Other Long-Term Obligations

9 Months Ended

Sep. 30, 2011

Other Long-Term Obligations [Abstract]

Other Long-Term Obligations

Note 7 — Other Long-term Obligations

Other long-term obligations consisted of the following (in thousands):

	September 30,			December 31,
	2011			2010
Net profits interests	$	350,073		$	331,776
Dollar-denominated overriding royalty interests		37,944			52,825
Gomez pipeline obligation		73,189			73,868
Vendor deferrals – Gulf of Mexico		10,029			7,096
Vendor deferrals – North Sea		93,202			90,874
Other		2,582			2,582
Total		567,019			559,021
Less current maturities		(153,004	)		(86,521	)
Other long-term obligations	$	414,015		$	472,500

Net Profits Interests

Beginning in 2009, we have granted dollar-denominated overriding royalty interests in the form of net profits interests ("NPIs") in certain of our proved oil and gas properties in and around the Telemark Hub, Gomez Hub and Clipper to certain of our vendors in exchange for oil and gas property development services and to certain finance entities in exchange for cash proceeds. During April 2011, we closed an NPI transaction in the Telemark Hub for $40.0 million. The purchaser acquired an existing vendor NPI for $19.7 million, thereby extinguishing the existing NPI liability of $20.8 million, and contributed an additional $20.3 million toward the development of the Telemark Hub in exchange for a larger percentage of the net profits from production at the Telemark Hub that will continue until the purchaser recovers $40.0 million, plus an overall rate of return.

The interests granted are paid solely from the net profits, as defined, of the subject properties. As the net profits increase or decrease, primarily through higher or lower production levels and higher or lower prices of oil and natural gas, the payments due the holders of the net profits interests increase or decrease accordingly. If there is no production from a property or if the net profits are negative during a payment period, no payment would be required. We also accrete the liability over the estimated term in which the NPI is expected to be settled using the effective interest method with related interest expense presented net of amounts capitalized on the Consolidated Statements of Operations. The term of the NPIs is dependent on the value of the services contributed by these vendors or the cash proceeds contributed by the finance companies coupled with the timing of production and future economic conditions, including commodity prices and operating costs. Upon recovery of the agreed rate of return, the NPIs terminate. Because NPIs were granted on proved properties where production is reasonably assured, we have accounted for these NPI's as financing obligations on our Consolidated Balance Sheets. As such, the reserves and production revenues associated with the NPIs are retained by the Company. We expect approximately 80% of the NPIs to be repaid over the next 18 months based on anticipated production, commodity prices and operating costs.

Dollar-denominated Overriding Royalty Interests

During April and June 2011, we sold, for an aggregate of $50.0 million, two dollar-denominated overriding royalty interests ("Overrides") in our Gomez Hub properties similar to those sold in 2009 and 2010. These Overrides obligate us to deliver proceeds from the future sale of hydrocarbons in the specified proved properties until the purchasers achieve a specified return. As the proceeds from the sale of hydrocarbons increase or decrease, primarily through changes in production levels and oil and natural gas prices, the payments due the holders of the overriding royalty interests will increase or decrease accordingly. If there is no production from a property during a payment period, no payment would be required. The percentage of property revenues available to satisfy these obligations is dependent upon certain conditions specified in the agreement. Upon recovery of the agreed rate of return, the Overrides terminate and our interest increases accordingly. Because of the explicit rate of return, dollar-denomination and limited payment terms of the Overrides, they are reflected in the accompanying financial statements as financing obligations. As such, the reserves and production revenues are retained by the Company. Related interest expense is presented net of amounts capitalized on the Consolidated Statements of Operations. We expect the Overrides to be repaid over approximately the next 18 months based on anticipated production and commodity prices.

Gomez Pipeline Obligation

In 2009, we sold to a third party for net proceeds of $74.5 million the oil and natural gas pipelines that service the Gomez Hub. In conjunction with the sale, we entered into agreements with the purchaser to transport our oil and natural gas production for the remaining production life of our fields serviced by the ATP Innovator production platform for a per-unit fee that is subject to a minimum monthly payment through December 31, 2016. Such minimum fees, if applicable, can be recovered by ATP in future periods within the same calendar year whenever fees owed during a month exceed the minimum due. We remain the operator of the pipeline and are responsible for all of the related operating costs. As a result of the retained asset retirement obligation and the purchaser's option to convey the pipeline back to us at the end of the life of the fields in the Gomez Hub, the transaction has been accounted for as a financing obligation equal to the net proceeds received. This obligation is being amortized based on the estimated proved reserve life of the Gomez Hub properties using the effective interest method with related interest expense presented net of amounts capitalized on the Consolidated Statements of Operations. All payments made in excess of the minimum fee in future periods will be reflected as interest expense of the financing obligation.

Vendor Deferrals

In the Gulf of Mexico, in addition to the NPIs exchanged for development services described above, we have negotiated with certain other vendors involved in the development of the Telemark and Gomez Hubs to partially defer payments over a twelve-month period beginning with first production. We accrue the present value of the deferred payments and accrete the balance over the estimated term in which it is expected to be paid using the effective interest method with related interest expense presented net of amounts capitalized, on the Consolidated Statements of Operations.

In the U.K. North Sea, development of our interest in the Cheviot field continues. During February 2011, we entered into an amendment to our agreement for the construction and delivery of the Octabuoy hull and topside equipment. The amendment provided for additional deferrals totaling approximately $124.3 million and delayed the final payment until the second quarter of 2013. The remaining amount due under the amended agreement in 2011 is $15.6 million (which was paid in the fourth quarter of 2011) with an aggregate of $229.0 million due in 2012 and 2013. As work is completed and amounts are earned under the amended agreement, we record obligations and related interest expense, net of amounts capitalized, on the Consolidated Financial Statements.

The weighted average effective interest rate on our other long-term obligations set forth above was 19.2% at September 30, 2011.