ATPG » Topics » Note 3 - Oil and Gas Properties

This excerpt taken from the ATPG 10-Q filed May 11, 2009.

Note 5 — Oil and Gas Properties

Acquisitions

During the first quarter of 2009, we were the high bidder on Green Canyon Block 344, a lease south of our Green Canyon Blocks 299 and 300 (collectively “Clipper”) properties in the Gulf of Mexico. The acquisition is expected to cost $0.3 million and is expected to close in June 2009, subject to U.S. Department of Interior Minerals Management Service (“MMS”) approval. We will have a working interest in the lease of between 100% and 55.3%, depending on whether other parties with working interests in nearby leases elect to exercise their right to share in this acquisition.

During the first quarter of 2008, we were awarded leases for 100% of the working interests in Viosca Knoll Block 863 and De Soto Canyon Block 355 by the MMS. The aggregate cash acquisition price for these leases was $0.7 million.

Formation of Limited Partnership

On March 6, 2009, along with GE Energy Financial Services (“GE”), we formed ATP-IP to own the ATP Innovator, the floating production facility that currently serves our Mississippi Canyon Block 711 Gomez Hub properties. We contributed the ATP Innovator in exchange for a 49% subordinated limited partner interest and a 2% general partner interest. GE paid $150.0 million to ATP-IP for a 49% Class A limited partner interest. At March 31, 2009, $13.5 million of that cash remained restricted and was released to us in April 2009 once certain conditions agreed to at closing were met. We remain the operator and continue to hold a 100% working interest in the Gomez field and its oil and gas reserves.

The transaction was effective June 1, 2008 and allows us exclusive use of the ATP Innovator during the term of the Platform Use Agreement (“PUA”), which is expected to be the economic life of the Gomez Hub reserves. During the term of the PUA, we are obligated to pay to ATP-IP a per unit fee for all hydrocarbons processed by the ATP Innovator and may be subject to a minimum fee of $53,000 per day for up to 180 days. Such minimum fees, if applicable, can be recovered in future periods whenever fees owed during a month exceed the minimum due. We made no performance guarantees to GE and the ultimate fees earned by ATP-IP beyond the minimum fees will be determined by the volumes of hydrocarbons processed through the facility. During the term of the PUA, we are responsible for all of the operating costs and periodic maintenance of the ATP Innovator. ATP-IP will pay us a monthly fee for certain administrative services we will provide to the partnership. Additionally, we will share pro rata in partnership net income and regular minimum quarterly cash distributions in accordance with the provisions of the ATP-IP partnership agreement.

We created three wholly owned limited liability companies (the “LLCs”) to own our interests in ATP-IP, and as the General Partner we consolidate ATP-IP and the LLCs. The contribution of the ATP Innovator was accounted for as a transfer of assets between entities under common control. Accordingly, ATP-IP recorded the ATP Innovator at its carryover cost basis and no gain or loss was recognized. We have historically subjected the ATP Innovator costs to units-of-production depletion over the proved reserves attributable to our Gomez Hub. ATP-IP owns no reserves and recognizes depreciation expense for the ATP Innovator on a straight-line basis over an estimated useful life of 25 years. We incurred costs associated with the formation of the partnership of approximately $3.4 million which were charged to general and administrative expense.

Under U.S. federal income tax laws, ATP-IP is not a taxable entity and all distributable items of income and deductible expenses flow through to the partners in accordance with the agreements. Additionally, the new LLCs we formed are all wholly owned, and as such are disregarded entities for U.S. federal income tax purposes.

 

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(Unaudited)

 

Impairment of oil and Gas Properties

During first quarter 2009, we recorded impairment expense of $8.0 million related to a Gulf of Mexico shelf property. The impairment was primarily due to relinquishment of a lease related to poor operating performance. All of the carrying costs related to this property have been written off to impairment expense. We also recorded a $1.0 million loss on abandonment related to this property.

These excerpts taken from the ATPG 10-K filed Mar 13, 2009.

Oil and Gas Properties

We account for our oil and gas property costs using the successful efforts accounting method. Under the successful efforts method, lease acquisition costs and intangible drilling and development costs on successful wells and development dry holes are capitalized. Costs of drilling exploratory wells are initially capitalized, but charged to expense if and when a well is determined to be unsuccessful.

