks were acquired in two separate private transactions: Telemark (Atwater Valley 63), Mirage (Mississippi Canyon - "MC" - 941), Oasis (MC 943) and Morgus (MC 942). ATP was also successful at both Gulf of Mexico lease sales conducted in 2006. At the March sale, ATP was awarded Green Canyon 37, a deepwater lease. At the August sale, ATP was awarded Garden Banks 388 and Garden Banks 187. Five of these properties have had previous drilling, which encountered hydrocarbons and all are scheduled for development during the next three year period.
ATP placed on production six new wells during the first nine months of 2006. An additional nine wells are scheduled for first production between now and the middle of 2007. The new producing wells, particularly those at Mississippi Canyon 711 (Gomez) and Tors, have been the primary drivers for ATP's 144% increase in production during the first nine months of 2006 compared to the same period in 2005. New wells scheduled in the next nine months are projected to continue to increase production into 2007.
In the first nine months of 2006, ATP paid $390.9 million for acquisition and development of oil and gas properties compared to $272.6 million during the same period in 2005.
Since ATP reported second quarter earnings in August 2006, the company has hedged with fixed forward contracts an additional 6.7 Bcf of natural gas in the U.K. The hedges cover projected volumes for the fourth quarter 2006, calendar 2007 and first quarter 2008 at a weighted average price of $10.06 per Mcf.
Capital Resources and Liquidity
Cash flow from operating activities was $105.3 million for the nine months ended September 30, 2006, compared to $61.4 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 $179.4 million for the nine months ended September 30, 2006, compared to $49.9 million for the same period in 2005. A non-GAAP reconciliation is provided near the end of this press release. ATP had $61.3 million in cash and cash equivalents on hand at September 30, 2006, compared to $65.6 million at December 31, 2005.
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