Add
ATPG to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| ATPG > SEC Filings for ATPG > Form 10-Q on 8-Aug-2008 | All Recent SEC Filings |
8-Aug-2008
Quarterly Report
Executive Overview
General
ATP Oil & Gas Corporation is engaged in the acquisition, development and production of oil and natural gas properties in the Gulf of Mexico and the North Sea. We seek to acquire and develop properties with proved undeveloped reserves that are economically attractive to us but are not strategic to major or large exploration-oriented independent oil and gas companies. Occasionally we will acquire properties that are already producing or where previous drilling has encountered reservoirs that appear to contain commercially productive quantities of oil and gas even though the reservoirs do not meet the SEC definition of proved reserves. We may also acquire offshore lease blocks that surround our existing developments in order to expand our acreage position in the development. This expansion may lead to added drilling opportunities, potentially new reserves or additional production. We believe that our strategy of focusing on development with an occasional exposure to exploration opportunities near our existing developments provides assets for us without the risk, cost or time of traditional exploration.
We seek to create value and reduce operating risks through the acquisition and subsequent development of properties in areas that have:
• significant undeveloped reserves and reservoirs;
• close proximity to developed markets for oil and natural gas;
• existing infrastructure of common carrier oil and natural gas pipelines; and
• a relatively stable regulatory environment for offshore oil and natural gas development and production.
Our focus is on acquiring properties that have become noncore or nonstrategic to their original owners for a variety of reasons. For example, larger oil companies from time to time adjust their capital spending or shift their focus to exploration prospects which they believe may offer greater reserve potential. Some projects may provide lower economic returns to a company due to its changing cost structure or constraints within that company. Also, due to timing, budget constraints or a change in a company's ownership or management structure, a company may be unwilling or unable to develop a property before the expiration of the lease. Because of our cost structure, expertise in our areas of focus and ability to develop projects, the properties may be more financially attractive to us than the seller.
We focus on developing projects in the shortest time possible between initial major investment and first revenue generated in order to maximize our rate of return. Since we operate most of the properties in which we acquire a working interest, we are able to significantly influence the development concept and timing of a project's development. We may initiate new development projects by simultaneously obtaining the various required components such as the pipeline and the production platform or subsea well completion equipment. We believe this strategy, combined with our strong technical abilities to evaluate and implement a project's requirements, allows us to efficiently complete the development project and commence production.
To enhance the economics and return on investment of a project, we sometimes develop the project to a value creation point and either sell an interest or bring in partners on a promoted basis. In the second quarter of 2008, we announced plans to offer for sale partial working interests in a number of our properties both producing and under development.
Second Quarter 2008 Highlights
Our financial and operating performance for the second quarter of 2008 included the following highlights:
• A production increase of 26% over second quarter 2007;
• An increase in oil and gas revenues of 45% over second quarter 2007;
• The sale of an interest in our Gomez Hub for $82.0 million representing 4.5% of our Gomez Hub proved reserves at December 31, 2007;
• The acquisition of proved reserves at Clipper for a minimal upfront investment;
• The refinancing of our debt, significantly extending the maturity.
Additional discussion of 2008 expectations can be found in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2007 Annual Report on Form 10-K.
Results of Operations
Three Months Ended June 30, 2008 Compared to Three Months Ended June 30, 2007
For the three months ended June 30, 2008 and 2007 we reported net loss of $11.8 million and net income of $6.1 million, or net loss of $0.33 and net income of $0.20 per diluted share, respectively.
Oil and Gas Production Revenues
Revenues presented in the table and the discussion below represent revenues from sales of oil and natural gas production volumes. Production sold under fixed-price delivery contracts which have been designated for the normal purchase and sale exemption under Statement of Financial Accounting Standards ("SFAS") No. 133 are also included in these amounts as well as the effects of financial cash flow hedges. Deliveries under the fixed-price contracts are approximately 85% and 34% of our oil production for the three months ended June 30, 2008 and 2007, respectively. Approximately 82% and 48% of our natural gas production was sold under these fixed-price delivery contracts for the comparable periods. The realized prices below may differ from the market prices in effect during the periods depending on when the fixed-price delivery contract was executed. The table also reflects oil and gas production revenues from amortization of deferred revenue related to the sale of the limited-term overriding royalty interest. We do not reflect any production associated with those revenues.
