ATP Oil & Gas Corporation Q1 2008 Earnings Call Transcript

ATP Oil & Gas Corporation (ATPG)

Q1 2008 Earnings Call

May 8, 2008 10:30 am ET

Executives

T. Paul Bulmahn - Chairman and President

Leland E. Tate - Chief Operating Officer

Albert L. Reese, Jr. - Chief Financial Officer; Treasurer

Analysts

Neal Dingmann - Dahlman Rose & Co.

Philip J. McPherson - Global Hunter Securities

Sven Del Pozzo - CK Cooper & Company

Ronald E. Mills - Johnson Rice & Company LLC

Stephen F. Berman - Pritchard Capital

Irene Haas - Canaccord Adams

Francois [Cetalon] – Emerald

Rehan Rashid – Friedman, Billings, Ramsey & Co

Vance Shaw – Credit Suisse

Dax Atkinson – [DPA] & Capital
Curtis Trimble – Natexis Capital

Presentation

Operator

Good morning and welcome ladies and gentlemen to ATP Oil & Gas First Quarter 2008 Results Conference Call. At this time, I would like to inform you that this conference is being recorded and all participants are on a listen-only mode.

At the request of the company, we will open the conference up for questions and answers after the presentation. I will now turn the conference over to Mr. T. Paul Bulmahn, Chairman and President of ATP Oil & Gas Corporation.

T. Paul Bulmahn

Thank you, Carrie, and thank all of you for joining us for ATP Oil & Gas Corporation First Quarter 2008 Results Conference Call. As Carrie just noted, my name is Paul Bulmahn, Chairman and President of ATP Oil & Gas Corporation and joining me today is Leland Tate, Chief Operating Officer, and Albert Reese, Chief Financial Officer.

Yesterday, we issued our press release recording our first quarter 2008 results. I wish to remind everyone that this conference call is subject to the Safe Harbor language included in our press release and our recent Form 10-K. Following a few comments formally, I will open things up with a Question and Answer Session.

Ever since I founded ATP in 1991, we have been a company of growth: Revenue growth, reserves growth, production growth. And this quarter, with $226 million revenue after one quarter, we are over half the way to our then record 2006 revenue total and over a third of the way to our record setting 2007 total annual revenue.

Reserves growth – since going public in 2001, we have added substantial reserves each year at an average 365% reserves replacement rate for the last seven years since we went public.

Production growth – We’ve steadily ramped upwards through our years as a public company from 25 billion cubic feet equivalent in 2001 to 64 billion cubic feet equivalent for 2007.

ATP is today a value opportunity. Whether viewed on enterprise value or cash flow multiple basis, our shares appear to represent a significant buying opportunity. In my opinion, ATP today offers both growth and value, a difficult combination to find in today’s commodity price environment. But ATP is changing and I thought it might be helpful if I shared with you how we are changing.

ATP has changed its approach from a company that has always emphasized growth of daily production and reserves to a company which is focused on realizing value for its shareholders, including the monetization of assets and a long-term development emphasis.

With a 98% development success rate, I have been willing to borrow money to develop oil and gas properties. Yet, we reached a point where I believe it is important to demonstrate the value of our assets by monetizing a portion of those assets and reducing our debt. We will be primed to successfully execute on our long-term development plans which include bringing on Phase I of our Telemark in 2009, Phase II of Telemark in 2010 and Cheviot in 2011.

We have determined to let our performance speak for the company and I have substantially curtailed the number of presentations our company has been making at various venues nearly every week over the last couple of years. We have engaged Scotia Waterous to assist us in the process of a joint venture initiative for the sale of partial working interest in our core assets to emphasize the evolution of the ATP business plan.

To reinforce the strategic importance of the goals of ATP instead of production or reserves growth goals, a most material target for all of our employees is to satisfy a debt reduction goal of at least $600 million as part of an ATP employee challenge. Once again, this quarter we continue to deliver record numbers in our financial statements and we have $46.8 million of net income. We now have much greater clarity with respect to the North Sea Wenlock Well which has stabilized its production between $20 and $22 million per day and we have identified a second well on that property.

I am the largest single shareholder of ATP and I will be the first to admit I do not believe our stock price reflects the value of our assets. As such, I am committed to directing our monetization and development programs and ultimately unlocking the value of our company. With that, I would like to turn this microphone over to Leland Tate, our Chief Operating Officer, to discuss operations.

Leland E. Tate

Thank you, Paul, and good morning everyone. I’d like to take just a few minutes this morning to make sure that there are no misunderstandings concerning our production estimates for the year. We just completed another record quarter for production revenue as called yesterday. We produced 21.6 Bcfe during the first quarter at the 36% increase over the same period in 2007. And so far in the second quarter we’ve added another 8 Bcfe through today.

As I mentioned on the last call, we plan to carry out a plan maintenance program at Gomez during the second quarter that would result in 4-6 days of deferred production. A portion of that program is being completed and what remains will require another 2-3 days of total outage and result in a flatly lower second quarter. What I mentioned on the last quarter call was that we expect specifically the second quarter to be slightly lower than the first because of the upcoming plan maintenance.

I continue to believe these estimates are accurate and that the third and fourth quarter production levels will be higher than the second quarter, resulting in an annual production volume ranging from 80-85 Bcfe, roughly at 20-25% increase over 2007.

