ATP Oil Gas Corp. (ATPG) bonds are
yielding twice the rate of Greek government debt three months
before the driller has to make an $89 million interest payment,
as falling production may leave the company without enough cash.
ATP’s $1.5 billion of 11.875 percent notes due May 2015
fell to 34.1 cents on the dollar yesterday as bondholders
organize a group to represent their interests in a potential
restructuring, according to two people familiar with the matter.
The debt now yields 68 percent, compared with 33 percent for
Greece, which relies on international bailouts to stay solvent.
The firm has been battered by production delays as it
strives to extract more oil and profits from wells in the Gulf
of Mexico. Houston-based ATP won’t have money for the coupon
payment on the notes and other planned spending without outside
financing, Standard Poor’s said Aug. 1, as it downgraded the
company to CCC, meaning it’s currently vulnerable to default.
“They really have to get over the hump of the November
coupon payment,” Oliver Corlett, a New York-based analyst for
R.W. Pressprich Co., said in a telephone interview. “It’s
conceivable that they can scrape by, and in the past they have
been very adept at raising money.”
While ATP had $224.7 million of cash on March 31, according
to a May 10 regulatory filing, that may have dwindled to about
$50 million by the end of June as the company paid interest and
developed wells, Corlett estimated.
‘Timing Issues’
Isabel Plume, a spokeswoman for the company, didn’t return
messages seeking comment.
“ATP has grappled with numerous timing issues, and yet we
have not missed an interest payment on our debt,” Paul Bulmahn,
the company’s executive chairman, said May 10 on a conference
call with analysts and investors to discuss first-quarter
earnings.
The driller’s bonds have dropped from 76.5 cents on the
dollar three months ago, erasing about $600 million of value,
according to data compiled by Bloomberg. Greece’s 35.6 million
euros ($43.4 million) of 5 percent notes due March 2019 fell to
27.9 cents on the euro yesterday, Bloomberg data show.
Investors in the driller’s bonds interviewed potential
advisers last week, one of the people said at the time, asking
for anonymity because he’s involved in the confidential process.
ATP’s corporate counsel, Mayer Brown LLP, engaged its
restructuring group for advice, the financial newsletter
Debtwire reported yesterday. Robert Harris, a spokesman for the
law firm, didn’t return messages seeking comment.
Employment Terms
The company named former Dynamic Offshore Resources LLC
Chief Executive Officer Matt McCarroll as CEO in June, then said
in a regulatory filing six days later that he resigned after
failing to reach “mutually agreeable” employment terms.
ATP produced about 2 million barrels of oil equivalents in
the first quarter, down from 2.3 million barrels in the last
three months of 2011, the company said in a May 9 statement. It
generated about 20,000 barrels a day in April, a 1.8 million
barrels-a-quarter pace, Leland Tate, its president, said on the
conference call.
The company is counting on increased production from some
new and reworked wells to increase cash flow and reduce its debt
burden. The plan may boost production to 16 million barrels in
2013, or 4 million barrels a quarter, according to David Rewcastle, an energy analyst at Source Capital Group in
Westport, Connecticut.
Old Hands
“Give it a quarter or two and you’ll see the anticipated
production increases kicking in,” Rewcastle said in a telephone
interview. “Things can look pretty bleak, but these are old oil
hands. They’ve been through this before.”
Since Bulmahn founded ATP in 1991, the company has been
drilling in areas with undeveloped reserves in the Gulf of
Mexico and around the world. Of ATP’s 194.4 million barrels of
oil equivalents in proven and probable reserves, 64 percent are
deep-water assets in the Gulf, 33 percent are in the North Sea
and 3 percent are in shallower Gulf waters, the company said in
a presentation dated April 17.
“The kind of reserves they have, deep-water reserves, are
expensive to get out of the ground,” Corlett said.
ATP began raising money to fund drilling by selling
interests in its future production in 2009, the company said in
the presentation. The company owed about $513 million as of
March 31 on the financing, with about $350 million that may be
repaid within a year, according to a May 10 regulatory filing.
The average effective interest rate on ATP’s royalty interests
and other long-term obligations was 18.5 percent as of March 31,
according to the May 9 statement.
Management Stake
“They do have a very adverse capital structure,” Corlett
said. “A restructuring, as far as the company’s concerned,
would be very beneficial.”
Bulmahn and the rest of ATP’s management own about 15
percent of ATP’s equity, according to the April presentation.
They’ll try to avoid a restructuring that would likely wipe out
the stock, Rewcastle said.
“It’s not in their interest,” Rewcastle said. “They’re
going to do what’s necessary to survive.”
ATP raised $35 million in June by selling a convertible
note and warrants to an institutional investor, the company said
in a statement. Bulmahn said on the conference call that ATP was
in negotiations with Chinese banks for new loans. The company
faces “heightened risk of a near-term default,” Christine
Besset, an analyst at SP in Dallas, wrote in an Aug. 1 report.
“The company’s success in executing these deals or finding
an alternate source of funding will be critical in solving its
short-term liquidity issues,” Besset wrote.
To contact the reporters on this story:
Zeke Faux in New York at
zfaux@bloomberg.net
To contact the editor responsible for this story:
Alan Goldstein at
agoldstein5@bloomberg.net
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