Three Months Ended % Change
June 30, in 2008
2008 2007 from 2007
Production:
Natural gas (MMcf) 9,969 8,426 18 %
Oil and condensate (MBbl) 1,414 1,027 38 %
Total (MMcfe) 18,455 14,590 26 %
Revenues from production (in thousands):
Natural gas $ 86,281 $ 68,419 26 %
Effects of cash flow hedges (7,217 ) 1,035
Amortization of deferred revenue 1,409 - -
Total $ 80,473 $ 69,454 16 %
Oil and condensate $ 106,017 $ 62,692 69 %
Effects of cash flow hedges (128 ) (227 )
Amortization of deferred revenue 5,447 - -
Total $ 111,336 $ 62,465 78 %
Natural gas, oil and condensate $ 192,298 $ 131,111 47 %
Effects of cash flow hedges (7,345 ) 808
Amortization of deferred revenue 6,856 - -
Total $ 191,809 $ 131,919 45 %
Average realized sales price:
Natural gas (per Mcf) $ 8.65 $ 8.12 7 %
Effects of cash flow hedges (per Mcf) (0.72 ) 0.12
Average realized price (per Mcf) $ 7.93 $ 8.24 (2 %)
Oil and condensate (per Bbl) $ 74.98 $ 61.02 23 %
Effects of cash flow hedges (per Bbl) (0.09 ) (0.22 )
Average realized price (per Bbl) $ 74.89 $ 60.80 30 %
Natural gas, oil and condensate (per Mcfe) $ 10.42 $ 8.99 16 %
Effects of cash flow hedges (per Mcfe) (0.40 ) 0.06
Average realized price (per Mcfe) $ 10.02 $ 9.05 15 %
|
Revenues from production increased 45% in the second quarter of 2008 compared to the second quarter of 2007. During the second quarter of 2008, our production increased 26% compared to the second quarter of 2007 primarily due to greater production in the Gulf of Mexico from the Gomez Hub and due to U.K. production from the Wenlock property, which was brought online in the fourth quarter of 2007. The increased revenues were also attributable to a 15% increase in average sales price.
Lease Operating
Lease operating expenses for the second quarter of 2008 increased to $23.8 million ($1.29 per Mcfe) from $20.1 million ($1.38 per Mcfe) in the second quarter of 2007. The increase was primarily attributable to the production increases noted above. The per unit cost has decreased primarily due to the effect of fixed costs. In second quarter 2008, lease operating expense per Mcfe in the Gulf of Mexico and the North Sea was $1.29 and 1.27, respectively. In the second quarter 2007, lease operating expense per Mcfe in the Gulf of Mexico and North Sea was $1.25 and $2.45, respectively.
General and Administrative
General and administrative expense for the second quarter of 2008 increased to $8.8 million from $6.6 million in the second quarter of 2007. The increase is primarily attributable to higher stock-based compensation costs.
Depreciation, Depletion and Amortization
Depreciation, Depletion and Amortization ("DD&A") expense increased during the second quarter of 2008 to $79.9 million from $52.6 million for the second quarter of 2007. The increase was due to the increased production noted above and to an increased depletion rate. The second quarter of 2008 DD&A rates for the Gulf of Mexico and North Sea were $3.59 per Mcfe and $6.57 per Mcfe, respectively. The second quarter of 2007 DD&A rates for the Gulf of Mexico and North Sea were $3.52 per Mcfe and $4.32 per Mcfe, respectively. The average depletion rate increased 20% to $4.33 per Mcfe in the second quarter of 2008 compared to $3.61 per Mcfe in the second quarter of 2007. This per unit increase is primarily a result of higher costs incurred on our new developments relative to some of our older properties.
Impairment of Oil and Gas Properties
In the second quarter of 2007, we recorded an impairment of oil and gas properties totaling $5.8 million due to unfavorable operating performance on one property in the Gulf of Mexico.
Accretion of Asset Retirement Obligation
Accretion expense increased to $4.3 million in the second quarter of 2008 compared to 3.0 million in second quarter 2007 primarily due to increased asset retirement obligations associated with increased oil and gas property development and overall vendor price increases.
Loss on Abandonment
During second quarter 2008, we recognized an aggregate loss on abandonment of $1.0 million due to unanticipated vendor price increases in the Gulf of Mexico.