Moving on to the development activities, we continue to make good progress on the shelf at South Marsh Island 189 and High Island A-589 programs. We’re progressing as expected and the pipelay should be completed later in the quarter. At Gomez Hub, facility expansion work’s been completed. We’re beginning to review options for bringing the Mississippi Canyon 754, the Anduin discovery, and the Mississippi Canyon 800, Gladden discovery, to production through the ATP innovator late in 2009.

Good progress continues on the man dock for Telemark. We have acquired the steel to commence the second man dock later in the year. Optimization of the work program continues as the hole in top sides for man dock I have reached a 71% completion stage, we continue to plan for sale out later this year.

And at Canyon Express, we brought previously shut in wells back online from the Camden Hills spill which we acquired late last year. Also during the first quarter, we were awarded De Soto Canyon Block 355 and were the apparent high bidder at Mississippi Canyon Block 304, which we can produce through this same Canyon Express pipeline system. And in the North Sea, we continue to evaluate wenlock as Paul had said after turning it to compression. We plan to run production logs early in the third quarter to further define our beliefs about the well. Production appears to be stabilizing just above 20 million a day range. It appears that the layered nature of the reservoir in the immediate area where we placed our initial well board is limiting drainage from the upper portions of the rock. And a second well near the discovery well in the field should result in recovery of all of the PI and PII reserves.

And finally at Cheviot, we’ve submitted the field development plan commencing the regulatory process with the UK government. And we have signed the contract for the construction of the hole for the floating structure. Steel has been acquired and construction has been initiated. Detail engineering for the top side is underway and procurement would commence later this year in 2008.

As far as acquisitions go, I’ve previously mentioned our recent acquisition at the two former lease sales around the Canyon Express Hub. We were also awarded the Viosca Knoll 863 where previous drilling has established low hydrocarbons awaiting development. Additionally, we were the apparent high bidder at Atwater 19 and 62 near our Atwater 63 Block. We believe that these two properties will continue our plans to strengthen our hub concept around Telemark.

The acquisition market continues to provide ATP with excellent growth opportunities to continue our long term approach. I look forward to reporting to you further as the year progresses and with that, I’ll turn the program over to Al Reese, our CFO, for financials.

Albert L. Reese, Jr.

Thank you, Leland, and thank you, Paul. This is Al Reese, the Chief Financial Officer. I will be following through the press release that Paul mentioned was issued yesterday that’s available at our website. As normal, what I will try to do is to go through, hit some of the high points within the press release. I will not address every line, leaving as much time as we can for Q&A, which means that this call, the word part of it, at the beginning. I will be shorter than normal. So for those that are going to be going to questions, we ask you to get your questions ready a little bit earlier than normal.

I’ll be starting on page two which is the selected operating statistics. As Leland has already pointed out about production, we had production records in all categories. This is not just a record overall. This was a record Gulf of Mexico production; this was a record North Sea production; it was a record quarter for all and it was a record quarter for gas. We were up not only 4Q ’07. We were up over 1Q ’07. All continues to become an increasing component of our revenue base and our production base. All was 45%, gas was 55%, our Gulf of Mexico continues to be the largest contributor contributing about 75% of our production, and 25% is coming from the North Sea.

Leland has already talked about how our estimates for the remainder of this year, total production for this year. We’re currently estimating around 80-85 and Leland has laid out on a quarterly basis how we would expect to see that occur.

We not only had records in production, we had records in revenue. $226 million, all made up 45% of our production, but it made up 53% of our revenue and this is the third consecutive quarter going back to the third quarter of 2007, where all of it’s made up more than 50% of our revenue. Also, I’m pleased to report on our expense basis. LOE was at $1.14, which was the lowest blended LOE we have had since 2006. I give complete confidence and compliments to our operating team for being able to do that. A lot of this has to do with cost control measures we have in place, along with the increased production for those that model us, for those that estimate for the remainder of the year. Probably makes sense to have these numbers trend up slightly for the remainder of the year.

One of the items I always talked about is our operating margin. It’s nice to have increased prices but if you have increased costs going at the same time, one of the keys is to make sure you always have an operating margin. Our model is based on such that it can work in practically any environment. Our realized price minus LOE, 89% was our overall operating margin this year and is the highest margin on any of the papers that I had and I go all the way back to 2006. So, from that standpoint, our operating margin continues to be well into the 80% range.

Not only did we decrease LOE, we decreased DD&A. This is at a time where the trends are really increasing within the industry. Again, for those that model us and look forward, well, I’m pleased to have the DD&A rate that we did have the $4.14 decrease from the fourth quarter in ’07. I think you should look to the remainder of this year. I would use those numbers to maybe something slightly higher. Hopefully, we can deliver lower numbers but I think from a modeling standpoint, having a slightly higher one would be appropriate.

Going to the balance sheet, I’m not going to comment on all of the lines here. I’ll take it during Q&A. The one thing I do want to point out where we have a very strong cash position, over $100 million of cash and equivalent at the end of the quarter.

Going to the income statement, I’ve talked about some of these items already. The revenues, the LOEs, the DB&A, G&A at $9.2 million. $2.9 million of that amount is non-cash relating primarily to the 123R stock based compensation. As we look forward to the remainder of 2008, I would expect future quarters to remain roughly in line with the first quarter G&A numbers of both on a cash basis as well as on a non-cash basis.

