UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended JuneSeptember 30, 2014
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 1-32953
ATLAS ENERGY, L.P.
(Exact name of registrant as specified in its charter)
Delaware |
| 43-2094238 |
(State or other jurisdiction of |
| (I.R.S. Employer |
|
| |
Park Place Corporate Center One 1000 Commerce Drive, Suite 400 Pittsburgh, PA |
| 15275 |
(Address of principal executive offices) |
| (Zip code) |
Registrant’s telephone number, including area code: (412) 489-0006
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
| x |
| Accelerated filer |
| ¨ |
|
|
|
| |||
Non-accelerated filer |
| ¨ (Do not check if smaller reporting company) |
| Smaller reporting company |
| ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of outstanding common units of the registrant on August 4,November 6, 2014 was 51,909,193.51,950,274.
ATLAS ENERGY, L.P. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
TABLE OF CONTENTS
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|
|
| PAGE |
PART I. FINANCIAL INFORMATION |
|
| ||
Item 1. |
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| 3 |
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|
Consolidated Balance Sheets as of |
| 3 |
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| 4 |
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| 5 |
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Consolidated Statement of Partners’ Capital for the |
| 6 |
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| 7 |
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| 8 |
Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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PART II. OTHER INFORMATION |
|
| ||
Item 1. | 110 | |||
Item 1A. | 110 | |||
Item 6. |
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2
PART I. FINANCIAL INFORMATION
ATLAS ENERGY, L.P. AND SUBSIDIARIES
(in thousands)
(Unaudited)
|
| June 30, |
|
| December 31, |
|
| September 30, |
|
| December 31, |
| ||||
ASSETS |
| 2014 |
|
| 2013 |
|
| 2014 |
|
| 2013 |
| ||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 21,052 |
|
| $ | 23,501 |
|
| $ | 67,467 |
|
| $ | 23,501 |
|
Accounts receivable |
|
| 345,353 |
|
|
| 279,464 |
|
|
| 356,990 |
|
|
| 279,464 |
|
Current portion of derivative asset |
|
| 255 |
|
|
| 2,066 |
|
|
| 29,651 |
|
|
| 2,066 |
|
Subscriptions receivable |
|
| 16,336 |
|
|
| 47,692 |
|
|
| 62,840 |
|
|
| 47,692 |
|
Prepaid expenses and other |
|
| 47,950 |
|
|
| 27,612 |
|
|
| 49,609 |
|
|
| 27,612 |
|
Total current assets |
|
| 430,946 |
|
|
| 380,335 |
|
|
| 566,557 |
|
|
| 380,335 |
|
Property, plant and equipment, net |
|
| 5,726,842 |
|
|
| 4,910,875 |
|
|
| 5,861,460 |
|
|
| 4,910,875 |
|
Intangible assets, net |
|
| 634,913 |
|
|
| 697,234 |
|
|
| 615,576 |
|
|
| 697,234 |
|
Investment in joint ventures |
|
| 179,054 |
|
|
| 248,301 |
|
|
| 180,602 |
|
|
| 248,301 |
|
Goodwill, net |
|
| 397,547 |
|
|
| 400,356 |
| ||||||||
Goodwill |
|
| 397,547 |
|
|
| 400,356 |
| ||||||||
Long-term derivative asset |
|
| 4,632 |
|
|
| 30,868 |
|
|
| 38,234 |
|
|
| 30,868 |
|
Other assets, net |
|
| 131,684 |
|
|
| 124,672 |
|
|
| 133,649 |
|
|
| 124,672 |
|
|
| $ | 7,505,618 |
|
| $ | 6,792,641 |
|
| $ | 7,793,625 |
|
| $ | 6,792,641 |
|
LIABILITIES AND PARTNERS’ CAPITAL |
|
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Current liabilities: |
|
|
|
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Current portion of long-term debt |
