Atlas Energy, L.P. (NYSE: ATLS) (“Atlas Energy” or “ATLS”) today reported operating and financial results for the third quarter 2013.

Edward E. Cohen, Chief Executive Officer of Atlas Energy, stated, “We continue our commitment to providing leading returns to our unitholders, as we have realized the highest total return in the MLP industry over the past several years. This has been possible due to the extraordinary growth of our subsidiaries, Atlas Resource and Atlas Pipeline, who have both substantially grown organically and have completed a combined $3.0 billion in accretive acquisitions over the past 18 months.”

ATLS declared a cash distribution of $0.46 per limited partner unit for the third quarter 2013, which represents a $0.02 per unit, or 4.5%, increase over the second quarter 2013, and a 70% increase over the prior year third quarter. The third quarter 2013 ATLS distribution will be paid on November 19, 2013 to holders of record as of November 6, 2013.

Distributions from Subsidiaries
  • On October 24, 2013, Atlas Resource Partners, L.P. (NYSE: ARP), Atlas Energy’s E&P subsidiary, increased its quarterly cash distribution to $0.56 per unit for the third quarter 2013, a 4% increase from ARP’s second quarter 2013 distribution, and a 30% increase over the prior year third quarter distribution. ATLS will receive approximately $16.3 million of cash distributions based upon ARP’s third quarter 2013 distribution.
  • On October 23, 2013, Atlas Pipeline Partners, L.P. (NYSE: APL), Atlas Energy’s midstream subsidiary, declared a distribution for the third quarter 2013 of $0.62 per unit, a 9% increase from APL’s prior year quarter. ATLS will receive approximately $9.6 million of cash distributions based upon APL’s third quarter 2013 distribution.

Recent Events

Atlas Pipeline Mid Continent Expansion Projects

APL recently announced several new expansion projects to its existing natural gas gathering and processing systems in the Mid Continent. APL has approved to extend the WestTX gathering system's footprint further into Martin County, Texas through a series of growth projects which will service the anticipated needs of their producer customers. APL will lay a high pressure gathering line into Martin County as well as add compression to increase utilization of WestTX's existing assets, including the recently announced Edward plant. In addition, this extension of the WestTX system is expected to accelerate APL’s need to install additional processing capacity, potentially by the end of 2015.

In the Woodford Shale in Southern Oklahoma, activity behind both the Velma and Arkoma systems continues to increase, namely from the emerging South Central Oklahoma Oil Province (SCOOP) play, which has attracted significant producer interest. APL has entered into fixed fee arrangements with some of these producers and, as a result, intends to add gathering infrastructure at an expected cost of $40 million to facilitate this anticipated growth. The Velma system's processing capacity today is fully utilized, and APL intends to provide capacity for the incremental SCOOP production by laying approximately 55 miles of pipeline between the Velma system and the Arkoma system. The Arkoma system is nearly fully utilized today, but will expand by an additional 120 million cubic feet per day (Mmcfd) upon installation of the Stonewall plant, expected in the first quarter of 2014. The Stonewall plant is expandable to 200 Mmcfd with minimal capital outlay.

Arc Logistics Partners LP Initial Public Offering

On November 6, 2013, Arc Logistics Partners, LP (ARCX), a master limited partnership which is involved in terminalling, storage, throughput and transloading of crude oil and petroleum products, began trading publicly on the New York Stock Exchange under the ticker symbol “ARCX”. ARCX’s cash flows are primarily fee-based under multi-year contracts, and their assets are located on the East Coast, Gulf Coast and Midwest regions of the U.S. Lightfoot Capital Partners, LP (“Lightfoot”), a private partnership, owns and controls the general partner of ARCX. Atlas Energy owns an approximate 16% interest in Lightfoot’s general partner, as well as an approximate 12% limited partner interest in Lightfoot. Atlas Energy expects to benefit from its interest in Lightfoot’s general partner as ARCX’s operations grow and distributions to unitholders increase in the future.

Atlas Resource Third Quarter 2013 Highlights

ARP’s average net daily production for the third quarter 2013 was approximately 261.4 million cubic feet of natural gas equivalents per day (“Mmcfed”), an increase of approximately 96% from the second quarter 2013. The increase in net production from the second quarter 2013 was due primarily to the recently acquired producing assets from EP Energy in July 2013, located in the Raton Basin (New Mexico), Black Warrior Basin (Alabama) and County Line region (Wyoming). Production also increased from additional wells connected in the third quarter in several of ARP’s key operating areas, including the Marcellus Shale, Utica Shale, Marble Falls and Mississippi Lime.

ATLS owns 100% of the general partner Class A units and the incentive distribution rights, and a 37% limited partner interest in ARP. ATLS’ financial results are presented on a consolidated basis with those of ARP. Non-controlling interests in ARP are reflected as income (expense) in ATLS’ consolidated statements of operations and as a component of partners’ capital on its consolidated balance sheets. A consolidating statement of operations and balance sheet have also been provided in the financial tables to this release for the comparable periods presented. Please refer to the ARP third quarter 2013 earnings release for additional details on its financial results.

Atlas Pipeline Third Quarter 2013 Highlights

During the third quarter 2013, APL increased inlet volumes on its gathering and processing systems in the Mid Continent. APL processed an average of over 1.37 billion cubic feet per day (“Bcfd”) of natural gas in the third quarter 2013 amongst its WestOK, WestTX, Velma, Arkoma and SouthTX systems, approximately 10% higher than the second quarter 2013 and 78% higher than the prior year comparable quarter’s volumes. APL attained record high volumes with over 120,000 barrels per day (“bpd”) of natural gas liquids generated from its five processing systems in highly prolific oil & gas basins, which primarily reside in Oklahoma and Texas.

ATLS owns a 2.0% general partner interest, all of the incentive distribution rights, and a 6.2% common limited partner interest in APL. ATLS’ financial results are presented on a consolidated basis with those of APL. Non-controlling interests in APL are reflected as income (expense) in ATLS’ consolidated statements of operations and as a component of partners’ capital on its consolidated balance sheets. A consolidating statement of operations and balance sheet have also been provided in the financial tables to this release for the comparable periods presented. Please refer to the APL third quarter 2013 earnings release for additional details on its financial results.