Going to the next stage, page six, which is cash flow, to talk about our cash flow from operating activities, $126 million. If you look at the cash flow from operations before changes in assets and liabilities, which I think many analysts do focus on, that’s $162 million, $4.47 per diluted share on cash flow. Based on yesterday’s closing price of $33.61, I want to reiterate what Paul said earlier about a value opportunity within ATP using our first quarter cash flow annualized. That means that we’re selling it roughly 1.88 times on an annualized cash flow.

Remainder of my comments are not in this press release but deal with the press release we issued last week on the monetization program. Paul has already touched on that. I want to put a little more color to that. Been asked a few times why we’re doing this: What is our goal? What is our intention? As Paul has pointed out, one of the main focuses of this program is to change the makeup of the company, significantly reducing its leverage but more importantly, is taking advantage of the value that has already been created here.

If you look at ATP on enterprise value basis, we have an enterprise value of about $2.5 billion, market capital of about $1.2 billion, again, based on yesterday’s prices. Based on our 12/31/07 third-party prepared reserve report, that means that we have an enterprise value of $3.52 for proved, $2.31 for proved and probable reserves. If you’re looking on at the market cap, that’s $1.70 and $1.12. Clearly, the prices that have been paid recently, as recent as this week and last week, on an out sale packages as well as company, there is significantly value that is trapped within these assets. We’re going to look at these assets. We have a multiple prong approach. We have developed significant value here.

Our infrastructure of producing systems, both existing as well as planned, are producing properties, both in the Gulf of Mexico and in the North Sea. Our development properties and opportunities both in the North Sea and in the Gulf of Mexico. All of these are part of our monetization program, the infrastructure, the floating systems, the ATP innovator which is currently on production at Gomez, man dock I which is destined for installation later in 2008, man dock II which has already been announced under contract, as Leland talked about the flooding production system for the Cheviot facility. All of these are available for an MLP or some form of similar program that we’re working diligently on right now.

The producing properties, primarily Gomez, Tors, Wenlock, all of these represent significant value and values significantly in excess of the enterprise value that they’re currently being treated in the development opportunities as Telemark and Cheviot. These are tremendous opportunities, not only for us but also for other partners that we would team with. Collectively, all of these transactions well in excess of a billion dollars, but we’re not trying to accomplish every one of these by addressing each of these initiatives simultaneously. It provides ATP the flexibility to achieve the highest value for our shareholders and for our lenders. With that, I will turn it back to Paul and we can go to the questions and answers.

T. Paul Bulmahn

Thank you, Al. Is there a first question?

Question-and-Answer Session

Operator

We will take our first question from the site of Neal Dingmann from Dahlman Rose.

Neal Dingmann - Dahlman Rose & Co.

Good morning, guys. Good quarter.

Al, can we refer from your comments as far as what you see in the market out there today and then with the comments over the debt that you must be more actively paid down versus being more inquisitive, or is that not necessarily the case?

Albert L. Reese, Jr.

I think you can interpret that as it will be directed towards a pay down, and this is Al Reese making this comment. Our credit agreement does require us to make certain payments depending upon the structure of the transaction. Our announced goal through the Home Sweet Home Employee Challenge Program that Paul just mentioned is a debt reduction program. But one of the goals that we want to have by the end of this year by 2009 is to be in a position where we can begin focusing with drop out or on more acquisitions. Leland has already talked about the expansion that we had at the Canyon Express area, the apparent high bids we have around the Telemark area. This is not something that we expect to monetize the entire company by any means. This is monetizing value, pieces of value, and then being able to continue to move on with the development.

T. Paul Bulmahn

But Neil, this is Paul, let me add. We have other opportunities we are looking at as well. And so on the acquisition front, things never are dead. In fact, they’re very much alive. There are a number of opportunities which come to us and at times, they are such great opportunities that we will do everything in our power to find the resources to be able to respond to that opportunity when it’s presented to us. And at this point, there are several things we’re looking at, all of which are quite attractive.

Neal Dingmann - Dahlman Rose & Co.

Okay, good answer. You both had mentioned, and I would agree with you as far as the number of assets that are potentially being monetized, what does that market feel like? I know obviously it had weakened not long ago after being quite strong in ’07. Does it feel like that strengthening again?

T. Paul Bulmahn

This is Paul. I think if you look at the recent transactions that have taken place, and I believe Scotia Waterous was involved in each of them, most recently the merger of [Buoy Dark] and Stone in the Gulf, I believe you’ll see that the values that were represented in that transaction were very strong, and we believe representative of what’s taking place right now on that front.

Neal Dingmann - Dahlman Rose & Co.

Okay. Then my very last question: I know you had a little bit of compression issues and some other just slight issues with Gomez and I think there was talk out there about something about Tors, which I guess I had never heard. Are you seeing any compression and these other issues or are most of that now been mitigated? Maybe that’s for Leland.

Leland E. Tate

It’s Leland here. The answer to the Tors question is that our compression is not in place yet there. We have an incremental capacity we can add when that’s completed. The host operator is reworking a bundle during the planned maintenance on their two machines that they have there and they’re trying to get them both running before we actually go into the program. So that’s expected, probably not this quarter, but later in the third quarter so it’ll be able to get to compression at Tors.

Neal Dingmann - Dahlman Rose & Co.

Hey, guys, keep up the good work.

Operator

We’ll take our next question comes from the site of Phil McPherson from Global Hunter Securities.

Philip J. McPherson - Global Hunter Securities

Hey, good morning guys. Great job on the quarter.