| $ | 2,720 |
|
| $ | 2,924 |
|
| $ | 2,674 |
|
| $ | 2,924 |
|
Accounts payable |
|
| 227,697 |
|
|
| 149,279 |
|
|
| 221,302 |
|
|
| 149,279 |
|
Liabilities associated with drilling contracts |
|
| — |
|
|
| 49,377 |
|
|
| — |
|
|
| 49,377 |
|
Accrued producer liabilities |
|
| 179,843 |
|
|
| 152,309 |
|
|
| 188,994 |
|
|
| 152,309 |
|
Current portion of derivative liability |
|
| 31,816 |
|
|
| 17,630 |
|
|
| 1,792 |
|
|
| 17,630 |
|
Accrued interest |
|
| 48,983 |
|
|
| 47,402 |
|
|
| 24,487 |
|
|
| 47,402 |
|
Accrued well drilling and completion costs |
|
| 73,582 |
|
|
| 40,899 |
|
|
| 100,721 |
|
|
| 40,899 |
|
Accrued liabilities |
|
| 95,025 |
|
|
| 87,435 |
|
|
| 120,740 |
|
|
| 87,435 |
|
Total current liabilities |
|
| 659,666 |
|
|
| 547,255 |
|
|
| 660,710 |
|
|
| 547,255 |
|
Long-term debt, less current portion |
|
| 3,094,092 |
|
|
| 2,886,120 |
|
|
| 3,272,315 |
|
|
| 2,886,120 |
|
Deferred income taxes, net |
|
| 32,394 |
|
|
| 33,290 |
|
|
| 31,771 |
|
|
| 33,290 |
|
Asset retirement obligations |
|
| 101,455 |
|
|
| 91,214 |
|
|
| 102,991 |
|
|
| 91,214 |
|
Other long-term liabilities |
|
| 14,754 |
|
|
| 11,886 |
|
|
| 14,707 |
|
|
| 11,886 |
|
Commitments and contingencies |
|
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Partners’ Capital: |
|
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|
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|
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Common limited partners’ interests |
|
| 346,103 |
|
|
| 361,511 |
|
|
| 328,212 |
|
|
| 361,511 |
|
Accumulated other comprehensive income (loss) |
|
| (3,317 | ) |
|
| 10,338 |
| ||||||||
Accumulated other comprehensive income |
|
| 15,744 |
|
|
| 10,338 |
| ||||||||
|
|
| 342,786 |
|
|
| 371,849 |
|
|
| 343,956 |
|
|
| 371,849 |
|
Non-controlling interests |
|
| 3,260,471 |
|
|
| 2,851,027 |
|
|
| 3,367,175 |
|
|
| 2,851,027 |
|
Total partners’ capital |
|
| 3,603,257 |
|
|
| 3,222,876 |
|
|
| 3,711,131 |
|
|
| 3,222,876 |
|
|
| $ | 7,505,618 |
|
| $ | 6,792,641 |
|
| $ | 7,793,625 |
|
| $ | 6,792,641 |
|
See accompanying notes to consolidated financial statements.
3
ATLAS ENERGY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per unit data)
(Unaudited)
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
| 2013 |
|
| 2014 |
|
| 2013 |
|
| 2014 |
| 2013 |
| ||||||||||
Revenues: |
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|
|
|
|
|
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| ||
Gas and oil production |
| $ | 110,694 |
|
| $ | 47,094 |
|
| $ | 211,519 |
|
| $ | 93,158 |
|
| $ | 130,937 |
|
| $ | 83,032 |
|
| $ | 342,456 |
|
| $ | 176,190 |
|
Well construction and completion |
|
| 16,336 |
|
|
| 24,851 |
|
|
| 65,713 |
|
| 81,329 |
|
|
| 61,204 |
|
|
| 10,964 |
|
|
| 126,917 |
|
| 92,293 |
| ||
Gathering and processing |
|
| 721,259 |
|
|
| 535,922 |
|
|
| 1,432,239 |
|
| 956,009 |
|
|
| 726,462 |
|
|
| 582,961 |
|
|
| 2,158,701 |
|
| 1,538,970 |
| ||
Administration and oversight |
|
| 4,166 |
|
|
| 3,391 |
|
|
| 5,895 |
|
| 4,476 |
|
|
| 6,177 |
|
|
| 4,447 |
|
|
| 12,072 |
|
| 8,923 |
| ||
Well services |
|
| 6,365 |
|
|
| 4,864 |
|
|
| 11,844 |
|
| 9,680 |
|
|
| 6,597 |
|
|
| 5,023 |
|
|
| 18,441 |
|
| 14,703 |
| ||
Gain (loss) on mark-to-market derivatives |
| (6,367 | ) |
| 27,107 |
|
|
| (15,038 | ) |
| 15,024 |
|
| 24,155 |
|
| (24,517 | ) |
|
| 9,117 |
| (9,493 | ) | |||||||
Other, net |
|
| (564 | ) |
|
| 566 |
|