Hedge Positions

In connection with its acquisition of the natural gas proved reserves in the Arkoma Basin (“Arkoma Assets”), ATLS entered into direct natural gas hedge positions for a substantial portion of its production through 2018. A summary of ATLS’s derivative positions as of November 7, 2013 is provided in the financial tables of this release.

Corporate Expenses

  • Cash general and administrative expense, excluding amounts attributable to APL and ARP, was $1.7 million for the third quarter 2013, $0.4 million lower than the second quarter 2013. The decrease from second quarter 2013 was due primarily to a decrease in seasonal corporate expenses incurred during the second quarter, including audit and tax services. Please refer to the consolidating statements of operations provided in the financial tables of this release.
  • Cash interest expense was $2.9 million for the third quarter 2013, an increase of $2.5 million compared to the second quarter 2013. The increase in interest expense is due primarily to entering into a $240 million term loan credit facility in July 2013, which was used to fund the acquisition of the Arkoma assets from EP Energy and the purchase of the Class C convertible preferred units from ARP. As of September 30, 2013, ATLS had $240 million of total debt, with no borrowings outstanding under its $50 million revolving credit facility, and a cash position of approximately $18 million.

Interested parties are invited to access the live webcast of an investor call with management regarding Atlas Energy, L.P.’s third quarter 2013 results on Friday, November 8, 2013 at 9:00 am ET by going to the Investor Relations section of Atlas Energy’s website at www.atlasenergy.com. For those unavailable to listen to the live broadcast, the replay of the webcast will be available following the live call on the Atlas Energy website and telephonically beginning at 11:00 a.m. ET on November 8, 2013 by dialing 888-286-8010, passcode: 71563674.

Atlas Energy, L.P. (NYSE: ATLS) is a master limited partnership which owns all of the general partner Class A units and incentive distribution rights and an approximate 37% limited partner interest in its upstream oil & gas subsidiary, Atlas Resource Partners, L.P. Additionally, Atlas Energy owns and operates the general partner of its midstream oil & gas subsidiary, Atlas Pipeline Partners, L.P., through all of the general partner interest, all the incentive distribution rights and an approximate 6% limited partner interest. For more information, please visit our website at www.atlasenergy.com, or contact Investor Relations at InvestorRelations@atlasenergy.com.

Atlas Resource Partners, L.P. (NYSE: ARP) is an exploration & production master limited partnership which owns an interest in over 12,000 producing natural gas and oil wells, located primarily in Appalachia, the Barnett Shale (TX), the Raton Basin (NM) and Black Warrior Basin (AL). ARP is also the largest sponsor of natural gas and oil investment partnerships in the U.S. For more information, please visit our website at www.atlasresourcepartners.com, or contact Investor Relations at InvestorRelations@atlasenergy.com.

Atlas Pipeline Partners, L.P. (NYSE: APL) is active in the gathering and processing segments of the midstream natural gas industry. In Oklahoma, southern Kansas, northern and western Texas, and Tennessee, APL owns and operates 14 active gas processing plants, 18 gas treating facilities, as well as approximately 10,600 miles of active intrastate gas gathering pipeline. APL also has a 20% interest in West Texas LPG Pipeline Limited Partnership, which is operated by Chevron Corporation. For more information, visit the Partnership's website at www.atlaspipeline.com or contact IR@atlaspipeline.com.

Cautionary Note Regarding Forward-Looking Statements

This document contains forward-looking statements that involve a number of assumptions, risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. ATLS cautions readers that any forward-looking information is not a guarantee of future performance. Such forward-looking statements include, but are not limited to, statements about future financial and operating results, resource and production potential, planned expansions of capacity and other capital expenditures, distribution amounts, ATLS’ plans, objectives, expectations and intentions and other statements that are not historical facts. Risks, assumptions and uncertainties that could cause actual results to materially differ from the forward-looking statements include, but are not limited to, those associated with general economic and business conditions; ability to realize the benefits of its acquisition; changes in commodity prices and hedge positions; changes in the costs and results of drilling operations; uncertainties about estimates of reserves and resource potential; inability to obtain capital needed for operations; ATLS’ level of indebtedness; changes in government environmental policies and other environmental risks; the availability of drilling equipment and the timing of production; tax consequences of business transactions; and other risks, assumptions and uncertainties detailed from time to time in ATLS’, ARP’s and APL’s reports filed with the U.S. Securities and Exchange Commission, including quarterly reports on Form 10-Q, current reports on Form 8-K and annual reports on Form 10-K. Forward-looking statements speak only as of the date hereof, and ATLS assumes no obligation to update such statements, except as may be required by applicable law.
   

ATLAS ENERGY, L.P.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited; in thousands, except per unit data)
 
Three Months Ended Nine Months Ended
September 30, September 30,
Revenues: 2013   2012 2013   2012
Gas and oil production $ 83,032 $ 24,699 $ 176,190 $ 61,323
Well construction and completion 10,964 36,317 92,293 92,277
Gathering and processing 582,961 297,868 1,538,970 859,429
Administration and oversight 4,447 4,440 8,923 8,586
Well services 5,023 5,086 14,703 15,344
Gain (loss) on mark-to-market derivatives(1) (24,517 ) (18,907 ) (9,493 ) 36,905
Other, net   (11,921 )   5,270     (5,700 )   8,575  
Total revenues   649,989     354,773     1,815,886     1,082,439  
 
Costs and expenses:
Gas and oil production 30,586 7,295 64,837 16,247
Well construction and completion 9,534 31,581 80,255 79,882
Gathering and processing 492,691 245,074 1,298,300 710,470
Well services 2,386 2,232 7,009 7,076
General and administrative 61,914 33,991 156,446 108,846
Chevron transaction expense 7,670 7,670
Depreciation, depletion and amortization   94,067     37,079     214,313     99,563  
Total costs and expenses   691,178     364,922     1,821,160     1,029,754  
 
Operating income (loss) (41,189 ) (10,149 ) (5,274 ) 52,685
 
Gain (loss) on asset sales and disposal (661 ) 2 (3,554 ) (7,019 )
Interest expense (38,513 ) (11,245 ) (91,854 ) (30,630 )
Loss on early extinguishment of debt           (26,601 )    
 