Just a couple of questions, typically, you guys included a hedging schedule in your press release and it wasn’t this time. I wonder if you could comment on where you guys are at on your hedging and maybe you can give us an idea of percentage basis?

Albert L. Reese, Jr.

Sure, this is Al. Phil, the hedging schedule was in our most recent presentation which was the IPAA in Howard Weil presentation. So that is the most recent one. I’ll make note of that so that next time we will be able to include the hedging schedule that was apparently just overlooked at this point.

Where we are at for the remainder of the year using the midpoint of Leland’s estimate of 80-85% of you use an 82.5% production range for the year. What you find is that for the balance of the year, we’re about 79% hedged on the Bcfe equivalent basis about 21% unhedged. Overall for the year, that will put us about 80% hedged for the year, about 20% unhedged.

Philip J. McPherson - Global Hunter Securities

And so then first quarter realization is probably the benchmark to utilize then?

Albert L. Reese, Jr.

That’s a good number to use going forward. If you look at the actual hedging schedule that’s on the attached presentation from IPAA, it will have the actual components there. But the short answer to your question is yes, that’s probably a good number.

Philip J. McPherson - Global Hunter Securities

Great, and you mentioned a well identified at Wenlock and I was wondering when that kind of fits into the cap ex schedule and what we should expect from UK production in particular?

Leland E. Tate

It’s Leland here. The second well that Wenlock is targeting primarily those upper three layers that we don’t believe are being fully depleted and we’re negotiating now for a rig. We would expect that to come in later in the fourth quarter, hoping to try to get production on just before the end of the year from the second well there.

Philip J. McPherson - Global Hunter Securities

Great. Thanks guys. Only last comment: Paul, you talked about cutting back on the man marketing. You guys kind of set the benchmark for getting out and telling the story and I think that the street usually thinks no news is bad news. So I would hope you would continue to get out and talk about what you guys are doing because you guys are doing a good job.

T. Paul Bulmahn

Phil, that really is a tough area to talk about because we have always tried to be as straightforward as any company could be and for that reason, we really, prior to the Wenlock well, we were definitely of the belief that the well was going to perform at a particular level and we were happy to share that with the world. It did not perform at that level and we were quick to share that with the world. And what we have seen is that I think the reaction to that well the way it began performing after we brought it on was more severe than we feel it should have been. And as such, I have always been of the personal opinion that our actions should always speak louder than any words we’re saying. So to the extent that we can perhaps cut back on the number of words we’re saying until it’s very clear that our actions speak for themselves. We will not be as active in the presentation arena.

Philip J. McPherson - Global Hunter Securities

All right, I think you put up some good actions today so it’s the beginning.

T. Paul Bulmahn

Thank you, Phil.

Operator

Our next question comes from the site of Sven Del Pozzo from CK Cooper.

Sven Del Pozzo - CK Cooper & Company

Good morning, gentlemen.

I was just looking at the interest expense in the fourth quarter versus the first quarter and I was wondering if you had capitalized any interest during the quarter or how to explain the decline, despite having a relatively similar debt outstanding?

Albert L. Reese, Jr.

Yes, this is Al. Yes, we did capitalize some interest during the quarter. If I can have someone get that number for me during the call, I will come back and tell you how much was capitalized. If not, it will be in our 10-Q, which will be filed later this week or no later than Monday. Also, you have a lower LIBOR rate in the first quarter of this year compared to last year. Our rate is LIBOR Plus 3.5 and with LIBOR rates being where they are at this point, it is somewhere in the neighborhood of less than 6% to just over 6% is our overall borrowing cost for our $1.2 billion of debt. So that has a lot to do with it also.

Sven Del Pozzo - CK Cooper & Company

Okay and probably more than the capitalization of the interest?

Albert L. Reese, Jr.

I would think so but I apologize I do not have that exact number in front of me. I’ll try to get it before the end of the call.

Sven Del Pozzo - CK Cooper & Company

Okay, and along the same lines. What might be the schedule for reducing debt by about $600 million?

Albert L. Reese, Jr.

This is Al. Clearly, the program is a monetization program as I laid out. The producing properties and the infrastructure properties clearly bring in cash on day one. The development program, depending upon the way a partner is brought in, that can either bring cash in on day one or can effectively transfer a significant portion of cap ex to your partner over future periods of time. So what you would find is depending upon how we close these monetization. If we close with a lot of cash upfront, you would expect a fairly significant reduction in debt sooner rather than later. If we do not monetize a lot of the properties upfront with cash but instead concentrate on the development side of the business, you could see that take a little longer but could possibly end up generating more in free cash flow later in 2008 and 2009.

Sven Del Pozzo - CK Cooper & Company

Okay. From a modeling standpoint, I’m a little fuzzy on Canyon Express and also with bringing on some Camden Hills wells. Can you just give me an idea of what I should expect in production from those properties?

Leland E. Tate

Yes, Leland here. We’re in the early stages of bringing them on. They’re part of our 80-85 Bcfe. The wells have been shut in for quite a while and so if I were to give you a number now it would be a number that I’d have to retract later one way or the other. So, I’m a bit reluctant to do that.

We produced on the order of about 10 million a day during the first quarter and we would hope to be able to increase from there with these new wells that are in. At Canyon Express, there are three fields that go in there, that those being King’s Peak, Aconcagua and Camden Hills. And each of those wells interact with the others so we have to orchestrate how we produce them. So it’s not a doubling or tripling of production. It’s more a maintenance of production and with some minor increases.

