Christopher Helman, Forbes Staff
I’m based in Houston, Texas, energy capital of the world.
Paul Buhlman swears the president’s ban on deepwater drilling killed his oil company. The whole story is a bit more complex.
(This story will appear in the Sept. 11, 2012 issue of Forbes Magazine)
When I get Paul Bulmahn on the phone rumors are swirling that he’s just days from putting his company, ATP Oil & Gas, into Chapter 11. He can’t confirm it yet, but he wants to make one thing perfectly clear: If it does come to bankruptcy (which it did on August 17) it isn’t his fault. The founder and chairman of publicly traded ATP (Nasdaq:ATPG), Bulmahn wants the world to know that the Obama Administration—and its illegal ban on deepwater drilling in the wake of the BP disaster—is to blame for the implosion of his company. Not him.
“It is all directly attributable to what the government did to us,” he rails. “This Administration has gone out of its way to create problems for my company, the company that I formed from scratch.” He’s more than angry. Bulmahn, 68, has already brought suit against the U.S. government seeking damages ($68 million to start with) for the 2010 moratorium that shut down deepwater operations in the Gulf of Mexico for the better part of a year. In an earlier case brought by ATP and rig company Ensco, Federal District Judge Martin Feldman ruled in May 2011 that the feds “acted unlawfully by unreasonably delaying action” on drilling permit applications. Still, ATP has a long, winding road to any hope of recovering damages from the government (which says it’s protected from claims by sovereign immunity).
That’s proving disastrous for Bulmahn. While hundreds of companies with operations in the gulf were affected by the government’s decision, perhaps no other was as hard hit as ATP—or as vulnerable. In 2010 the company had completed work on its $800 million deepwater production platform Titan and floated it out to the deepwater Telemark field 160 miles south of New Orleans. Bulmahn planned for Titan to complete drilling the final feet of four wells, hook them up, and let the oil—and the cash—start rolling in.
On April 19, 2010 ATP refinanced and rolled up $1.5 billion in debt into a new bond issue “and celebrated with champagne.” He says that at the time ATP stood a good chance of doubling its oil and gas volumes to 50,000 barrels per day within a year.
But the Deepwater Horizon exploded April 20. “We didn’t foresee an impact. The Titan is 80 miles farther south, and the spill is going to drift to the north,” says Bulmahn. Underwriter JPMorgan agreed, and it closed on the bond offering.
Soon ATP was informed by regulators that it would not be allowed to complete those Telemark wells, even though Titan was already outfitted with all the safety redun- dancies subsequently required for deepwater work. “They closed our spigot on revenues, but didn’t stop our expenses” for interest payments, rig contracts and the like. Bulmahn scrambled to spin off Titan as a subsidiary and borrowed $350 million more against it. ATP posted a net loss of $349 million in 2010.
It hasn’t gotten much better since. Overleveraged, ATP was balanced on a knife edge. The final Telemark wells didn’t get hooked up until earlier this year. Meanwhile, ATP has been burning through cash on what appears to be an ill-advised exploratory drilling campaign off Israel. In the past year ATP has lost $250 million on $600 million in revenues and now heads into bankruptcy, crushed by $2.7 billion in long-term debt and obligations and $300 million in annual interest payments. Bulmahn’s shares used to be worth $400 million; now they’re worthless.
But, say those who know ATP, you can only blame the Obama Administration for so much of the drama. “The moratorium had an effect on a lot of companies, but this is the only one blaming the moratorium two years later,” says an oil executive with direct knowledge of ATP.
Ravi Kamath, high-yield analyst with Global Hunter Securities, has been bearish on ATP for years and had a sell rating on ATP debt since early 2011, when it was trading at 104 cents on the dollar. It’s fallen to 29 cents now. Kamath says ATP’s problems reach far beyond the moratorium. He keeps a spreadsheet with 105 instances from the past decade where he says ATP has overpromised and then underdelivered. “Bulmahn has said lots of stuff that never happened,” says Kamath. “They have 11 years of bad forecasts.”