Net income (loss) before tax (80,363 ) (21,392 ) (127,283 ) 15,036
Income tax benefit   817         854      
Net income (loss) (79,546 ) (21,392 ) (126,429 ) 15,036
Loss (income) attributable to non-controlling interests   52,022     9,982     78,062     (52,574 )
Net loss attributable to common limited partners $ (27,524 ) $ (11,410 ) $ (48,367 ) $ (37,538 )
 
Net loss attributable to common limited partners per unit:
Basic and Diluted $ (0.54 ) $ (0.22 ) $ (0.94 ) $ (0.73 )
 
Weighted average common limited partner units outstanding:
Basic and Diluted 51,390 51,335 51,380 51,316
 

(1)
  Consists principally of hydrocarbon derivative gains / (losses) that relate to the operating activities of ATLS’s consolidated subsidiary, APL. The underlying hydrocarbon derivatives do not represent present or potential future obligations of ATLS.
   

ATLAS ENERGY, L.P.

CONSOLIDATED BALANCE SHEETS

(unaudited; in thousands)
 

September 30,

December 31,

ASSETS

2013

2012

Current assets:
Cash and cash equivalents $ 29,498 $ 36,780
Accounts receivable 289,817 196,249
Current portion of derivative asset 25,733 35,351
Subscriptions receivable 13,900 55,357
Prepaid expenses and other   85,421   45,255
Total current assets 444,369 368,992
 

Property, plant and equipment, net
4,958,551 3,502,609

Intangible assets, net
547,014 200,680

Investment in joint venture
238,221 86,002

Goodwill, net
535,721 351,069

Long-term derivative asset
37,504 16,840

Long-term derivative receivable from Drilling Partnerships
182

Other assets, net
  123,529   71,002
$ 6,885,091 $ 4,597,194
 

LIABILITIES AND PARTNERS’ CAPITAL

Current liabilities:
Current portion of long-term debt $ 3,010 $ 10,835
Accounts payable 147,114 119,028
Liabilities associated with drilling contracts 67,293
Accrued producer liabilities 161,808 109,725
Current portion of derivative liability 1,461
Current portion of derivative payable to Drilling Partnerships 4,932 11,293
Accrued interest 39,472 11,556
Accrued well drilling and completion costs 47,149 47,637
Accrued liabilities   126,124   103,291
Total current liabilities 531,070 480,658
 

Long-term debt, less current portion
2,840,921 1,529,508

Long-term derivative liability
888

Long-term derivative payable to Drilling Partnerships
2,429

Deferred income taxes, net
34,696 30,258

Asset retirement obligations and other
97,650 73,605
 

Commitments and contingencies
 

Partners’ Capital:
Common limited partners’ interests 405,285 456,171
Accumulated other comprehensive income   19,941   9,699
425,226 465,870
Non-controlling interests   2,955,528   2,013,978
Total partners’ capital   3,380,754   2,479,848
$ 6,885,091 $ 4,597,194
 
   

ATLAS ENERGY, L.P.

Financial and Operating Highlights

(unaudited)
 
Three Months Ended Nine Months Ended
September 30, September 30,
2013   2012 2013   2012
 
Net loss attributable to common limited partners per unit - basic $ (0.54 ) $ (0.22 ) $ (0.94 ) $ (0.73 )
 
Cash distributions paid per unit(1) $ 0.46 $ 0.27 $ 1.21 $ 0.78
 
Production volume: (2)(3)
ATLAS ENERGY:
Natural gas (Mcfd) 8,250 2,780
Oil (Bpd)
Natural gas liquids (Bpd)                
Total (Mcfed)   8,250         2,780      
ATLAS RESOURCES:
Natural gas (Mcfd) 191,020 88,208 134,945 60,531
Oil (Bpd) 1,517 277 1,301 291
Natural gas liquids (Bpd)   3,734     1,067     3,441     652  
Total (Mcfed)   222,529     96,275     163,397     66,189  
TOTAL:
Natural gas (Mcfd) 199,270 88,208 137,725 60,531
Oil (Bpd) 1,517 277 1,301 291
Natural gas liquids (Bpd)   3,734     1,067     3,441     652  
Total (Mcfed)   230,779     96,275     166,178     66,189  
 
Average sales prices:(3)
Natural gas (per Mcf) (4) $ 3.46 $ 3.01 $ 3.39 $ 3.42
Oil (per Bbl)(5) $ 93.07 $ 87.86 $ 91.19 $ 95.70
Natural gas liquids (per gallon) $ 0.69 $ 0.61 $ 0.67 $ 0.79
 
Production costs:(3)(6)
ATLAS ENERGY:
Lease operating expenses per Mcfe $ 0.77 $ $ 0.77 $
Production taxes per Mcfe 0.21 0.21
Transportation and compression expenses per Mcfe   0.56         0.56      
Total production costs per Mcfe $ 1.54   $   $ 1.54   $  
ATLAS RESOURCES:
Lease operating expenses per Mcfe $ 1.15 $ 0.75 $ 1.12 $ 0.80
Production taxes per Mcfe 0.11 0.13 0.17 0.12
Transportation and compression expenses per Mcfe   0.24     0.25     0.22     0.27  
Total production costs per Mcfe $ 1.50   $ 1.13   $ 1.51   $ 1.19  
TOTAL:
Lease operating expenses per Mcfe $ 1.13 $ 0.75 $ 1.11 $ 0.80
Production taxes per Mcfe 0.11 0.13 0.17 0.12
Transportation and compression expenses per Mcfe   0.25     0.25     0.22     0.27  
Total production costs per Mcfe $ 1.50   $ 1.13   $ 1.51   $ 1.19  
 
ATLAS PIPELINE:

Production volume:(3)
Gathered gas volume(Mcfd) 1,484,071 860,026 1,412,616 780,426
Processed gas volume (Mcfd) 1,372,388 768,988 1,247,676 696,445
Residue gas volume (Mcfd) 1,160,608 658,846 1,091,665 579,771
NGL volume (Bpd) 120,126 56,363 113,292 59,557
Condensate volume (Bpd) 4,906 3,756 4,371 3,417
 
Average sales prices:(3)
Natural gas (per Mcf) $ 3.34 $ 2.60 $ 3.46 $ 2.39
Condensate (per Bbl) $ 101.48 $ 86.65 $ 92.82 $ 90.07
Natural gas liquids (per gallon) $ 0.92 $ 0.87 $ 0.87 $ 0.90
 

(1)
  Represents the cash distributions declared per limited partner unit for the respective period and paid by ATLS within 50 days after the end of each quarter, based upon the distributable cash flow generated during the respective quarter.
 