Sven Del Pozzo - CK Cooper & Company

Also, Leland, now Tors, where might the production be expected to go once the compression is taken care of in the third quarter?

Leland E. Tate

Once again, it’s a part of our overall program and I’m trying to give you a broad range of the outcome of these things because when we get too specific things change in time. But Tors’ compression should affect two of the three wells that are there fairly positively and give us a 30-40% increase over and above whatever the wells are producing at the time we bring them on. So, we could be looking at a $20-30 million a day gross increase once we can get compression going.

Sven Del Pozzo - CK Cooper & Company

Okay, thanks. And finally, my last question: At Gomez, what was your realization price for oil at Gomez if backing out the hedges so your unhedged realization for oil and condensate during the first quarter? Do you have that number at your disposal?

Leland E. Tate

It’s Leland. I don’t have that number specifically but basically, just in general, it’s a number that’s out there you can get. It’s the basis that reduces our price there. We send this oil through the Amber Jack system which is a lower gravity high sulfur system which reduces our overall value because it gets sold with the other oil. And that had a wide range on it from $3-11 a barrel. I believe the numbers are going to be in the $6-8 a barrel range in the fourth quarter. It’s somewhere in that range and it’s caused by our good oil going in with poor quality oil and reducing the price at the beach. So even though we upgrade and get some increase for that we are still lower than WTI.

Sven Del Pozzo - CK Cooper & Company

Thank you very much and you had good results.

Operator

We’ll take our next question from the site of Ron Mills from Johnson Rice.

Ronald E. Mills - Johnson Rice & Company LLC

Hi, guys.

Leland, one question on the production target. You have been talking about a dip in the second quarter and then coming back in the second half whereas I was more expecting a little decline sequentially even in the second half of the year. Can you walk through that a little bit? How much of the impact is related to the Gomez compression being offline and any sort of range of the size dip? Are we talking about a $5 or $10 million dip or a 5% or 10% type dip?

Leland E. Tate

Hi, Ron. It’s Leland. I’m very hesitant to give you that number. As you know, our plans change and the production that is occurring out there through the plan maintenance program gets impacted dramatically. A 2-3 day shutdown when you’re losing $120 million a day makes a big difference. And if we slip out of one quarter into the next then it varies a lot. But with that said, you’re probably talking a 5-10% second quarter dip and then bringing back up to a rate later in the year that will average the numbers that I put forward. We have shutdowns; we have maintenance planned for Gomez as well as in the UK. There is some planned maintenance to go on at Trent during the summer. And so, we’re going to have to shuffle things around depending on exactly when those occur and then I’ll finalize. So, with all that said, as I said earlier, we’ll be down slightly in the second quarter and then back up to a rate in the third and fourth quarters that should equal the cumulative of somewhere in that 80-85 range.

Ronald E. Mills - Johnson Rice & Company LLC

Okay. And Al, on the asset realization program that you’ve talked about, is the MLP included in that or is that a separate issue of buying? I’m assuming that process is still ongoing?

Albert L. Reese, Jr.

This is Al. Yes, the MLP initiative is not part of the Scotia Waterous initiative that we talked about on the press release last week. It is a totally separate initiative that we have going as is a couple of other initiatives that we have going that’s all within this general area.

Ronald E. Mills - Johnson Rice & Company LLC

Okay, but is the asset disposition initiative and the $600 million debt reduction target, that could come from any and all of these initiatives. Correct?

Albert L. Reese, Jr.

That is correct.

Ronald E. Mills - Johnson Rice & Company LLC

And then on the Deep Water discoveries, Leland, I don’t know if you have any color on Gladden and Anduin West. It sounds like they’re going to go through Gomez and start up in late 2009, which will be a nice wedge between the start up of the two Telemarks man docks. Any color on those two discoveries?

Leland E. Tate

It’s Leland. Yes, Ron, the operator there had put out a release which we supported in obviously when they put it out. They were talking about $30-40 million a day equivalent from each of those two discoveries and we’re actually still in the process on the second at Gladden, moving into the completion. So, there’s a lot of work yet to be done on it. But those will be buttoned up and the rigs moved off in the next month or two. It’s going to take a while to get the sub sea equipment to tie into our man hole there at Gomez so that’s why I think they put out and we wouldn’t disagree with a late 2009 startup of that production stream.

Ronald E. Mills - Johnson Rice & Company LLC

Okay, I think that’s it. If I have any more, I’ll jump in. Thanks.

Albert L. Reese, Jr.

Thank you, Ron. Before we go to the next question, this is Al, let me answer a question that was asked earlier by Sven. Our capitalized interest in the fourth quarter of 2007 was $4.4 million. Our capitalized interest in the first quarter of 2008 is $5.9 million. Thank you.

Operator

Our next question comes from the site of Steve Berman from Pritchard Capital.

Stephen F. Berman - Pritchard Capital

Good morning, everyone. A couple of clarifications and by the way, it’s 80-85, if we can call it guidance, I’m sure I speak for a lot of people on the call thanking you for that. Just some clarifications. The G&A, Al, and this may be not that relevant since it’s not going to be that from quarter to quarter, not huge changes, but when you say in line going forward, are you talking about on an Mcfe basis or in absolute dollars, or it’s maybe both since the numbers aren’t going to be a lot different?

Albert L. Reese, Jr.

This is Al. It would be an absolute basis. We did not report G&A on a Mcfe basis because there is essentially zero correlation between the two.