Capitalized proved property acquisition costs are depleted on the unit-of-production method on the basis of total estimated units of proved reserves. Capitalized costs relating to producing properties are depleted on the unit-of-production method on the basis of total estimated units of proved developed reserves. When significant development costs (such as the cost of an off-shore production platform) are incurred in connection with a planned group of development wells before all of the planned wells have been drilled, it is occasionally necessary to exclude a portion of those development costs in determining the unit-of-production amortization rate until the additional development wells are drilled. However, in no case are future development costs anticipated in computing our amortization rate. Estimated dismantlement, restoration and abandonment costs and estimated residual salvage values are taken into account in determining amortization and depletion provisions. Expenditures for geological and geophysical testing costs are generally charged to expense unless

 

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the costs can be specifically attributed to mapping a proved reservoir and determining the optimal placement for future developmental well locations. Expenditures for repairs and maintenance are charged to expense as incurred; renewals and betterments are capitalized. The costs and related accumulated depreciation, depletion, and amortization of properties sold or otherwise retired are eliminated from the accounts, and gains or losses on disposition are reflected in the statements of operations.

We perform impairment analysis whenever events or changes in circumstances indicate that an asset’s carrying amount may not be recoverable. To determine if a depletable unit is impaired, we compare the carrying value of the depletable unit to the undiscounted future net cash flows by applying management’s estimates of future oil and gas prices to the estimated future production of oil and gas reserves over the economic life of the property and deducting future costs. Future net cash flows are based upon reservoir engineers’ estimates of proved reserves. In addition, other factors such as probable and possible reserves are taken into consideration when justified by economic conditions and actual or planned drilling or other development activities. For a property determined to be impaired, an impairment loss equal to the difference between the carrying value and the estimated fair value of the impaired property will be recognized. Fair value, on a depletable unit basis, is estimated to be the present value of the aforementioned expected future net cash flows. Unproved properties are assessed periodically to determine whether they have been impaired. An impairment allowance is provided on an unproved property when we determine that the property will not be developed. Any impairment charge incurred is recorded in accumulated depletion, impairment and amortization to reduce our recorded basis in the asset. Each part of this calculation is subject to a large degree of judgment, including the determination of the depletable units’ estimated reserves, future net cash flows and fair value.

We recorded impairments during the years ended December 31, 2008, 2007 and 2006 totaling $124.7 million, $34.1 million and $18.5 million, respectively, on certain proved Gulf of Mexico shelf properties, primarily due to reduced commodity prices and reductions in estimates of recoverable reserves. Impairments of unproved properties were $0.4 million, $0.2 million and $1.0 million 2008, 2007 and 2006, respectively, related to surrendered leases.

Management’s assumptions used in calculating oil and gas reserves or regarding the future cash flows or fair value of our properties are subject to change in the future. Any change could cause impairment expense to be recorded, impacting our net income or loss and our basis in the related asset. Any change in reserves directly impacts our estimate of future cash flows from the property, as well as the property’s fair value. Additionally, as commodity price forecasts change, so too will the estimate of future net cash flows and the fair value estimates. Changes in either of these amounts will directly impact the calculation of impairment.

Note 5 — Oil and Gas Properties

Acquisitions

During 2008, we acquired in the Gulf of Mexico a 100% working interest in Mississippi Canyon (“MC”) Block 304, now part of our Canyon Express Hub, and a 55% working interest in Green Canyon Blocks 299 and 300 (collectively, “Clipper”). Also during this period, we were awarded leases for 100% of the working interests in Viosca Knoll Block 863, De Soto Canyon Block 355, immediately east of our Canyon Express Hub, and Atwater Valley Blocks 19 and 62, both additions to our Telemark Hub, by the U.S. Department of Interior Minerals Management Service. The total cash paid for these acquisitions was $1.8 million.

During 2007, we acquired undeveloped and developed minerals in place for an aggregate net purchase price of $40.6 million. Significant acquisitions are discussed below.