(2)
Production quantities consist of the sum of (i) the proportionate share of production from wells in which ATLS and ARP have a direct interest, based on the proportionate net revenue interest in such wells, and (ii) ARP’s proportionate share of production from wells owned by the investment partnerships in which ARP has an interest, based on its equity interest in each such partnership and based on each partnership’s proportionate net revenue interest in these wells.
 

(3)
“Mcf” and “Mcfd” represent thousand cubic feet and thousand cubic feet per day; “Mcfe” and “Mcfed” represent thousand cubic feet equivalents and thousand cubic feet equivalents per day, and “Bbl” and “Bpd” represent barrels and barrels per day. Barrels are converted to Mcfe using the ratio of six Mcf’s to one barrel.
 

(4)
Average sales price for natural gas before the effects of financial hedging was $3.21 per Mcf and $2.46 per Mcf for the three months ended September 30, 2013 and 2012, respectively, and $3.20 per Mcf and $2.60 per Mcf for the nine months ended September 30, 2013 and 2012, respectively. These amounts exclude the impact of subordination of ARP’s production revenues to investor partners within its investor partnerships. Including the effects of this subordination, average natural gas sales prices were $3.28 per Mcf ($3.02 per Mcf before the effects of financial hedging) and $2.46 per Mcf ($1.91 per Mcf before the effects of financial hedging) for the three months ended September 30, 2013 and 2012, respectively, and $3.12 per Mcf ($2.93 per Mcf before the effects of financial hedging) and $2.88 per Mcf ($2.07 per Mcf before the effects of financial hedging) for the nine months ended September 30, 2013 and 2012, respectively.
 

(5)
Average sales price for oil before the effects of financial hedging was $104.03 per barrel and $84.30 per barrel for the three months ended September 30, 2013 and 2012, respectively, and $96.50 per barrel and $93.38 per barrel for the nine months ended September 30, 2013 and 2012, respectively.
 

(6)
Production costs include labor to operate the wells and related equipment, repairs and maintenance, materials and supplies, property taxes, severance taxes, insurance, production overhead and transportation and compression expenses. These amounts exclude the effects of ARP’s proportionate share of lease operating expenses associated with subordination of production revenue to investor partners within ARP’s investor partnerships. Including the effects of these costs, total lease operating expenses per Mcfe were $1.08 per Mcfe ($1.44 per Mcfe for total production costs) and $0.44 per Mcfe ($0.82 per Mcfe for total production costs) for the three months ended September 30, 2013 and 2012, respectively, and $1.03 per Mcfe ($1.43 per Mcfe for total production costs) and $0.50 per Mcfe ($0.90 per Mcfe for total production costs) for the nine months ended September 30, 2013 and 2012, respectively.
 
   

ATLAS ENERGY, L.P.

Financial Information

(unaudited; in thousands except per unit amounts)
 
Three Months Ended Nine Months Ended
September 30, September 30,
Reconciliation of net loss to non-GAAP measures(1): 2013   2012 2013   2012
Net income (loss) $ (79,546 ) $ (21,392 ) $ (126,429 ) $ 15,036
E&P Operations EBITDA prior to spinoff on March 5, 2012(2) 9,111
Atlas Resource net loss attributable to ATLS common limited partners

13,317

6,845

19,766

23,444
Atlas Resource cash distributions earned by ATLS(3) 16,282 9,363 41,123 20,590
Atlas Pipeline net income attributable to ATLS common limited partners

(78

)

(392

)

(3,613

)

(12,842

)
Atlas Pipeline cash distributions earned by ATLS(3) 9,580 5,689 26,395 16,570
Non-recurring spinoff and acquisition costs 3,331 4,488 8,370
Amortization of deferred finance costs 519 50 665 179
Depreciation, depletion and amortization 1,331 1,331
Non-cash stock compensation expense 6,370 4,327 17,724 13,626
Maintenance capital expenditures(4) (200 ) (200 ) (1,231 )
Other non-cash adjustments (2,348 ) (357 ) (2,099 ) (419 )
Amortization of premiums paid on swaption derivative contracts associated with asset acquisition(5)

2,060

2,287

Loss(income) attributable to non-controlling interests   52,022     9,982     78,062     (52,574 )
Distributable Cash Flow(1) $ 22,640   $ 14,115   $ 59,500   $ 39,860  
 
Supplemental Adjusted EBITDA and Distributable Cash Flow Summary:
Atlas Resource Cash Distributions Earned(3):
Limited Partner Units $ 13,839 $ 9,013 $ 35,850 $ 19,913
Class A Units (2%) 766 350 1,961 677
Incentive Distribution Rights   1,677         3,312      
Total Atlas Resource Cash Distributions Earned(3)   16,282     9,363     41,123     20,590  
per limited partner unit $ 0.56 $ 0.43 $ 1.61 $ 0.95
 
Atlas Pipeline Cash Distributions Earned(3):
Limited Partner Units 3,567 3,280 10,530 9,724
General Partner 2% Interest 1,100 664 3,155 1,961
Incentive Distribution Rights   4,913     1,745     12,710     4,885  
Total Atlas Pipeline Cash Distributions Earned(3)   9,580     5,689     26,395     16,570  
per limited partner unit $ 0.62 $ 0.57 $ 1.83 $ 1.69
 
Total Cash Distributions Earned 25,862 15,052 67,518 37,160
 
Production Margin 1,533 1,533

E&P Operations Adjusted EBITDA prior to spinoff on March 5, 2012(2)

9,111
Cash general and administrative expenses(6) (1,658 ) (1,394 ) (6,651 ) (5,910 )
Other, net   2     537     730     983  
Adjusted EBITDA(1) 25,739 14,195 63,130 41,344
Cash interest expense(7) (2,899 ) (80 ) (3,430 ) (253 )
Maintenance capital expenditures(4)   (200 )       (200 )   (1,231 )
Distributable Cash Flow(1) $ 22,640   $ 14,115   $ 59,500   $ 39,860  