Interest Expense
Interest expense decreased to $24.2 million for the second quarter of 2008 compared to $31.0 million for the second quarter of 2007 primarily due to overall lower interest rates and their effect on our floating-rate borrowings and $7.2 million of capitalized 2008 interest related to the construction of a floating production system at the Telemark Hub, partially offset by outstanding 11.25% Subordinated Notes of $210.0 million face value which were issued in the second half of 2007.
Derivatives Expense
Derivatives expense in the second quarter of 2008 is $50.2 million (Gulf of Mexico $16.2 million and North Sea $34.0 million). As a result of the limited-term overriding royalty interest and changes in forecasts of production, we determined that it was no longer probable that forecasted production would be sufficient to satisfy amounts designated under certain of our cash flow commodity-price hedges. Consequently, we have de-designated some of these instruments as hedges. Also, we have de-designated as a hedge the interest rate swap because we no longer expect it to be highly effective at offsetting the variability in the interest payments for the new Term Loans. The total expense related to de-designation of these cash flow hedges is $40.5 million. The balance of the derivatives expense is related primarily to changes in fair value and settlements of derivatives no longer designated as cash flow hedges.
Loss on Debt Extinguishment
Loss on debt extinguishment in the second quarter of 2008 is $24.2 million. As discussed below, during the second quarter of 2008, we refinanced the Term Loans and Subordinated Notes and recorded losses for the remaining unamortized deferred financing costs, debt discount related to the retired debt and for repayment premiums associated with the Subordinated Notes.
Income Taxes
We recorded income tax benefit of $11.9 million during the quarter ended June 30, 2008 resulting in an overall effective tax rate of 50.3% for the quarter. In each jurisdiction, the rates were determined based on our expectations of net income for the year, taking into consideration permanent differences. In the comparable quarter of 2007 we recorded a tax benefit of $1.1 million resulting in an overall effective tax rate of 22.7% for the quarter. The provision for the quarter results from the application of the current expected tax rate for the year applied to the year-to-date pre-tax income. In 2007, the tax provision recorded in the U.S. based upon our second quarter 2007 book income was entirely offset by a release of a valuation allowance contributing to the lower overall effective tax rate when compared to the same period in 2008.
Six Months Ended June 30, 2008 Compared to Six Months Ended June 30, 2007
For the six months ended June 30, 2008 and 2007 we reported net income of $35.1 million and $33.6 million, or $0.97 and $1.10 per diluted share, respectively.
Oil and Gas Production Revenues
Revenues presented in the table and the discussion below represent revenues from sales of oil and natural gas production volumes. Production sold under fixed-price delivery contracts which have been designated for the normal purchase and sale exemption under SFAS No. 133 are also included in these amounts as well as the effects of financial cash flow hedges. Deliveries under the fixed-price contracts are approximately 78% and 32% of our oil production for the six months ended June 30, 2008 and 2007, respectively. Approximately 83%, and 50% of our natural gas production was sold under these fixed-price delivery contracts for the comparable periods. The realized prices below may differ from the market prices in effect during the periods depending on when the fixed-price delivery contract was executed. The table also reflects oil and gas production revenues from amortization of deferred revenue related to the sale of the limited-term overriding royalty interest. We do not reflect any production associated with those revenues.