During 2007, we completed the acquisition of a 50% working interest in Mississippi Canyon (“MC”) Block 305 (“Aconcagua”), a 16.67% working interest in MC Block 348 (“Camden Hills”), and an additional interest in the Canyon Express Pipeline Common System (“Canyon Express”). Both Aconcagua and Camden

 

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Hills, along with MC Block 217 (“King’s Peak”) produce through Canyon Express. Also in 2007, we increased our ownership in Camden Hills by 50.03% in exchange for the assumption of future abandonment liability for which the seller is obligated to pay ATP a total of $12.5 million upon abandonment of the property. Consequently, we recognized a $10.8 million long-term receivable, an asset retirement obligation of $8.3 million and $2.6 million of deferred revenue. As a result of the acquisitions, we now hold a 66.7% working interest in Camden Hills and a 55.09% working interest in the Canyon Express where we are the operator.

Also during 2007, we completed the acquisition of a 100% working interest in the northwest quarter of MC Block 755 (“Anduin”), a 25% working interest in MC Block 754 (“Anduin West”), and a 10% working interest in MC Block 800 (“Gladden”). These properties are located in the vicinity of the MC Block 711 (“Gomez”) development and, if successful, are expected to produce through the ATP Innovator floating production facility. A portion of the acquisition price of MC Block 755 was financed by the seller. The financing was full recourse and initially due on December 31, 2009. However, the amount due was converted to a net profits interest at the time of initial production. As of December 31, 2008, the amount outstanding under the net profits interest was $9.5 million and is included in current liabilities on the consolidated balance sheet.

Other acquisitions in 2007 included Ship Shoal Block 350 and additional interests at South Timbalier Block 77 and High Island Block 74. We were the apparent high bidder and we subsequently acquired a 100% working interest in High Island Block A-580 and East Breaks Block 563 at the MMS offshore lease sale. At the October 2007 MMS lease sale we were the apparent high bidder on two blocks, De Soto Canyon Block 355, immediately east of the Canyon Express area, and Viosca Knoll Block 863. Both of these blocks were subsequently awarded to ATP in 2008.

Dispositions

During the second quarter of 2008, we completed the sale of 5.76 Bcfe of proved Gulf of Mexico reserves in the form of a 15% limited-term overriding royalty interest for $82.0 million. The interest is carved out of our net revenue interests in production from MC Blocks 711, 754, 755 and 800. In accordance with SFAS No. 19, “Financial Accounting and Reporting by Oil & Gas Producing Companies,” the sale is accounted for as a volumetric production payment. The net proceeds received were recorded as deferred revenue to be recognized in earnings as the production is delivered and is presented on the consolidated statements of cash flows as proceeds from disposition of oil and gas properties. The reserves associated with the interest have been removed from our proved oil and natural gas reserves.

During October 2008 we finalized a sale to EDF Production UK Limited (“EDF”) of 80% of our working interests in certain producing natural gas properties, leasehold acreage and gathering infrastructures, all located in the U.K. North Sea at the Tors and Wenlock fields. The sale is effective July 1, 2008. The closing of the transaction occurred on December 18, 2008, after which we own a 20% working interest in the Wenlock field and a 17% working interest in the Tors field. The cash received for these assets was £258.2 million (approximately $389.2 million as of the close date) after deducting £6.8 million for transaction costs and fees and adjustment for each party’s share of production proceeds received and expenses paid for periods after July 1, 2008. These assets had a net book value of $270.1 million. In conjunction with this sale, we terminated certain fixed-price physical gas forward sale contracts. We recorded a $119.1 million gain related to this sale.

The parties also entered into a Call Option Agreement in which we granted EDF the option to acquire the remaining 20% of our working interests in the Wenlock and Tors fields. The minimum purchase price payable under the Call Option Agreement was £72.4 million (approximately $104.8 million as of December 31, 2008), subject to being increased based on natural gas prices at the time the option is exercised. The option expired unexercised in February 2009.

 

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Note 5 — Oil and Gas Properties

FACE="Times New Roman" SIZE="2">Acquisitions

During 2008, we acquired in the Gulf of Mexico a 100% working interest in Mississippi
Canyon (“MC”) Block 304, now part of our Canyon Express Hub, and a 55% working interest in Green Canyon Blocks 299 and 300 (collectively, “Clipper”). Also during this period, we were awarded leases for 100% of the working
interests in Viosca Knoll Block 863, De Soto Canyon Block 355, immediately east of our Canyon Express Hub, and Atwater Valley Blocks 19 and 62, both additions to our Telemark Hub, by the U.S. Department of Interior Minerals Management Service. The
total cash paid for these acquisitions was $1.8 million.