 
Discretionary adjustments considered by the Board of Directors of the General Partner in the determination of quarterly cash distributions:
Net cash from acquisitions from the effective date through closing date(8)  

381
   

   

1,851
   

 
Distributable Cash Flow with discretionary adjustments by the Board of Directors of the General Partner(9)

$

23,021
 

$

14,115
 

$

61,351
 

$

39,860
 
 
Distributions Paid(10) $ 23,644 $ 13,866 $ 62,179 $ 39,527
per limited partner unit $ 0.46 $ 0.27 $ 1.21 $ 0.77
 
Excess (shortfall) of distributable cash flow with discretionary adjustments by the Board of Directors of the General Partner after distributions to unitholders(11)

 

$

 

(623

 

)

 

$

 

249

 

$

 

(828

 

)

 

$

 

333
 

(1)
 

Although not prescribed under GAAP (generally accepted accounting principles), ATLS’ management believes the presentation of EBITDA, Adjusted EBITDA and Distributable Cash Flow (“DCF”) is relevant and useful because it helps ATLS’ investors understand its operating performance, allows for easier comparison of its results with other master limited partnerships (“MLP”), and is a critical component in the determination of quarterly cash distributions. As a MLP, ATLS is required to distribute 100% of available cash, as defined in its limited partnership agreement (“Available Cash”) and subject to cash reserves established by its general partner, to investors on a quarterly basis. ATLS refers to Available Cash prior to the establishment of cash reserves as DCF. EBITDA, Adjusted EBITDA and DCF should not be considered in isolation of, or as a substitute for, net income as an indicator of operating performance or cash flows from operating activities as a measure of liquidity. While ATLS’s management believes that its methodology of calculating EBITDA, Adjusted EBITDA and DCF is generally consistent with the common practice of other MLPs, such metrics may not be consistent and, as such, may not be comparable to measures reported by other MLPs, who may use other adjustments related to their specific businesses. EBITDA, Adjusted EBITDA and DCF are supplemental financial measures used by ATLS’ management and by external users of ATLS’ financial statements such as investors, lenders under its credit facilities, research analysts, rating agencies and others to assess its:

- Operating performance as compared to other publicly traded partnerships and other companies in the upstream and midstream energy sectors, without regard to financing methods, historical cost basis or capital structure;- Ability to generate sufficient cash flows to support its distributions to unitholders;- Ability to incur and service debt and fund capital expansion;- The viability of potential acquisitions and other capital expenditure projects; and- Ability to comply with financial covenants in its Amended Credit Facility, which is calculated based upon Adjusted EBITDA.

DCF is determined by calculating EBITDA, adjusting it for non-cash, non-recurring and other items to achieve Adjusted EBITDA, and then deducting cash interest expense and maintenance capital expenditures. ATLS defines EBITDA as net income (loss) plus the following adjustments:

- Interest expense;- Income tax expense;- Depreciation, depletion and amortization.ATLS defines Adjusted EBITDA as EBITDA plus the following adjustments:- Cash distributions paid by ARP and APL within 45 days after the end of the respective quarter, based upon their distributable cash flow generated during that quarter;- Asset impairments;- Acquisition and related costs;- Non-cash stock compensation;- (Gains) losses on asset disposal;- Cash proceeds received from monetization of derivative transactions;- Amortization of premiums paid on swaption derivative contracts; and- Other items.ATLS adjusts DCF for non-cash, non-recurring and other items for the sole purpose of evaluating its cash distribution for the quarterly period, with EBITDA and Adjusted EBITDA adjusted in the same manner for consistency. ATLS defines DCF as Adjusted EBITDA less the following adjustments:- Cash interest expense; and- Maintenance capital expenditures.
 

(2)
Represents the E&P Operations Adjusted EBITDA generated and maintenance capital expenditures incurred by ATLS on a stand-alone basis prior to the transfer of its E&P assets to ARP on March 5, 2012 for the nine months ended September 30, 2012.
 

(3)
Represents the cash distribution paid by ARP and APL within 45 days after the end of each quarter, based upon the distributable cash flow generated during the respective quarter.
 

(4)
Oil and gas assets naturally decline in future periods and, as such, ATLS recognizes the estimated capitalized cost of stemming such decline in production margin for the purpose of stabilizing its DCF and cash distributions, which it refers to as maintenance capital expenditures. ATLS calculates the estimate of maintenance capital expenditures by first multiplying its forecasted future full year production margin by its expected aggregate production decline of proved developed producing wells. Maintenance capital expenditures are then the estimated capitalized cost of wells that will generate an estimated first year margin equivalent to the production margin decline, assuming such wells are connected on the first day of the calendar year. ATLS does not incur specific capital expenditures expressly for the purpose of maintaining or increasing production margin, but such amounts are a hypothetical subset of wells it expects to drill in future periods on undeveloped acreage already leased. Estimated capitalized cost of wells included within maintenance capital expenditures are also based upon relevant factors, including utilization of public forward commodity exchange prices, current estimates for regional pricing differentials, estimated labor and material rates and other production costs. Generally, estimates for maintenance capital expenditures in the current year are the sum of the estimate calculated in the prior year plus estimates for the decline in production margin from wells connected during the current year and production acquired through acquisitions. ATLS considers expansion capital expenditures to be any capital expenditure costs expended that are not maintenance capital expenditures – generally, this will include expenditures to increase, rather than maintain, production margin in future periods, as well as land, gathering and processing, and other non-drilling capital expenditures.
 

(5)

Swaption derivative contracts grant ATLS the option to enter into a swap derivative transaction to hedge future production period sales prices for a stated option period, which generally have a duration of a few months and commences upon entering into the derivative contract, in return for an upfront premium. The amounts included within the reconciliation reflect the amortization of premiums ATLS paid to enter into swaption derivative contracts for certain acquired volumes over the option period. Generally, ATLS enters into swaption derivative contracts to hedge acquired volumes after the announcement of the signed definitive purchase and sale agreement to acquire the oil and gas properties, but before it closes on the transaction, as its senior secured revolving credit agreement does not allow it to hedge production volume until it owns such volumes. ATLS excludes such costs in its determination of DCF, Adjusted EBITDA and cash distributions for the respective period as they are specific to the related transaction.
 