The first Telemark well was hooked up to Titan before the BP blowout, “but the project was already a year behind schedule and over budget.” Multiyear delays were normal at other ATP fields, too. What’s more, in August 2011 ATP said the third Telemark well was going to deliver 7,000 barrels per day. One month later the well was doing only 3,500. “With their cost of capital it’s just crazy to invest hundreds of millions to build a platform from scratch,” says Kamath. “They live in fantasyland.”
Yet instead of slashing costs and circling wagons, Bulmahn in late 2010 chose to take ATP on an international adventure. “I felt the need to find a way to keep our technically expert people occupied,” he says. That meant forging a deal with Isramco to drill an exploratory well offshore of Israel, near an area that has seen some massive natural gas discoveries. One well was finished in June; drilled to a depth of 14,000 feet it tapped as much as 800 billion cubic feet of gas. Sounds good, but it will be years before the infrastructure can be put in place to harvest it. Meanwhile ATP has $40 million in costs sunk off the coast of Israel.
Bulmahn says he’d like to retire; he owns a horse farm in Florida and has cashed out $100 million in ATP stock over the years (though, he insists, he’s eschewed $7 million in bonuses granted him since 2009). Earlier in 2012 he hired Matt McCarroll as ATP’s new CEO. McCarroll had expanded deepwater operator Dynamic Offshore Resources and sold it to SandRidge Energy for $1.3 billion. Yet after a week at ATP McCarroll left and rescinded his agreement to buy 1 million shares. The belief is that McCarroll was scared off by Bulmahn’s unwillingness to back a complete overhaul of ATP. Trying to salvage the status quo wasn’t an option. “He wasn’t the right fit,” says Bulmahn. McCarroll declined comment.
So what happens to ATP from here? They have already secured $600 million in debtor-in-possession financing, but after first-lien holders like Michael Dell’s MSD Capital are paid off, that won’t get it very far. Analysts say investors holding common shares, preferreds, convertible bonds and unsecured debt will get wiped out. Buyout bids are welcome.
So at this point, legal claims might be the most valuable asset ATP has left. In addition to the case pending against the U.S. government, ATP is pursuing claims against deep-pocketed BP. Who knows? With luck and lawyers, Bulmahn could still strike something.
More from the archives:
- ATP Oil And Gas Files For Bankruptcy, CEO Blames Obama (zerohedge.com)
- Drilling Moratorium Leads ATP to Chapter 11 (gcaptain.com)
ATP Oil & Gas Corporation today announced that it has resumed recompletion operations at the Mississippi Canyon (MC) 941 A-2 well at the company’s Telemark Hub. The recompletion was suspended while the company recovered a piece of tubing that was stuck in the casing.
All of the tubing has now been removed from the casing. The MC 941 A-2 recompletion operations to perforate and frac-pack the B upper and lower sands are expected to conclude during second quarter 2012. MC 941 is located in the Mirage Field at the Telemark Hub location utilizing the ATP Titan floating drilling and production platform.
ATP operates the ATP Titan and Telemark Hub which is in approximately 4,000 feet of water with a 100% working interest and holds a 100% ownership in ATP Titan LLC which owns the ATP Titan and associated pipelines and infrastructure.
ATP Oil & Gas is an international offshore oil and gas development and production company with operations in the Gulf of Mexico, Mediterranean Sea and the North Sea. The company trades publicly as ATPG on the NASDAQ Global Select Market. For more information about ATP Oil & Gas Corporation.
The oil production rates are gradually being increased as the well goes through the initial stages of production. The early production rate performance has met expectations and the rate of oil production is being increased. Further information will be reported as it becomes available. The MC 942 A-3 well is located on the Morgus Field and is the fourth well brought on production at the Telemark Hub location utilizing the ATP Titan floating drilling and production platform.
ATP operates the deepwater Telemark Hub in approximately 4,000 feet of water with a 100% working interest and holds a 100% ownership in ATP Titan LLC which owns the ATP Titan and associated pipelines and infrastructure.