Stephen F. Berman - Pritchard Capital

Okay and then a similar question: When you said that DD&A will go up slightly, was that off from the $4.14 or from the $4.35 in Mcfe in Q4 ’07?

Albert L. Reese, Jr.

This is Al again. On the last call, I made a comment that I thought for 2008 a reasonable fair way estimate would be those levels that we had achieved in the fourth quarter of ’07. We beat those numbers in the first quarter of this year. I would expect them to move back towards the fourth quarter of ’07. I would like to have positive surprises as we go through the year but we’re moving into a higher development cost area, not just ATP but everyone in general. Before the end of this year, we should have Highland 8589 on, the South Marsh Island 190. Both of these are developments that have been developed during the 2007 and 2008 high cost periods so I would expect to see a slightly higher DD&A rate there.

Stephen F. Berman - Pritchard Capital

And going forward to the balance of the year, any thoughts on where tax rate might fall out?

Albert L. Reese, Jr.

The tax rate for financial purposes will continue around 35% from a current basis. It appears to be that we’re moving into a current tax basis while we’ve been able to defer most of our taxes in the past. It looks as if now, both foreign and US, we will be moving towards a cash payer. If I had to estimate as we sit here today, 40% seems to be a reasonable number for cash taxes. That number I can see coming down slightly under certain conditions. It could go up slightly particularly as the foreign income begins to increase.

Stephen F. Berman - Pritchard Capital

Is that starting now in Q2?

Albert L. Reese, Jr.

Yes.

Stephen F. Berman - Pritchard Capital

Okay, so modeling of 60% deferral rate is reasonable at this point?

Albert L. Reese, Jr.

That would be reasonable. This is Al.

Stephen F. Berman - Pritchard Capital

All right. Thank you.

Operator

We’ll take our next question from the site of Irene Haas from Canaccord Adams.

Irene Haas - Canaccord Adams

Hello, guys. Good to hear that you are restructuring the company and just knowing that there’s going to be a lot of moving parts of this monetization process. Do you have in mind going in by 2009 versus 2008 after you’re done with this whole exercise whether it’s going to be cash flow positive, neutral or accretive? Do you have any goal in mind when you go into this whole exercise?

T. Paul Bulmahn

Irene, I think we need to get a little bit farther into the exercise to see exactly how it’s going to transpire. We are encouraged by what we’re hearing from the community of potential bidders and purchasers of the assets but it’s very difficult to say how far along we’re going to get at any particular point with the asset monetization that we’ll be engaging in. And we are clearly offering some of our key properties for some monetization that we are trying to put out a very attractive package of possible interest for people to look at and to make offers on.

Irene Haas - Canaccord Adams

Thank you.

Operator

We’ll take our next question from the site of Francois [Cetalon] from Emerald.

Francois [Cetalon] – Emerald

Hello, one question about your hedges: So apparently, you were hedged on the first quarter for volume of 6,970 mmBtu in the North Sea?

Leland E. Tate

That is correct.

Francois [Cetalon] – Emerald

But you did not produce that volume, did you?

Leland E. Tate

No, we did not. We produced 5.379 Bcfe.

Francois [Cetalon] – Emerald

All right, so does this mean that you had to buy back some hedge?

Albert L. Reese, Jr.

Yes, this is Al. Essentially what happened is the hedge volumes that were not covered by production were essentially financial hedges and what you see in our realized prices in the North Sea in the first quarter is that differential showing up as a reduced realized price.

Francois [Cetalon] – Emerald

All right. And is there a risk that in the future quarter, you might also have to buy back some hedges?

Albert L. Reese, Jr.

Again, this is Al. As we sit here today, no, I do not think that it is risk. With the program that Leland has in the North Sea, with the program that we have in the Gulf of Mexico, as already pointed out, we are about 79% hedged for the balance of the year, using 82.5, using the midpoint of our estimates as a guidance.

Francois [Cetalon] – Emerald

Okay, so because I miss the very beginning of the meeting. Did you say what you’re producing today, just today in the North Sea, or you didn’t say?

Leland E. Tate

Francois, it’s Leland Tate. Our first quarter production was about 75% US, 25% UK. When I look at the whole year, it varies a little bit but that’s not too far off. If you just think about the program going forward, we’re in excess of the hedge volume in the first quarter thus far. And as Al said, anticipate that we will stay there. So, what we do over there is those reservoirs are set up so that we can reduce and increase as we need to to make sure we stay within the hedge guidelines. The first quarter we had the compression issues with Wenlock and we’re slightly short of being able to do that.

Francois [Cetalon] – Emerald

All right. Then so like over there was there any surprise by very good figures and least operating expense. So you said that it’s because you increased your production? So I guess as you would increase your production next year or head to low point or?

Leland E. Tate

Francois, it’s Leland here. There are two components to that low first quarter. First of all, we did have a higher production volume which was a record for us again this quarter. And a large portion of our cost in the US particularly are fixed costs so obviously the higher production we get, the cost don’t really go up proportionally at the front of it.

The other is the Canyon Express system in the US requires quite a lot of methanol as we produce these high water coal wells. And in the first quarter, we were actually producing wells that were making less water. Therefore, the costs were lower. You should anticipate that those costs will go up throughout the year and so I believe your words was at the low point. I think that’s probably right. I think we will see an increase as time goes on.