During 2007, we acquired undeveloped and developed minerals in place for an
aggregate net purchase price of $40.6 million. Significant acquisitions are discussed below.

During 2007, we completed the acquisition of
a 50% working interest in Mississippi Canyon (“MC”) Block 305 (“Aconcagua”), a 16.67% working interest in MC Block 348 (“Camden Hills”), and an additional interest in the Canyon Express Pipeline Common System
(“Canyon Express”). Both Aconcagua and Camden

 


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Hills, along with MC Block 217 (“King’s Peak”) produce through Canyon Express. Also in 2007, we increased our ownership in Camden Hills by
50.03% in exchange for the assumption of future abandonment liability for which the seller is obligated to pay ATP a total of $12.5 million upon abandonment of the property. Consequently, we recognized a $10.8 million long-term receivable, an asset
retirement obligation of $8.3 million and $2.6 million of deferred revenue. As a result of the acquisitions, we now hold a 66.7% working interest in Camden Hills and a 55.09% working interest in the Canyon Express where we are the operator.

Also during 2007, we completed the acquisition of a 100% working interest in the northwest quarter of MC Block 755 (“Anduin”), a
25% working interest in MC Block 754 (“Anduin West”), and a 10% working interest in MC Block 800 (“Gladden”). These properties are located in the vicinity of the MC Block 711 (“Gomez”) development and, if successful,
are expected to produce through the ATP Innovator floating production facility. A portion of the acquisition price of MC Block 755 was financed by the seller. The financing was full recourse and initially due on December 31, 2009.
However, the amount due was converted to a net profits interest at the time of initial production. As of December 31, 2008, the amount outstanding under the net profits interest was $9.5 million and is included in current liabilities on the
consolidated balance sheet.

Other acquisitions in 2007 included Ship Shoal Block 350 and additional interests at South Timbalier Block 77
and High Island Block 74. We were the apparent high bidder and we subsequently acquired a 100% working interest in High Island Block A-580 and East Breaks Block 563 at the MMS offshore lease sale. At the October 2007 MMS lease sale we were the
apparent high bidder on two blocks, De Soto Canyon Block 355, immediately east of the Canyon Express area, and Viosca Knoll Block 863. Both of these blocks were subsequently awarded to ATP in 2008.

STYLE="margin-top:18px;margin-bottom:0px">Dispositions

During the second quarter of 2008, we
completed the sale of 5.76 Bcfe of proved Gulf of Mexico reserves in the form of a 15% limited-term overriding royalty interest for $82.0 million. The interest is carved out of our net revenue interests in production from MC Blocks 711, 754, 755 and
800. In accordance with SFAS No. 19, “Financial Accounting and Reporting by Oil & Gas Producing Companies,” the sale is accounted for as a volumetric production payment. The net proceeds received were recorded as deferred
revenue to be recognized in earnings as the production is delivered and is presented on the consolidated statements of cash flows as proceeds from disposition of oil and gas properties. The reserves associated with the interest have been removed
from our proved oil and natural gas reserves.

During October 2008 we finalized a sale to EDF Production UK Limited (“EDF”) of
80% of our working interests in certain producing natural gas properties, leasehold acreage and gathering infrastructures, all located in the U.K. North Sea at the Tors and Wenlock fields. The sale is effective July 1, 2008. The closing of the
transaction occurred on December 18, 2008, after which we own a 20% working interest in the Wenlock field and a 17% working interest in the Tors field. The cash received for these assets was £258.2 million (approximately $389.2
million as of the close date) after deducting £6.8 million for transaction costs and fees and adjustment for each party’s share of production proceeds received and expenses paid for periods after July 1, 2008. These assets had a
net book value of $270.1 million. In conjunction with this sale, we terminated certain fixed-price physical gas forward sale contracts. We recorded a $119.1 million gain related to this sale.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">The parties also entered into a Call Option Agreement in which we granted EDF the option to acquire the remaining 20% of our working interests in the
Wenlock and Tors fields. The minimum purchase price payable under the Call Option Agreement was £72.4 million (approximately $104.8 million as of December 31, 2008), subject to being increased based on natural gas prices at the time
the option is exercised. The option expired unexercised in February 2009.