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- Is President Barack Obama responsible for U.S. oil production rise? (mb50.wordpress.com)
- USA: Stone Energy Buys Interest in Pompano Field from BP (mb50.wordpress.com)
- USA: Helix’s Oil & Gas Revenues Rise on High Prices and Lift in Production (mb50.wordpress.com)
ATP Oil & Gas Corporation yesterday announced an operations update:
Drilling operations at the fourth Telemark Hub well at Mississippi Canyon (MC) Block 942 #2 are complete. ATP encountered 167 feet of new net pay sands above pre-drill estimates. These sands are in addition to the 72 feet of logged net oil pay seen in the original target sand. With this additional pay sand, ATP is modifying completion plans for MC 942 #2 and now expects to complete both hydrocarbon sands and establish production in late January 2012. ATP believes that these new pay sands will have a positive effect on production by extending the production life and third-party reserve estimates associated with MC 942.
Operations continue at the second Clipper well at Green Canyon (GC) Block 300 #4, where ATP has encountered oil pay sands. The well encountered 56 feet of logged net oil pay confirming reserves already booked. Completion operations are underway. Production at Clipper is still scheduled to begin in the third quarter of 2012 upon the completion of a pipeline, which is already under contract.
Third quarter production was 24,200 barrels of oil equivalent (BOE) per day, representing an increase of 14.7% over the same period a year ago.
ATP Chairman and CEO T. Paul Bulmahn stated, “ATP is excited with the drilling results from both the fourth Telemark Hub well, where we have encountered additional net pay sands above our projections, and the second Clipper well, which has now reached its total depth with completion operations underway. This development success demonstrates ATP’s commitment to advancing the company’s production growth, cash flow and asset base. ATP expects to begin production from the fourth Telemark well in the beginning of 2012, followed by additional planned production at Clipper and Gomez projects later in 2012, Entrada in 2013/2014 and Cheviot in 2014. We also look forward to drilling our first deepwater well at Shimshon in offshore Israel in 2012.”
ATP encountered 167 feet of additional net pay sands above pre-drill estimates. These sands are in addition to the 72 feet of logged net oil pay seen in the original target sand at the Morgus well located at MC 942 #2
Because of the considerable additional hydrocarbon-bearing sands, ATP is adjusting its completion plan to include two new gravel packs which will extend the projected completion time to late January 2012, and ATP expects a positive effect on production by extending the production life and third-party reserve estimates associated with MC 942.
The MC Block 942 #2 well, located in approximately 4,000 feet of water, was completed at a measured depth of 21,400 feet in the Miocene S sand at ATP’s deepwater Telemark Hub in the Gulf of Mexico. It is the fourth well that will be tied back to the ATP Titan floating drilling and production platform located at MC Block 941. ATP operates the deepwater Telemark Hub with a 100% working interest and owns 100% of the subsidiary that owns the ATP Titan and associated pipelines and infrastructure.
ATP has encountered oil pay sands at the second Clipper well located at GC 300 in the deepwater Gulf of Mexico. The GC 300 #4 well, located in approximately 3,450 feet of water, encountered 56 feet of logged net oil pay confirming reserves previously booked. The 9-5/8 inch casing has been set at 15,778 feet measured depth through the pay intervals. The well will now be completed and tested. In July 2011, ATP successfully completed and flow tested the first Clipper well, GC 300 #2 ST #1, at a rate of 45.6 MMcf per day and 4,656 Bbls per day. The pipeline lay barge for the Clipper wells is contracted for third quarter 2012 and will tie in both the GC 300 #4 and #2 wells to the Murphy Oil operated Front Runner production facility. ATP operates Clipper and presently owns a 100% working interest.
- USA: Chevron Strikes Oil in Deepwater Gulf of Mexico (mb50.wordpress.com)
- USA: McMoRan Encounters Hydrocarbon Bearing at Lafitte Well (mb50.wordpress.com)
Phase I of the project focuses on the northern part of the greater Telemark area, which includes the Mirage and Morgus fields.