Francois [Cetalon] – Emerald

All right. And then as far as your asset sales are concerned, well, for me, this market thinks it’s good news. Well, it depends of what you believe the price of oil will be in the future but I’m always be afraid when you sell assets that the buyer will want the margin of $60 and we make the calculation on that price of, I don’t know, $60 or 80, because I see that’s how the market is doing. So what do you think of that? Was the $120 a barrel quite difficult to sell assets in good condition?

Albert L. Reese, Jr.

Francois, this is Al. One of the points that was made on the press release, one of the points that we’ve made in this program, is that our goal is essentially about a $600 million monetization program. To accomplish that, we have well over a billion dollars worth of assets that we are going to pursue on the monetization. The floating production units alone, on a gross basis, account for a billion to $1.5 billion. You start looking at a percentage of Telemark, a percentage of Cheviot, a percentage of Gomez, you easily get into the multibillion dollars of opportunities that are out there. The reason we’re doing it this way is it gives us the ability to pick and choose. We launch all efforts simultaneously. For those that we like, we accept. For those that we don’t like, we do not accept. So that’s really one of the efforts that we’ve got behind here. It’s not trying to put together a $600 million monetization program and try to close it. It’s to put together an initiative that far exceeds what our goals are and to be able to take only those that meet the minimum hurdles that we would accept and not necessarily just what the seller would fall.

Francois [Cetalon] – Emerald

All right. Thank you.

Operator

[Operator Instructions]

We’ll take our next question from the site of Rehan Rashid from FBR Capital Markets.

Rehan Rashid – Friedman, Billings, Ramsey & Co

Good morning, Paul.

On your cap ex front with all these different things coming about, could you give any sale thought processes, walk us through maybe your capital call in the next 4-6 quarters with both the hubs coming through and then Cheviot also?

Albert L. Reese, Jr.

Yes, Rehan, this is Al. If you look at our 2008 program, the capital commitment for all of 2008 as we have previously announced at conferences, is somewhere around $700 million. What will cost upward pressure on that would be some drilling programs that we would like to do. We would like to pre-drill some of the wells at the Telemark area. Instead of using just the man dock and the platform rig, they’ll actually do some pre-drilling for the upper part of the well which would speed up our first production at that location. If we’re able to do that, that would put upward pressure on it.

As Leland has already talked, we have a rig identified over in the North Sea for a program but it’s not under contract at this point. To be able to get that property, get the Wenlock well drilled, and possibly even some other well. So that would move the capital program above the $700 million. As we’ve said with our monetization programs, whether it is capital coming in from repayment of previous spent was that primarily a program that we would have in a MLP area with the innovator at one of the man docks, or whether it is bringing a partner in for the development of Cheviot, or development of Telemark. This will tend to reduce the cap ex.

So, as I call it, those that know me, I use the word “fair way” quite a bit. The fair way number is around $700 million with hedges getting you above that or below that simply depending on what occurs.

Rehan Rashid – Friedman, Billings, Ramsey & Co

Got it. I actually was trying to see if I can get a feel for capital intensity going into ’09. Do we complete enough of man dock I and II this year that you won’t have that much next year and then when do we really start spending on Cheviot?

Alfred L. Reese, Jr.

Rehan, again, this is Al. I think it’s premature at this point, and believe me, I’m not trying to dodge your question. I think we will be successful with the monetization programs that we have. In any number that we put out for 2009 now will be changed. I don’t think there’s any way that we can put out a number for 2009 now that would have any creditability because of the various components of a monetization program. I appreciate your question. I realize that might frustrate some people not being able to give more direction in 2009 but give us until the third quarter. Give us until the fourth quarter when we see how these monetization are going to happen and then we’ll start laying out a little more detail.

Rehan Rashid – Friedman, Billings, Ramsey & Co

Okay, one last one on the same question: Cheviot’s stand alone, what is your full field development costs looking like?

Leland E. Tate

Hi, it’s Leland here. We’re continuing to work that. We see that number for the Octobuoy itself varying around the ultimate solution for the pipeline but it could be a range anywhere from $500-600 million. Maybe even $450-600 million, depending on the overall pipeline system. And then of course the number of wells we actually drill would drive that up depending on what we see as far as the ultimate reserves go. One of the things we’re finding in this market as you have hundred dollar or $120 oil is that makes those million barrels and two million barrel targets that you can achieve once you get infrastructure in place very, very economic. So, the cost to that ultimate program is really very heavily driven by the price of the product at the time.

Rehan Rashid – Friedman, Billings, Ramsey & Co

Right. On the divested front from a tax or cash tax standpoint, should we think about a straight up 35% tax on whatever you sell, or would there be some ways to move around the basis so the tax portion wouldn’t be as heavy upfront?

Albert L. Reese, Jr.

This is Al. If you want to use a $600 million monetization with the 35% tax basis, that is probably a reasonable financial number to use. But I feel relatively confident that we should be able to shield many of the taxes associated with what we will be doing. Again, no guarantee. Every transaction will be a different tax basis, whether we’re selling something that’s already on production, whether we’re selling something that is a piece of a development program, whether we’re monetizing something that is already had all of its capital spending, we’re getting that money back. There’s no pad answer but for financial purposes, 35% is not outside the ballpark.

Rehan Rashid – Friedman, Billings, Ramsey & Co

Okay, thank you.

Operator

We’ll take our next question from the site of Vance Shaw from Credit Suisse,

Vance Shaw – Credit Suisse

Hi, guys. Yes, first of all, congratulations on a good quarter.