Six Months Ended % Change
June 30, in 2008
2008 2007 from 2007
Production:
Natural gas (MMcf) 21,813 18,250 20 %
Oil and condensate (MBbl) 3,036 2,039 49 %
Total (MMcfe) 40,029 30,486 31 %
Revenues from production (in thousands):
Natural gas $ 193,621 $ 158,352 22 %
Effects of cash flow hedges (8,459 ) 1,035
Amortization of deferred revenue 1,409 - -
Total $ 186,571 $ 159,387 17 %
Oil and condensate $ 227,265 $ 118,295 92 %
Effects of cash flow hedges (1,437 ) (1,089 )
Amortization of deferred revenue 5,447 - -
Total $ 231,275 $ 117,206 97 %
|
Natural gas, oil and condensate $ 420,886 $ 276,647 52 %
Effects of cash flow hedges (9,896 ) (54 )
Amortization of deferred revenue 6,856 - -
Total $ 417,846 $ 276,593 51 %
Average realized sales price:
Natural gas (per Mcf) $ 8.88 $ 8.68 2 %
Effects of cash flow hedges (per Mcf) (0.39 ) 0.06
Average realized price (per Mcf) $ 8.49 $ 8.74 (2 %)
Oil and condensate (per Bbl) $ 74.86 $ 58.01 29 %
Effects of cash flow hedges (per Bbl) (0.47 ) (0.53 )
Average realized price (per Bbl) $ 74.39 $ 57.48 33 %
Natural gas, oil and condensate (per Mcfe) $ 10.51 $ 9.07 16 %
Effects of cash flow hedges (per Mcfe) (0.25 ) -
Average realized price (per Mcfe) $ 10.26 $ 9.07 15 %
|
Revenues from production increased 51% in the first half of 2008 compared to the first half of 2007. During the first half of 2008, our production increased 31% compared to the first half of 2007 primarily due to greater production in the Gulf of Mexico from the Gomez Hub and due to U.K. production from the Wenlock property, which was brought online in the fourth quarter of 2007. The increased revenues were also attributable to a 15% increase in average sales price.
Lease Operating
Lease operating expenses for the first half of 2008 increased to $48.4 million ($1.21 per Mcfe) from $41.2 million ($1.35 per Mcfe) in the first half of 2007. The increase was primarily attributable to the production increases noted above. The per unit cost has decreased primarily due to the effect of fixed costs. In the first half of 2008, lease operating expense per Mcfe in the Gulf of Mexico and the North Sea was $1.19 and 1.28, respectively. In the first half of 2007, lease operating expense per Mcfe in the Gulf of Mexico and North Sea was $1.26 and $1.77, respectively.
General and Administrative
General and administrative expense for the first half of 2008 increased to $18.1 million from $15.3 million in the first half of 2007. The increase is primarily attributable to higher stock-based compensation costs.
Depreciation, Depletion and Amortization
DD&A expense increased during the first half of 2008 to $169.3 million from $106.0 million for the first half of 2007. The increase was due to the increased production noted above and to an increased depletion rate. The first half of 2008 DD&A rates for the Gulf of Mexico and North Sea were $3.53 per Mcfe and $6.31 per Mcfe, respectively. The first half of 2007 DD&A rates for the Gulf of Mexico and North Sea were $3.32 per Mcfe and $4.22 per Mcfe, respectively. The average depletion rate increased 22% to $4.23 per Mcfe in the first half of 2008 compared to $3.48 per Mcfe in the first half of 2007. This per unit increase is primarily a result of higher costs incurred on our new developments relative to some of our older properties.
Impairment of Oil and Gas Properties
In the first half of 2007, we recorded an impairment of oil and gas properties totaling $5.8 million due to unfavorable operating performance on one property in the Gulf of Mexico.
Accretion of Asset Retirement Obligation
Accretion expense increased to $8.6 million in the first half of 2008 compared to 6.0 million in the first half of 2007 primarily due to increased asset retirement obligations associated with increased oil and gas property development and overall vendor price increases.
Loss on Abandonment
During the first half of 2008, we recognized an aggregate loss on abandonment of $1.4 million due to unanticipated vendor price increases in the Gulf of Mexico.
Interest Expense
Interest expense decreased to $52.4 million for the first half of 2008 compared to $57.8 million for the first half of 2007 primarily due to $13.1 million of capitalized 2008 interest related to the construction of a floating production system at the Telemark Hub and lower overall interest rates and their effect on our floating-rate borrowings, partially offset by outstanding Subordinated Notes of $210.0 million face value, which were issued in 2007 and the outstanding net $200.0 million increase in borrowings under our Term Loans beginning in the second quarter of 2007.
Derivatives Expense
Derivatives expense in the first half of 2008 is $50.2 million (Gulf of Mexico $16.2 million and North Sea $34.0 million). As a result of the limited-term overriding royalty interest and changes in forecasts of production, we determined that it was no longer probable that forecasted production would be sufficient to satisfy amounts designated under certain of our cash flow commodity-price hedges. Consequently, we have de-designated some of these instruments as hedges. Also, we have de-designated as a hedge the interest rate swap because we no longer expect it to be highly effective at offsetting the variability in the interest payments for the new Term Loans. The total expense related to de-designation of these cash flow hedges is $40.5 million. The balance of the derivatives expense is related primarily to changes in fair value and settlements of derivatives no longer designated as cash flow hedges.