Located on Mississippi Canyon Block 941 in a water depth of 3,800 feet (1,158 meters), the Mirage field was discovered in 1998 when a well encountered roughly 87 feet (27 meters) of hydrocarbons in two sands. The Morgus field is located on Mississippi Canyon Block 942 in 4,304 feet (1,312 meters) of water, and was discovered when drilling encountered approximately 55 feet (17 meters) of net pay.
In an effort to cut costs, ATP decided to jointly develop these fields due to their close proximity. Combined, Mirage and Morgus hold estimated recoverable reserves of 190 Bcf (5 Bcm).
In 2008, the West Sirius semisub drilled three wells on the Mirage and Morgus fields and reached a total depth of 5,900 feet (1,798 meters) in 3,927 feet (1,197 meters) of water.
To develop the Mirage field, Technip received a contract for the flowlines, risers, jumpers and subsea structures. The contract covered engineering for the installation, welding and installation of two steel catenery risers and two oil and gas export flowlines; fabrication and installation of subsea structures and jumpers and pre-commissioning of the project.
Mirage is operated by ATP, which owns a 25% interest; Statoil owns the remaining 75% interest. Morgus is operated by ATP, but Statoil owns 100% of the interest.
Phase II of the project focuses on the Telemark field. Telemark is situated in a water depth of 4,300 feet (1,311 meters) on Atwater Valley Block 63. ATP acquired the field in 2006 and owns 97% interest; BHP Billiton holds 1% interest; Chevron holds 1% interest; and Eni holds the remaining 1% interest.
The field was discovered in 2003 in the southern part of the greater Telemark area when exploratory drilling encountered 140 feet (43 meters) of hydrocarbons in the Miocene sands. The Telemark field was deemed commercially viable shortly after, and ATP began field development preparations.
Situated 7 miles south of the Mirage and Morgus fields, Telemark originally was designed to have its own production hub, a MinDOC II, but the company decided to tie-back the field’s subsea well to the ATP Titan, as well. This development will result in an increase in production rates through ATP Titan in 2010 and 2011.
In May 2009, Bluewater Industries received a contract for the field’s development. The contract covers the design and manufacture of one high-pressure flexible riser measuring 2 miles (3 kilometers) long, and engineering for the installation and welding of one oil and gas production flowline approximately 13 miles (21 kilometers) long. The contact also includes installation of a flowline and associated riser with an option to install an umbilical; fabrication and installation of subsea structures and a jumper; and pre-commissioning of the project.
In 2007, ATP decided to develop the Telemark area with a floating, drilling and production triple-column spar, the ATP Titan, since accessible infrastructure wasn’t nearby. The MinDOC, a deep draft floating platform, is comprised of three columns linked by pontoons, boasting a higher load capacity and enhanced stability than previous designed semisubmersibles or spars.
In 2007, construction of the ATP Titan MinDOC commenced with construction slated to end in the third quarter of 2009. The facility has a design capacity of 25 Mbopd and 60 MMcf/d (2 MMcm/d) and incoporates six dry tree wellheads with three pairs of future subsea flowlines. Mustang Engineering received a contract to provide detailed engineering and procurement support for the topsides production facilities on the ATP Titan.
Towards the end of 2009, ATP Titan was moored at the Mirage and Morgus fields to complete the drilling of three wells to vertical depths of 14,500 to 17,250 feet (4,420 to 5,258 meters). The vessel will serve as the production platform for the life of the fields’ reserves. Then, ATP Titan will move to the Telemark field to recover its remaining reserves once the vessel has finished producing from the Mirage and Morgus fields.
First production from the Telemark Hub commenced on March 28, 2010, and the vessel has an estimated life span of 40 years.
A fourth field that is 100% owned and operated by APT — Oasis — is located on Mississippi Canyon Block 943, and may be tied-back to the platform, pending exploration results.
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