Now, question I have is that my understanding is you have both secured and unsecured debt. As you go ahead and do these asset sales and pay down this debt, is there a requirement that you have to pay down one or the other first?

Albert L. Reese, Jr.

This is Al. The requirement is within the credit agreement and depending upon the type of transaction that can either require a pay down or it may not require a pay down. Under the two credit agreements we have in place now, both the first lien and the subordinated debt, everything must be paid on the first lien and nothing can be paid on the second lien unless it’s with the approval of the first lien lenders.

Vance Shaw – Credit Suisse

I understand. Thank you very much.

Operator

We’ll take our next question from the site of Dax Atkinson from [DPA] and Capital.

Dax Atkinson – [DPA] & Capital

Hi. A great quarter, guys.

I had a couple of questions. Most of them have been answered but first question relates again to the tax issue related to asset monetization. Is there NOL available to offset some of the gains there and specifically the UK NOL, can that be used to offset gains from asset sales?

Albert L. Reese, Jr.

This is Al. The broad answer is yes, there are NOLs that can be used to shield if there is a taxable situation. Regarding what would be available in the Netherlands, what would be available in the UK, what would be available in the United States, again, I will have to come back to say the specific transaction will dictate how much tax can be deferred or transferred or avoided because of the structure.

Dax Atkinson – [DPA] & Capital

Okay, and the tax basis and the development properties that would be included in this initiative, is it fair to say that they’re relatively low outside of the man dock expenditures that have been made?

Albert L. Reese, Jr.

This is Al. Other than the man dock for Cheviot and for Telemark, the tax basis would be relatively low, as well as, capital expenditures would be relatively low compared to what we would expect to get. Again, that will come down to the structure of the transaction whether it is structured as cash in on day one and then a sharing of costs going forward or whether it’s a limited amount of cash on day one and a disproportionate amount of capital that they spend going forward compared to the amount that we would have to spend.

Dax Atkinson – [DPA] & Capital

Okay, great. And then, a second question related to production: Within the US, are you willing to share what the production kind of looks like among the various properties you have in general terms: Gomez, Canyon Express, [inaudible] Complex, etc.?

Leland E. Tate

It’s Leland here. I’d rather lead that at a high level. We get a lot of variations. I think it’ll be misleading if I were to be too detailed with you on it.

Dax Atkinson – [DPA] & Capital

Okay. That’s all I had. Thank you. Good quarter.

Operator

We’ll take our next question from the site of Travis Anderson with Gilder Gagnon Howe.

Travis Anderson – Gilder Gagnon Howe

Hi, this may have been asked already as I missed a little bit of the call but on Cheviot, where are you in the permanent process there?

Leland E. Tate

Leland here. We have submitted the field development plan to the former Department of Trade and Industry. That happened late last month and you may know it’s a process you go through that can take anywhere from 3-6 months, including the approval of the environmental process. That environmental permit has to be approved before they can finally approve the field development plan.

We’ve been in discussions with them for some time so we expect the process to be relatively smooth but it takes time.

Travis Anderson – Gilder Gagnon Howe

Well, I just remember they had turned down your first idea and now you come up with this octagonal, whatever it’s called, and I was just wondering how much consulting you did with them beforehand, a feel about how they felt about this?

Leland E. Tate

It’s Leland here. We’ve actually had 3 or 4 meetings with them on that, both the Department of Trade and Industry as well as the Health Safety executives and there does not seem to be anything other than the normal routine issues that you deal with in any application with them at this point. The biggest concern was around abandonment of concrete structures and this is even better because it’s very, very easy and low cost removal.

Travis Anderson – Gilder Gagnon Howe

Great. Thanks.

Operator

We’ll take our last question from the site of Curtis Trimble from Natexis.

Curtis Trimble – Natexis Capital

Sure. Good morning. Real quick, easy one ended up here: Timing on the data room, when do you expect it to open and close, or duration, if you don’t have specific dates now about?

Leland E. Tate

It’s Leland. I think we’re loading that now and I would say it’s probably going to be late May or early June when we finally get it all put together.

Curtis Trimble – Natexis Capital

Okay, and you would expect it to be open about a month or so?

Leland E. Tate

A month depending on level of demand but at least a month, maybe six weeks.

Curtis Trimble – Natexis Capital

Okay, but you’ve got a good probably five months towards the end of the year to get anything closed. So everything should be tidied up with regards to the achievement of this $600 million goal?

Leland E. Tate

That’s our intent.

Curtis Trimble – Natexis Capital

Outstanding. I appreciate it.

Operator

We have no further questions at this time. We’ll turn it back over to you for any closing remarks.

T. Paul Bulmahn

In response to the last question, this is Paul, I think it should be noted that the employee challenge is until July 1, 2009. And so, I can’t say with definition that the $600 million goal will be reached by year end. Although, it would be very nice if we were able to make that happen. We certainly believe that we’ll be able to engineer that goal before the July 1, 2009 date.

We are focused on monetizing our assets, reducing our debt and continuing to develop and produce low risk reserves to create shareholder value. We are looking forward to 2009 to 2011 as our large development projects come online. As you can see, the future is really bright but the present is exceedingly strong. And the existing hubs continue to improve their operations.

We expect to continue to deliver exceptional results and I believe our ATP performance will speak volumes about the talented people we have here at ATP. I thank the entire ATP team for their efforts and I thank each of you for your interest and your confidence in ATP Oil & Gas Corporation.

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