Loss on Debt Extinguishment
Loss on debt extinguishment in the first half of 2008 is $24.2 million. As discussed below, during the second quarter of 2008, we refinanced the Term Loans and Subordinated Notes and recorded losses for the remaining unamortized deferred financing costs, debt discount related to the retired debt and for repayment premiums associated with the Subordinated Notes.
Income Taxes
We recorded income tax expense of $13.2 million during the six months ended June 30, 2008 resulting in an overall effective tax rate of 27.4% for the period. In each jurisdiction, the rates were determined based on our expectations of net income for the year, taking into consideration permanent differences. In the comparable period of 2007 we recorded tax expense of $6.0 million resulting in an overall effective tax rate of 15.3% for the period. The provision for the period results from the application of the current expected tax rate for the year applied to the year to date pre-tax income. In 2007, the tax provision recorded in the U.S. based upon our first half 2007 book income was entirely offset by a release of a valuation allowance contributing to the lower overall effective tax rate when compared to the same period in 2008.
Liquidity and Capital Resources
At June 30, 2008, we had working capital of $154.7 million, an increase of $57.8 million from December 31, 2007. Additionally, under the Term Loans, we have a $50.0 million revolving credit facility ("Revolver"), with available borrowing capacity reduced to $31.0 million due to outstanding letters of credit as of June 30, 2008. Our credit agreement covenants specify a minimum liquidity ratio under which we include the availability under the Revolver, and exclude current maturities of long-term debt, the current portion of assets and liabilities from derivatives and the current portion of asset retirement obligations.
Historically, we have financed our acquisition and development activities through a combination of bank borrowings, proceeds from equity offerings, cash from operations and the sale of interests in selected properties. In the second quarter of 2008, we announced plans to offer for sale partial working interests in a number of our properties, both producing and under development. We intend to reduce our debt by up to $600.0 million with the expected proceeds from any such sales.
We intend to continue to finance our near-term development projects utilizing cash on hand and the potential sources of capital mentioned above. As operator of most of our projects under development, we have the ability to significantly control the timing of most of our capital expenditures. Coupled with that control, we believe our cash flows from operating activities and potential for available third-party capital will enable us to meet our future capital requirements.
Cash Flows
Six Months Ended June 30,
2008 2007
Cash provided by (used in) (in thousands):
Operating activities $ 164,792 $ 177,529
Investing activities (266,651 ) (390,178 )
Financing activities 180,863 162,376
|
Cash provided by operating activities during the first half of 2008 and 2007 was $164.8 million and $177.5 million, respectively. Cash flow from operations increased primarily due to higher oil and gas production revenues during 2008 compared to 2007. The increase in sales revenue was attributable to higher oil and gas production and higher oil and gas prices during 2008. The increase in cash flows from revenues was partially offset by the timing of payments and receipts in payables and receivables.
Cash used in investing activities was $266.7 million and $390.2 million during the first half of 2008 and 2007, respectively. Cash expended in the Gulf of Mexico and North Sea for additions to oil and gas properties was approximately $245.2 million and $103.8 million, respectively, in the first half of 2008. Cash expended in the Gulf of Mexico and North Sea for additions to oil and gas properties was approximately $279.6 million and $110.3 million, respectively, in the first half of 2007. During the second quarter of 2008, we completed the sale of 5.76 Bcfe of proved reserves in the form of a 15% limited-term overriding royalty interest for $82.0 million.
Cash provided by financing activities was $180.9 million and $162.4 million during first half 2008 and 2007, respectively. Payments of long-term debt for the first half of 2008 are comprised of $1,202.2 million of repayment of borrowings under our former credit agreement and of $199.5 million related to our former subordinated notes. Proceeds from long-term debt are comprised of $1,593.4 million (net of issuance costs) of proceeds from the Term Loans. During the first half of 2007, financing cash flow was primarily due to the increase in our term loans of $366.6 million (net of issuance costs), partially offset by the $175.0 million repayment of our former second lien term loans and other debt and lease payments.
Long-term Debt Long-term debt consisted of the following (in thousands): . . . |
|
|