(6)
Excludes non-cash stock compensation expense and certain non-recurring spinoff costs and acquisition and related costs.
 

(7)
Excludes non-cash amortization of deferred financing costs.
 

(8)
These amounts reflect net cash proceeds received from the effective date through the closing date of the EP Energy assets acquired, less estimated and pro forma amounts of maintenance capital expenditures and financing costs. The management of ATLS believes these amounts are critical in its evaluation of Distributable Cash Flow and cash distributions for the period. Under GAAP, such amounts are characterized as purchase price adjustments and are reflected in the net purchase price paid for the acquired assets, rather than reflected as components of net income or loss for the period. For the 3rd quarter 2013, such amounts include net cash generated by the EP Energy assets of $0.8 million for period from July 1, 2013 to July 31, 2013, less pro forma interest expense of $0.3 million and estimated maintenance capital expenditures of $0.1 million. For the nine months ended September 30, 2013, such amounts include pro forma net cash generated by the EP Energy assets of $3.8 million from April 1, 2013 to July 31, 2013, less pro forma interest expense of $1.5 million and estimated maintenance capital expenditures of $0.5 million.
 

(9)

Including the discretionary adjustments by the Board of Directors of the General Partner in the determination of quarterly cash distributions, Adjusted EBITDA would have been $26.1 million and $14.2 million for the three months ended September 30, 2013 and 2012, respectively, and $65.0 million and $41.3 million for the nine months ended September 30, 2013 and 2012, respectively.
 

(10)
Represents the cash distribution paid within 50 days after the end of each quarter, based upon the distributable cash flow generated during the respective quarter.
 

(11)
ATLS seeks to at least maintain its current cash distribution in future quarterly periods, and expects to only increase such cash distributions when future Distributable Cash Flow amounts allow for it and are expected to be sustained. ATLS’ determination of quarterly cash distributions and its resulting determination of the amount of excess (shortfall) those cash distributions generate in comparison to Distributable Cash Flow are based upon its assessment of numerous factors which affect it, ARP and APL and the cash distributions it receives from these subsidiaries, including but not limited to future commodity price and interest rate movements, variability of operating asset performance, weather effects, and financial leverage. ATLS also considers its historical trailing four quarters of excess or shortfalls and future forecasted excess or shortfalls that its cash distributions generate in comparison to Distributable Cash Flow due to the variability of its Distributable Cash Flow generated each quarter, which could cause it to have more or less excess (shortfalls) generated from quarter to quarter.
 
 

ATLAS ENERGY, L.P.

CAPITALIZATION INFORMATION

(unaudited; in thousands)
 
September 30, 2013
Atlas   Atlas   Atlas  
Energy Resource Pipeline Consolidated
Total debt $ 240,000 $ 948,279 $ 1,655,652 $ 2,843,931
Less: Cash   (17,607 )   (1,452 )   (10,439 )   (29,498 )
Total net debt 222,393 946,827 1,645,213 2,814,433
 
Partners’ capital   425,226     1,169,929     2,314,667    

3,380,754

(1)
 
Total capitalization $ 647,619   $ 2,116,756   $ 3,959,880   $ 6,195,187  
 
Ratio of net debt to capitalization 0.34x
     

(1) Net of eliminated amounts.
 
December 31, 2012
Atlas Atlas Atlas
Energy Resource Pipeline Consolidated
Total debt $ 9,000 $ 351,425 $ 1,179,918 $ 1,540,343
Less: Cash   (10,194 )   (23,188 )   (3,398 )   (36,780 )
Total net debt /(cash) (1,194 ) 328,237 1,176,520 1,503,563
 
Partners’ capital   465,870     862,006     1,606,408    

2,479,848

(2)
 
Total capitalization $ 464,676   $ 1,190,243   $ 2,782,928   $ 3,983,411  
 
Ratio of net debt to capitalization 0.00x
     

(2) Net of eliminated amounts.
 
   

ATLAS ENERGY, L.P.

Hedge Position Summary – Directly-Held E&P Assets

(as of November 7, 2013)
 

Natural Gas
 

Fixed Price Swaps
Average
Production Period Fixed Price Volumes
Ended December 31, (per mmbtu)(a) (mmbtus)(a)
2013(b) $4.06 750,000
2014 $4.18 2,760,000
2015 $4.30 2,280,000
2016 $4.43 1,440,000
2017 $4.59 1,200,000
2018 $4.80 420,000
 

__________________________

(a)
 

“mmbtu” represents million metric British thermal units.

(b)

Reflects hedges covering the last three months of 2013.
 
         
ATLAS ENERGY, L.P.
CONSOLIDATING STATEMENTS OF OPERATIONS

(unaudited; in thousands)
 

Three Months Ended September 30, 2013

 
 
Atlas Atlas Atlas
Energy Resource Pipeline Eliminations Consolidated
Revenues:
Gas and oil production $ 2,700 $ 80,332 $ $ $ 83,032
Well construction and completion 10,964 10,964
Gathering and processing 3,591 579,444 (74 ) 582,961
Administration and oversight 4,447 4,447
Well services 5,023 5,023
Loss on mark-to-market derivatives (24,517 ) (24,517 )
Other, net   290     (13,272 )   1,061         (11,921 )
Total revenues   2,990     91,085     555,988     (74 )   649,989  
 
Costs and expenses:
Gas and oil production 1,167 29,419 30,586
Well construction and completion 9,534 9,534
Gathering and processing 4,395 488,370 (74 ) 492,691
Well services 2,386 2,386
General and administrative 11,359 31,983 18,572 61,914
Depreciation, depletion and amortization  

1,331
   

41,656
   

51,080
   

   

94,067
 
Total costs and expenses   13,857     119,373     558,022     (74 )   691,178  
 
Operating loss (10,867 ) (28,288 ) (2,034 ) (41,189 )
 
Loss on asset sales and disposal (661 ) (661 )
Interest expense (3,418 ) (10,748 ) (24,347 ) (38,513 )
Loss on early extinguishment of debt                    
 
Net loss before tax (14,285 ) (39,697 ) (26,381 ) (80,363 )
Income tax benefit           817         817  
Net loss (14,285 ) (39,697 ) (25,564 ) (79,546 )
Loss attributable to non-controlling interests  

   

   

(1,514

)
 

53,536
   

52,022
 
Net loss attributable to common limited partners

$

(14,285

)

$

(39,697

)

$

(27,078

)

$

53,536
 

$

(27,524

)
 
         

ATLAS ENERGY, L.P.