 


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This excerpt taken from the ATPG 10-Q filed Nov 10, 2008.

Note 4 — Oil and Gas Properties

Acquisitions

During the first nine months of 2008, we acquired in the Gulf of Mexico a 100% working interest in Mississippi Canyon (“MC”) Block 304 and a 55% working interest in Green Canyon Blocks 299 and 300 (collectively, “Clipper”). Also during this period, we were awarded leases for 100% of the working interests in Viosca Knoll Block 863, De Soto Canyon Block 355 and Atwater Valley Blocks 19 and 62 by the U.S. Department of Interior Minerals Management Service. The total paid for these acquisitions was $1.8 million.

During the first nine months of 2007, we completed the acquisition of a 100% working interest in the northwest quarter of MC Block 755, a 25% working interest in MC Block 754, and a 10% working interest in MC Block 800. A portion of the acquisition price of MC Block 755 was financed by the seller. The financing was full recourse and initially due on December 31, 2009. However, the amount due was converted to a net profits interest at the time of initial production. As of September 30, 2008, the amount outstanding under the net profits interest was $11.2 million and was included in current liabilities on the consolidated balance sheet.

Dispositions

During the second quarter of 2008, we completed the sale of 5.76 Bcfe of proved reserves in the form of a 15% limited-term overriding royalty interest for $82.0 million. The interest is carved out of our net revenue interests in production from MC Blocks 711, 754, 755 and 800. In accordance with SFAS No. 19, “Financial Accounting and Reporting by Oil & Gas Producing Companies,” the sale is accounted for as a volumetric production payment. The net proceeds received were recorded as deferred revenue to be recognized in earnings as the production is delivered and is presented on the consolidated statements of cash flows as proceeds from disposition of oil and gas properties. The reserves associated with the interest have been removed from our proved oil and natural gas reserves.

See also Note 13-Subsequent Events.

This excerpt taken from the ATPG 10-Q filed Aug 8, 2008.

Note 4 — Oil and Gas Properties

Acquisitions

During the first half of 2008, we acquired a 100% working interest in Mississippi Canyon (“MC”) Block 304 and a 55% working interest in Green Canyon Blocks 299 and 300 (“Clipper”). Also during this period, we were awarded leases for 100% of the working interests in Viosca Knoll Block 863 and De Soto Canyon Block 355 by the U.S. Department of Interior Minerals Management Service. The total cash paid for these acquisitions was $1.2 million.

During the first half of 2007, we completed the acquisition of a 100% working interest in the northwest quarter of MC Block 755, a 50% working interest in MC Block 754, and a 25% working interest in MC Block 800. A portion of the acquisition price of MC Block 755 was financed by granting an interest in its future net profits. As of June 30, 2008, the amount outstanding under the net profits interest was $13.7 million and is included in current liabilities on the consolidated balance sheet. During the first quarter of 2008, we reduced our working interests in MC Block 754 from 50% to 25% and in MC Block 800 from 25% to 10%.

 

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Dispositions

During the second quarter of 2008, we completed the sale of 5.76 Bcfe of proved reserves in the form of a 15% limited-term overriding royalty interest for $82.0 million. The interest is carved out of our net revenue interests in production from MC Blocks 711, 754, 755 and 800. In accordance with SFAS No. 19, “Financial Accounting and Reporting by Oil & Gas Producing Companies,” the sale is accounted for as a volumetric production payment. The net proceeds received were recorded as deferred revenue to be recognized in earnings as the production is delivered and is presented on the consolidated statements of cash flows as proceeds from disposition of oil and gas properties. The reserves associated with the interest have been removed from our proved oil and natural gas reserves.

This excerpt taken from the ATPG 10-Q filed May 12, 2008.

Note 4 — Oil and Gas Properties

During the three months ended March 31, 2008, we were awarded leases for 100% of the working interests in Viosca Knoll Block 863 and De Soto Canyon Block 355 by the U.S. Department of Interior Minerals Management Service. The aggregate cash acquisition price for these leases was $0.7 million.

