ATP monetizes infrastructure value with $150M investment from GE
Mikaila Adams, Associate Editor, OGFJ
GE Energy Financial Services, a unit of GE, has agreed to invest $150M in a partnership with Houston-based ATP Oil & Gas Corp. which will own and operate the ATP Innovator in deepwater Gulf of Mexico, an area that holds 63% of the company’s proved reserves.
Photo courtesy of ATP Oil & Gas Corp.
GE will hold a 49% stake in the limited partnership, while ATP will hold the remaining 51% stake, serve as managing partner, and give up no working interest or reserves in the field.
The Gomez Hub, currently being serviced by the ATP Innovator, at December, 31, 2008 held a 2P reserve value of 237 bcfe and a PV-10 value of $1.3 billion based on strip prices. In 2008 ATP recorded an upward reserve revision at the Gomez Hub based on well performance and discoveries even after ATP sold 3.6% of its reserve at that hub.
The unit processes up to 20,000 barrels of oil per day and 100 MMcfd of natural gas for supply via pipeline to the US market. The unit has been producing ATP reserves since March 2006, but plans are in place to begin processing third party reserves from Newfield and Nexen by 2010.
ATP purchased and converted the unit from a drilling semi-submersible rig into a floating production facility in 2005.
“The ATP Innovator, which constitutes this partnership, was purchased after it had already been out there as a semisubmersible for 30 years. When we acquired it, it was a way for us to bring that field on very quickly instead of having a new build construction going on onshore. We were able to turn it around, putting the processing and production equipment on the platforms, and get it back out there and in service. And it is performing beautifully for us,” said Paul Bulmahn, chairman and president of ATP Oil & Gas Corp.
“The combination of ATP’s demonstrated operational capabilities, GE Energy Financial Services’ energy expertise and capital, and the production unit’s strategic location makes this a strong partnership, well positioned for growth,” said James F. Burgoyne, managing director of natural resources at GE Energy Financial Services.
While GE Energy Financial Services has invested in numerous oil and gas-related assets, this transaction marked its first investment in a floating oil and gas production facility.
“It’s a real win-win for us both. [The transaction] puts GE into a very strong market that it hasn’t been in before and it keeps us going with a lot of continuing value in that asset as well,” said Bulmahn.
The positives for GE are that the asset is reusable, and will be a money-maker over a span of time. For ATP, entering the partnership means the company can monetize a portion of the value immediately, yet still hang on to a residual value component going forward.
In light of financial constraints across the industry, the $150M capital injection is a welcome boost. The company has long felt ‘grotesquely’ undervalued. “One area of great value in our company is the value of our infrastructure. Our market cap is small compared to the magnitude of the capital that we’ve spent in our infrastructure. We felt there had to be a way to monetize some of that value,” he explained.
Bulmahn believes GE was the right fit from the beginning as it has the ‘forward vision’ that recognizes the value of such deepwater assets. “They really bring a lot of knowledge to the table. They believe, as we do, in the longevity of these assets,” he said. To that end, the two are currently in talks to place another vessel, the ATP Titan, into the partnership as well. The vessel is currently under construction in Ingleside, Tex. and will be put into location in the deepwater Gulf later this summer.
Goldman, Sachs & Co. and SMH Capital Inc. acted as financial advisors to ATP in connection with the transaction.
In 2008, ATP achieved record net income ($122M) and revenues ($618M), replaced 214% of its oil and gas production, and received $472 million in cash proceeds from asset sales. The first sale, which closed during June 2008, was for 1.0 MMboe of proved reserves in the form of a 15% limited-term overriding royalty interest for $82M. The second sale was for 80% of net interests in the Tors and Wenlock fields in the North Sea for roughly $390M.
During the second quarter of 2008, ATP amended the terms of its credit facility. The primary facility, $1,050M, matures in July 2014. An asset sale facility of $600M with a maturity of January 2011 was added to accommodate ATP’s asset monetization program. In December, ATP paid $273M of the facility with proceeds from the partial sale of the two North Sea properties.
Illustration courtesy of ATP.
Going forward, capital expenditures for 2009 are estimated to be between $300M and $500M and are expected to be funded from cash on hand and cash generated from operations. ATP is pursuing the sale of partial interests in selected assets and, if successful, will further reduce its debt and potentially revise its development plans and budgets during the year.