CONSOLIDATING STATEMENTS OF OPERATIONS

 (unaudited; in thousands)

 

Three Months Ended September 30, 2012
 
Atlas Atlas Atlas
Energy Resource Pipeline Eliminations Consolidated
Revenues:
Gas and oil production $ $ 24,699 $ $ $ 24,699
Well construction and completion 36,317 36,317
Gathering and processing 4,134 293,890 (156 ) 297,868
Administration and oversight 4,440 4,440
Well services 5,086 5,086
Loss on mark-to-market derivatives (18,907 ) (18,907 )
Other, net   894     67     4,309         5,270  
Total revenues   894     74,743     279,292     (156 )   354,773  
 
Costs and expenses:
Gas and oil production 7,295 7,295
Well construction and completion 31,581 31,581
Gathering and processing 4,558 240,672 (156 ) 245,074
Well services 2,232 2,232
General and administrative 5,721 16,147 12,123 33,991

Chevron transaction expense
7,670 7,670

Depreciation, depletion and amortization

 

   

13,918
   

23,161
   

   

37,079
 

Total costs and expenses
  5,721     83,401     275,956     (156 )   364,922  
 
Operating income (loss) (4,827 ) (8,658 ) 3,336 (10,149 )
 
Gain on asset sales and disposal 2 2
Interest expense   (130 )   (1,423 )   (9,692 )       (11,245 )
 
Net loss (4,957 ) (10,079 ) (6,356 ) (21,392 )
Loss attributable to non-controlling interests  

   

   

(1,511

)
 

11,493
   

9,982
 
Net loss attributable to common limited partners

$

(4,957

)

$

(10,079

)

$

(7,867

)

$

11,493
 

$

(11,410

)
 
         
ATLAS ENERGY, L.P.
CONSOLIDATING STATEMENTS OF OPERATIONS

(unaudited; in thousands)
 

Nine Months Ended September 30, 2013

 
 
Atlas Atlas Atlas
Energy Resource Pipeline Eliminations Consolidated
Revenues:
Gas and oil production $ 2,700 $ 173,490 $ $ $ 176,190
Well construction and completion 92,293 92,293
Gathering and processing 11,639 1,527,553 (222 ) 1,538,970
Administration and oversight 8,923 8,923
Well services 14,703 14,703
Loss on mark-to-market derivatives (9,493 ) (9,493 )
Other, net   542     (14,589 )   8,347         (5,700 )
Total revenues   3,242     286,459     1,526,407     (222 )   1,815,886  
 
Costs and expenses:
Gas and oil production 1,167 63,670 64,837
Well construction and completion 80,255 80,255
Gathering and processing 13,767 1,284,755 (222 ) 1,298,300
Well services 7,009 7,009
General and administrative 28,863 63,767 63,816 156,446
Depreciation, depletion and amortization  

1,331
   

85,061
   

127,921
   

   

214,313
 
Total costs and expenses   31,361     313,529     1,476,492     (222 )   1,821,160  
 
Operating income (loss) (28,119 ) (27,070 ) 49,915 (5,274 )
 
Loss on asset sales and disposal (2,035 ) (1,519 ) (3,554 )
Interest expense (4,095 ) (22,145 ) (65,614 ) (91,854 )
Loss on early extinguishment of debt           (26,601 )       (26,601 )
 
Net loss before tax (32,214 ) (51,250 ) (43,819 ) (127,283 )
Income tax benefit           854         854  
Net loss (32,214 ) (51,250 ) (42,965 ) (126,429 )
Loss attributable to non-controlling interests  

   

   

(4,693

)
 

82,755
   

78,062
 
Net loss attributable to common limited partners

$

(32,214

)

$

(51,250

)

$

(47,658

)

$

82,755
 

$

(48,367

)
 
         
ATLAS ENERGY, L.P.
CONSOLIDATING STATEMENTS OF OPERATIONS

(unaudited; in thousands)
 

Nine Months Ended September 30, 2012

 
 
Atlas Atlas Atlas
Energy Resource Pipeline Eliminations Consolidated
Revenues:
Gas and oil production $ $ 61,323 $ $ $ 61,323
Well construction and completion 92,277 92,277
Gathering and processing 10,311 849,475 (357 ) 859,429
Administration and oversight 8,586 8,586
Well services 15,344 15,344
Gain on mark-to-market derivatives 36,905 36,905
Other, net   1,402     (4,952 )   12,125         8,575  
Total revenues   1,402     182,889     898,505     (357 )   1,082,439  
 
Costs and expenses:
Gas and oil production 16,247 16,247
Well construction and completion 79,882 79,882
Gathering and processing 13,185 697,642 (357 ) 710,470
Well services 7,076 7,076
General and administrative 27,906 48,427 32,513 108,846
Chevron transaction expense 7,670 7,670

Depreciation, depletion and amortization
 

   

33,848
   

65,715
   

   

99,563
 
Total costs and expenses   27,906     206,335     795,870     (357 )   1,029,754  
 
Operating income (loss) (26,504 ) (23,446 ) 102,635 52,685
 
Loss on asset sales and disposal (7,019 ) (7,019 )
Interest expense   (432 )   (2,529 )   (27,669 )       (30,630 )
 
Net income (loss) (26,936 ) (32,994 ) 74,966 15,036
Income attributable to non-controlling interests  

   

   

(4,108

)
 

(48,466

)
 

(52,574

)
Net income (loss) attributable to common limited partners

$

(26,936

)

$

(32,994

)

$

70,858
 

$

(48,466

)

$

(37,538

)
 
         
ATLAS ENERGY, L.P.
CONDENSED CONSOLIDATING BALANCE SHEETS

(unaudited; in thousands)
 