During the three months ended March 31, 2007, we completed the acquisition of a 100% working interest in the northwest quarter of Mississippi Canyon (“MC”) Block 755, a 50% working interest in MC Block 754, and a 25% working interest in MC Block 800. During the first quarter of 2008 we subsequently reduced our working interests in MC Block 754 from 50% to 25% and in MC Block 800 from 25% to 10%. A portion of the acquisition price of MC Block 755 was financed by granting an interest in its future net profits.

 

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These excerpts taken from the ATPG 10-K filed Mar 7, 2008.

Oil and Gas Properties

We account for our oil and gas property costs using the successful efforts accounting method. Under the successful efforts method, lease acquisition costs and intangible drilling and development costs on successful wells and development dry holes are capitalized. Costs of drilling exploratory wells are initially capitalized, but charged to expense if and when a well is determined to be unsuccessful.

Capitalized proved property acquisition costs are depleted on the unit-of-production method on the basis of total estimated units of proved reserves. Capitalized costs relating to producing properties are depleted on the unit-of-production method on the basis of total estimated units of proved developed reserves. When significant development costs (such as the cost of an off-shore production platform) are incurred in connection with a planned group of development wells before all of the planned wells have been drilled, it is occasionally necessary to exclude a portion

 

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of those development costs in determining the unit-of-production amortization rate until the additional development wells are drilled. However, in no case are future development costs anticipated in computing our amortization rate. Estimated dismantlement, restoration and abandonment costs and estimated residual salvage values are taken into account in determining amortization and depletion provisions. Expenditures for geological and geophysical testing costs are generally charged to expense unless the costs can be specifically attributed to mapping a proved reservoir and determining the optimal placement for future developmental well locations. Expenditures for repairs and maintenance are charged to expense as incurred; renewals and betterments are capitalized. The costs and related accumulated depreciation, depletion, and amortization of properties sold or otherwise retired are eliminated from the accounts, and gains or losses on disposition are reflected in the statements of operations.

We perform an impairment analysis whenever events or changes in circumstances indicate that an asset’s carrying amount may not be recoverable. To determine if a depletable unit is impaired, we compare the carrying value of the depletable unit to the undiscounted future net cash flows by applying management’s estimates of future oil and gas prices to the estimated future production of oil and gas reserves over the economic life of the property. Future net cash flows are based upon reservoir engineers’ estimates of proved reserves. In addition, other factors such as probable and possible reserves are taken into consideration when justified by economic conditions and actual or planned drilling or other development activities. For a property determined to be impaired, an impairment loss equal to the difference between the carrying value and the estimated fair value of the impaired property will be recognized. Fair value, on a depletable unit basis, is estimated to be the present value of the aforementioned expected future net cash flows. An impairment allowance is provided on an unproved property when we determine that the property will not be developed. Any impairment charge incurred is recorded in accumulated depletion, impairment and amortization to reduce our recorded basis in the asset. Each part of this calculation is subject to a large degree of judgment, including the determination of the depletable units’ estimated reserves, future net cash flows and fair value. We recorded impairments during the years ended December 31, 2007, 2006 and 2005, totaling $34.1 million, $18.5 million and $0, respectively, on certain proved properties, primarily due to unfavorable operating performance resulting in downward revisions of recoverable reserves. Impairments of unproved properties were $0.2, $1.0 million and $0 during 2007, 2006, 2005, respectively, related to surrendered leases.

Oil and Gas Properties

We account for
our oil and gas property costs using the successful efforts accounting method. Under the successful efforts method, lease acquisition costs and intangible drilling and development costs on successful wells and development dry holes are capitalized.
Costs of drilling exploratory wells are initially capitalized, but charged to expense if and when a well is determined to be unsuccessful.

SIZE="2">Capitalized proved property acquisition costs are depleted on the unit-of-production method on the basis of total estimated units of proved reserves. Capitalized costs relating to producing properties are depleted on the unit-of-production
method on the basis of total estimated units of proved developed reserves. When significant development costs (such as the cost of an off-shore production platform) are incurred in connection with a planned group of development wells before all of
the planned wells have been drilled, it is occasionally necessary to exclude a portion

 


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of those development costs in determining the unit-of-production amortization rate until the additional development wells are drilled. However, in no case
are future development costs anticipated in computing our amortization rate. Estimated dismantlement, restoration and abandonment costs and estimated residual salvage values are taken into account in determining amortization and depletion
provisions. Expenditures for geological and geophysical testing costs are generally charged to expense unless the costs can be specifically attributed to mapping a proved reservoir and determining the optimal placement for future developmental well
locations. Expenditures for repairs and maintenance are charged to expense as incurred; renewals and betterments are capitalized. The costs and related accumulated depreciation, depletion, and amortization of properties sold or otherwise retired are
eliminated from the accounts, and gains or losses on disposition are reflected in the statements of operations.

