S&PZZ US: ATP Oil & Gas Corp. Outlook Revised To Developing From 2011-05-13 16:26:52.459 GMT
STANDARD & POOR'S FINANCIAL SERVICES LLC ("S&PZZ-L")
ATP OIL & GAS CORP ("ATPG-Q")
- ATP Oil & Gas Corp. Outlook Revised To Developing
- From Negative; Rating Affirmed
As a result of new wells, U.S. exploration and production (E&P) company ATP Oil & Gas Corp. (ATP) has the potential for increased production, cash flow, and improved liquidity.
We are affirming the 'CCC+' corporate credit rating. We are lowering our issue-level rating on ATP's $1.5 billion second lien notes to 'CCC-' and revising the recovery rating on those notes to '6'.
We have revised our outlook to developing from negative to reflect that although ATP will continue to outspend cash flow, possible production increases from new wells could augment cash flow and liquidity.
NEW YORK, May 13, 2011--Standard & Poor's Ratings Services said today it revised its outlook on ATP to developing from negative. At the same time, we affirmed our 'CCC+' corporate credit rating on the company. We also lowered our issue-level rating on ATP's $1.5 billion second lien notes to 'CCC-' (two notches lower than the corporate credit rating) from 'CCC+' and revised our recovery rating on those notes to '6' from '4', indicating our expectation of negligible (0% to 10%) recovery in the event of a payment default. (For the full recovery analysis, please see the recovery report on ATP to be published subsequently on RatingsDirect.)
"The revised outlook is due to the possibility of increased production and cash flow from new wells in the Gulf of Mexico, slated for production in the latter half of 2011, and an improved, though still less-than-adequate, liquidity situation," said Standard & Poor's credit analyst Patrick Y. Lee. Challenges, however, still remain. Drilling on the Telemark Hub well MC 941 No. 4 has yet to be finished, and the Telemark Hub well MC 942 No. 2 has not been permitted. The former should enter production sometime in the third quarter of 2011, and the company hopes to have the latter producing by the fourth quarter of 2011. The actions on the issue and recovery ratings follow from the receipt of an updated year-end PV10 report, using our stress price assumptions of $45 per barrel of West Texas Intermediate crude oil and $4 per mmBtu of Henry Hub natural gas. Our recovery analysis incorporates this new valuation, our modified recovery methodology announced late last year, and changes to ATP's balance sheet over the past year.
The ratings on Houston-based ATP reflect its participation in the cyclical and highly competitive oil and gas industry, execution risk related to developing production, particularly in the deepwater Gulf of Mexico, high capital spending requirements, lumpy production, aggressive leverage, and a less than adequate liquidity profile. A good production mix between natural gas and crude oil plus condensate partially tempers those weaknesses.
Standard & Poor's categorizes ATP's business risk profile as vulnerable. ATP seeks to acquire and develop primarily proved undeveloped reserves from large independents and integrated companies. While minimizing exploratory risk, ATP places a high level of capital at risk with respect to development and execution. Using a hub strategy, ATP installs floating infrastructures such as the ATP Titan to help drill and produce from various related properties in the Gulf of Mexico (66% of 2010 proved reserves and 93% of 2010 production) and the North Sea (34% and 7%, respectively). Such floating facilities and their corollary infrastructure require sizable investments before any production can come online.
Besides the execution risk associated with costly infrastructure and development, ATP faces the prospect of uneven revenue streams due to its deepwater hub strategy. As each installation comes into production, ATP expects production and revenues to increase significantly. After a few years, however, likely declines in production and field depletion, particularly in the Gulf of Mexico where wells can initially exhibit steep declines, will necessitate a more aggressive acquisition and development strategy and require facilities to be moved to another locale. Unless ATP properly times those acquisitions and transfers, the company may see uneven production and revenues.
The developing outlook reflects our expectation that although ATP will continue to outspend cash flow, possible production increases from new wells could augment cash flow and liquidity. We may take a negative rating action if the company is unsuccessful in developing those wells and it continues to burn cash flow and liquidity. We may take a positive rating action if ATP is successful in increasing production, cash flow, and liquidity to fund 2011 and 2012 fixed charges, likely in conjunction with a return to normalcy in Gulf of Mexico permitting, better-than-expected production, and continued high commodity prices. |