September 30, 2013

 
 
Atlas Atlas Atlas
ASSETS Energy Resource Pipeline Eliminations Consolidated
Current assets:
Cash and cash equivalents $ 17,607 $ 1,452 $ 10,439 $ $ 29,498
Accounts receivable 980 59,669 229,168 289,817

Receivable from (advances from) affiliates

28,164

(23,559

)

(4,605

)

Current portion of derivative asset 1,082 19,474 5,177 25,733
Subscriptions receivable 13,900 13,900
Prepaid expenses and other   370   11,610     73,441         85,421
Total current assets 48,203 82,546 313,620 444,369
 
Property, plant and equipment, net 67,436 2,175,754 2,715,361 4,958,551
Intangible assets, net 1,059 545,955 547,014
Investment in joint venture 238,221 238,221
Goodwill, net 31,784 503,937 535,721
Long-term derivative asset 1,546 28,500 7,458 37,504

Long-term derivative receivable from Drilling Partnerships

182

182
Investment in subsidiaries 529,068 (529,068 )
Other assets, net   35,623   43,468     44,438         123,529
$ 681,876 $ 2,363,293   $ 4,368,990   $ (529,068 ) $ 6,885,091
 
LIABILITIES AND PARTNERS’ CAPITAL
 
Current liabilities:
Current portion of long-term debt $ 2,400 $ $ 610 $ $ 3,010
Accounts payable 269 74,686 72,159 147,114
Accrued producer liabilities 161,808 161,808
Current portion of derivative liability 318 1,143 1,461

Current portion of derivative payable to Drilling Partnerships

4,932

4,932
Accrued interest 43 8,822 30,607 39,472

Accrued well drilling and completion costs

47,149

47,149
Accrued liabilities   10,224   25,051     90,849         126,124
Total current liabilities 12,936 160,958 357,176 531,070
 
Long-term debt, less current portion 237,600 948,279 1,655,042 2,840,921
Deferred income taxes, net 34,696 34,696
Asset retirement obligations and other 6,114 84,127 7,409 97,650
 
Partners’ Capital:
Common limited partners’ interests 405,285 1,119,691 2,266,505 (3,386,196 ) 405,285

Accumulated other comprehensive income
 

19,941
 

50,238
   

   

(50,238

)
 

19,941
425,226 1,169,929 2,266,505 (3,436,434 ) 425,226
Non-controlling interests         48,162     2,907,366     2,955,528
Total partners’ capital   425,226   1,169,929     2,314,667     (529,068 )   3,380,754
$ 681,876 $ 2,363,293   $ 4,368,990   $ (529,068 ) $ 6,885,091
 
         
ATLAS ENERGY, L.P.
CONDENSED CONSOLIDATING BALANCE SHEETS

(unaudited; in thousands)
 

December 31, 2012

 
 

Atlas
Atlas Atlas
ASSETS Energy Resource Pipeline Eliminations Consolidated
Current assets:
Cash and cash equivalents $ 10,194 $ 23,188 $ 3,398 $ $ 36,780
Accounts receivable 5 38,718 157,526 196,249

Receivable from (advances from) affiliates

11,353

(5,853

)

(5,500

)

Current portion of derivative asset 12,274 23,077 35,351
Subscriptions receivable 55,357 55,357
Prepaid expenses and other   118   9,063     36,074         45,255
Total current assets 21,670 132,747 214,575 368,992
 
Property, plant and equipment, net 1,302,228 2,200,381 3,502,609
Goodwill and intangible assets, net 33,104 518,645 551,749
Long-term derivative asset 8,898 7,942 16,840
Investment in joint venture 86,002 86,002
Investment in subsidiaries 454,436 (454,436 )
Other assets, net   22,287   16,122     32,593         71,002
$ 498,393 $ 1,493,099   $ 3,060,138   $ (454,436 ) $ 4,597,194
 
LIABILITIES AND PARTNERS’ CAPITAL
 
Current liabilities:
Current portion of long-term debt $ $ $ 10,835 $ $ 10,835
Accounts payable 171 59,549 59,308 119,028

Liabilities associated with drilling contracts

67,293

67,293
Accrued producer liabilities 109,725 109,725

Current portion of derivative payable to Drilling Partnerships

11,293

11,293
Accrued interest 4 1,153 10,399 11,556

Accrued well drilling and completion costs

47,637

47,637

Accrued liabilities
  21,304   24,235     57,752         103,291
Total current liabilities 21,479 211,160 248,019 480,658
 
Long-term debt, less current portion 9,000 351,425 1,169,083 1,529,508
Long-term derivative liability 888 888
Long-term derivative payable to Drilling Partnerships

2,429

2,429
Deferred income taxes, net 30,258 30,258
Asset retirement obligations and other 2,044 65,191 6,370 73,605
 
Partners’ Capital:
Common limited partners’ interests 456,171 840,437 1,539,177 (2,379,614 ) 456,171

Accumulated other comprehensive income
 

9,699
 

21,569
   

   

(21,569

)
 

9,699
465,870 862,006 1,539,177 (2,401,183 ) 465,870

Non-controlling interests
        67,231     1,946,747     2,013,978
Total partners’ capital   465,870   862,006     1,606,408     (454,436 )   2,479,848
$ 498,393 $ 1,493,099   $ 3,060,138   $ (454,436 ) $ 4,597,194
 
 
ATLAS ENERGY, L.P.
Ownership Interests Summary
   
 
Overall
Ownership
Interest

Atlas Energy Ownership Interests as of September 30, 2013:
Amount Percentage
 
ATLAS RESOURCE:
General partner interest 100% 2.0 %
Common units 20,962,485 31.3 %
Preferred units 3,749,986 5.6 %
Incentive distribution rights 100% N/A  
Total Atlas Energy ownership interests in Atlas Resource 38.9 %
 
ATLAS PIPELINE:
General partner interest 100% 2.0 %
Common units 5,754,253 6.2 %
Incentive distribution rights 100% N/A  
Total Atlas Energy ownership interests in Atlas Pipeline 8.2 %
 
LIGHTFOOT CAPITAL PARTNERS, GP LLC:
Approximate general partner ownership interest 15.9 %
Approximate limited partner ownership interest 12.1 %
 

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