We perform an impairment
analysis whenever events or changes in circumstances indicate that an asset’s carrying amount may not be recoverable. To determine if a depletable unit is impaired, we compare the carrying value of the depletable unit to the undiscounted future
net cash flows by applying management’s estimates of future oil and gas prices to the estimated future production of oil and gas reserves over the economic life of the property. Future net cash flows are based upon reservoir engineers’
estimates of proved reserves. In addition, other factors such as probable and possible reserves are taken into consideration when justified by economic conditions and actual or planned drilling or other development activities. For a property
determined to be impaired, an impairment loss equal to the difference between the carrying value and the estimated fair value of the impaired property will be recognized. Fair value, on a depletable unit basis, is estimated to be the present value
of the aforementioned expected future net cash flows. An impairment allowance is provided on an unproved property when we determine that the property will not be developed. Any impairment charge incurred is recorded in accumulated depletion,
impairment and amortization to reduce our recorded basis in the asset. Each part of this calculation is subject to a large degree of judgment, including the determination of the depletable units’ estimated reserves, future net cash flows and
fair value. We recorded impairments during the years ended December 31, 2007, 2006 and 2005, totaling $34.1 million, $18.5 million and $0, respectively, on certain proved properties, primarily due to unfavorable operating performance
resulting in downward revisions of recoverable reserves. Impairments of unproved properties were $0.2, $1.0 million and $0 during 2007, 2006, 2005, respectively, related to surrendered leases.

STYLE="margin-top:18px;margin-bottom:0px">Asset Retirement Obligation

We recognize liabilities
associated with the eventual retirement of tangible long-lived assets, upon the acquisition, construction and development of the assets. We record the fair value of a liability for an asset retirement obligation in the period in which it is incurred
and a corresponding increase in the carrying amount of the related long-lived asset.

We will recognize (i) depletion expense on the
additional capitalized costs; (ii) accretion expense as the present value of the future asset retirement obligation increases with the passage of time, and; (iii) the impact, if any, of changes in estimates of the liability. During the
second half of 2007, vendor prices for services and equipment related to asset retirement operations in the Gulf of Mexico increased significantly relative to expectations. Consequently, we revised our estimates of retirement costs for our oil and
gas properties. The following table sets forth a reconciliation of the beginning and ending asset retirement obligation (in thousands):

 














































































































































































    December 31, 
   2007  2006  2005 

Asset retirement obligation, beginning of year

  $108,389  $67,364  $24,923 

Liabilities incurred

   31,471   34,984   43,685 

Liabilities settled

   (19,941)  (2,998)  (3,730)

Accretion expense

   12,117   8,076   3,238 

Foreign currency translation

   874   2,570   (525)

Changes in estimates

   53,861   (1,607)  217 

Liabilities settled – assets sold

   —     —     (444)
             

Asset retirement obligation, end of year

  $186,771  $108,389  $67,364 
             

 


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This excerpt taken from the ATPG 10-Q filed Nov 8, 2007.

Note 7—Oil and Gas Properties

Acquisitions

During January 2007, we completed the acquisition of a 50% working interest in Mississippi Canyon (“MC”) Block 305 (“Aconcagua”), a 16.67% working interest in MC Block 348 (“Camden Hills”), and an additional interest in the Canyon Express Pipeline Common System (“Canyon Express”). Both Aconcagua and Camden Hills, along with MC 217 (“King’s Peak”) produce through Canyon Express, in which we now own a 45.084% working interest as a result of this acquisition. We are the operator of Canyon Express. During January 2007, we completed the acquisition of a 100% working interest in the northwest quarter of MC Block 755 (“Anduin”), a 50% working interest in MC Block 754 (“Anduin West”), and a 25% working interest in MC Block 800 (“Gladden”). These properties are located in the vicinity of the MC Block 711 (“Gomez”) development and, if successful, are expected to produce through the ATP Innovator floating production facility. The aggregate net acquisition price for these properties was $27.2 million. A portion of the acquisition price of one property was financed by granting an interest in the future net profits, discounted to $24.3 million as of September 30, 2007.

During July 2007, we acquired the remaining 22% working interest in South Timbalier 77, an additional 44% working interest in High Island 74 and a 100% working interest in Ship Shoal 350. During August 2007, we were the apparent high bidder and we subsequently acquired a 100% working interest in High Island Block A-580 and East Breaks Block 563 at an MMS offshore lease sale. The accompanying financial statements reflect an aggregate cash purchase price for these properties of $7.0 million.

Capitalized Interest

During the quarter, we capitalized $3.6 million of interest costs to oil and gas properties related to the construction of a floating production system at our Mississippi Canyon 941/942 and Atwater Valley 63 properties in the Gulf of Mexico.

Impairment

We recorded impairment of oil and gas properties totaling $4.0 million and $5.8 million during the third and second quarters of 2007, respectively, related to properties in the Gulf of Mexico. These amounts represent the remaining carrying cost of those properties, and resulted from a well becoming nonproductive and the surrender of the lease, respectively.

 

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ATP OIL & GAS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

This excerpt taken from the ATPG 10-Q filed Aug 9, 2007.

Note 7 — Oil and Gas Properties

Acquisitions

On January 8, 2007, we completed the acquisition of a 50% working interest in Mississippi Canyon (“MC”) Block 305 (“Aconcagua”), a 16.67% working interest in MC Block 348 (“Camden Hills”), and an additional interest in the Canyon Express Pipeline Common System (“Canyon Express”). Both Aconcagua and Camden Hills, along with MC 217 (“King’s Peak”) produce through Canyon Express, in which we now own a 45.084% working interest as a result of this acquisition. ATP is the operator of Canyon Express. On January 23, 2007, we completed the acquisition of a 100% working interest in the northwest quarter of MC Block 755 (“Anduin”), a 50% working interest in MC Block 754 (“Anduin West”), and a 25% working interest in MC Block 800 (“Gladden”). These properties are located in the vicinity of the MC Block 711 (“Gomez”) development and are expected to produce through the ATP Innovator floating production facility. The aggregate net acquisition price for these properties was $27.2 million. A portion of the acquisition price of one property was financed by granting an interest in the future net profits, discounted to $23.7 million as of June 30, 2007.

Impairment

We recorded an impairment of oil and gas properties for second quarter of 2007 totaling $5.8 million related to one property in the Gulf of Mexico. This amount represents the remaining carrying cost of that property, and was the result of the surrender of the lease.

 

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ATP OIL & GAS CORPORATION AN D SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

This excerpt taken from the ATPG 10-Q filed Nov 7, 2006.

Note 3 — Oil and Gas Properties

During the third quarter of 2006, ATP acquired 100% of the working interest in Atwater Valley Block 63 and the remaining 25% working interest not previously acquired in Mississippi Canyon (“MC”) Blocks 941 and 943. During the second quarter of 2006, ATP acquired 75% of the working interest in MC Blocks 941 and 943, and

 

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100% of the working interest in MC Block 942. During the first quarter of 2006, ATP acquired 100% of the working interest in Green Canyon Block 37. The total cash consideration paid for acquisitions during the nine months ended September 30, 2006 was $33.3 million.

During October 2005, ATP acquired substantially all of the oil and gas assets of a privately held company, consisting of 19 blocks located on the Gulf of Mexico Outer Continental Shelf. The final adjustments to the purchase price were recorded during the three months ended September 30, 2006. The final adjusted purchase price was $41.7 million in cash, plus net liabilities assumed totaling an estimated $28.9 million for future property abandonment operations. The purchase price was allocated $65.6 million to proved oil and gas property and $5.0 million to unproved property.

In accordance with SFAS No. 144, “Accounting for the Impairments or Disposal of Long-Lived Assets,” we review our oil and gas properties for impairment. During the three and nine months ended September 30, 2006, we recorded an impairment of certain of our oil and gas properties totaling $11.8 million, representing the excess carrying costs over the discounted present values of the estimated future production from those properties.

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