|
| 17 |
|
|
| 6,221 |
|
|
| 8,448 |
|
|
| (11,921 | ) |
|
| 8,465 |
|
|
| (5,700 | ) |
Total revenues |
|
| 851,889 |
|
|
| 643,795 |
|
|
| 1,712,189 |
|
|
| 1,165,897 |
|
|
| 963,980 |
|
|
| 649,989 |
|
|
| 2,676,169 |
|
|
| 1,815,886 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Gas and oil production |
|
| 43,828 |
|
|
| 19,035 |
|
|
| 82,586 |
|
| 34,251 |
|
|
| 52,004 |
|
|
| 30,586 |
|
|
| 134,590 |
|
| 64,837 |
| ||
Well construction and completion |
|
| 14,206 |
|
|
| 21,609 |
|
|
| 57,142 |
|
| 70,721 |
|
|
| 53,221 |
|
|
| 9,534 |
|
|
| 110,363 |
|
| 80,255 |
| ||
Gathering and processing |
|
| 612,050 |
|
|
| 453,868 |
|
|
| 1,217,004 |
|
| 805,609 |
|
|
| 619,434 |
|
|
| 492,691 |
|
|
| 1,836,438 |
|
| 1,298,300 |
| ||
Well services |
|
| 2,426 |
|
|
| 2,305 |
|
|
| 4,908 |
|
| 4,623 |
|
|
| 2,617 |
|
|
| 2,386 |
|
|
| 7,525 |
|
| 7,009 |
| ||
General and administrative |
|
| 55,976 |
|
|
| 53,874 |
|
|
| 104,416 |
|
| 94,532 |
|
|
| 46,162 |
|
|
| 61,914 |
|
|
| 150,578 |
|
| 156,446 |
| ||
Depreciation, depletion and amortization |
|
| 109,626 |
|
|
| 68,580 |
|
|
| 210,904 |
|
|
| 120,246 |
|
|
| 115,241 |
|
|
| 94,067 |
|
|
| 326,145 |
|
|
| 214,313 |
|
Total costs and expenses |
|
| 838,112 |
|
|
| 619,271 |
|
|
| 1,676,960 |
|
|
| 1,129,982 |
|
|
| 888,679 |
|
|
| 691,178 |
|
|
| 2,565,639 |
|
|
| 1,821,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
| 13,777 |
|
|
| 24,524 |
|
|
| 35,229 |
|
| 35,915 |
| |||||||||||||||||
Operating income (loss) |
|
| 75,301 |
|
|
| (41,189 | ) |
|
| 110,530 |
|
| (5,274 | ) | |||||||||||||||||
Gain (loss) on asset sales and disposal |
|
| 48,477 |
|
| (2,191 | ) |
|
| 46,874 |
| (2,893 | ) |
|
| (728 | ) |
| (661 | ) |
|
| 46,146 |
| (3,554 | ) | ||||||
Interest expense |
|
| (40,819 | ) |
|
| (27,531 | ) |
|
| (82,133 | ) |
| (53,341 | ) |
|
| (43,683 | ) |
|
| (38,513 | ) |
|
| (125,816 | ) |
| (91,854 | ) | ||
Loss on early extinguishment of debt |
|
| — |
|
|
| (19 | ) |
|
| — |
|
|
| (26,601 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (26,601 | ) |
Net income (loss) before tax |
|
| 21,435 |
|
|
| (5,217 | ) |
|
| (30 | ) |
|
| (46,920 | ) |
|
| 30,890 |
|
|
| (80,363 | ) |
|
| 30,860 |
|
| (127,283 | ) | |
Income tax benefit |
|
| (498 | ) |
|
| (28 | ) |
|
| (896 | ) |
|
| (37 | ) |
|
| (623 | ) |
|
| (817 | ) |
|
| (1,519 | ) |
|
| (854 | ) |
Net income (loss) |
|
| 21,933 |
|
|
| (5,189 | ) |
|
| 866 |
|
|
| (46,883 | ) |
|
| 31,513 |
|
|
| (79,546 | ) |
|
| 32,379 |
|
|
| (126,429 | ) |
Loss (income) attributable to non-controlling interests |
|
| (31,956 | ) |
|
| (3,058 | ) |
|
| (24,814 | ) |
|
| 26,040 |
|
|
| (40,598 | ) |
|
| 52,022 |
|
|
| (65,412 | ) |
|
| 78,062 |
|
Net loss attributable to common limited partners |
| $ | (10,023 | ) |
| $ | (8,247 | ) |
| $ | (23,948 | ) |
| $ | (20,843 | ) |
| $ | (9,085 | ) |
| $ | (27,524 | ) |
| $ | (33,033 | ) |
| $ | (48,367 | ) |
Net loss attributable to common limited partners per unit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
Basic and Diluted |
| $ | (0.19 | ) |
| $ | (0.16 | ) |
| $ | (0.46 | ) |
| $ | (0.41 | ) |
| $ | (0.18 | ) |
| $ | (0.54 | ) |
| $ | (0.64 | ) |
| $ | (0.94 | ) |
Weighted average common limited partner units outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted |
|
| 51,886 |
|
|
| 51,380 |
|
|
| 51,689 |
|
| 51,375 |
|
|
| 51,913 |
|
|
| 51,390 |
|
|
| 51,765 |
|
|
| 51,380 |
|
See accompanying notes to consolidated financial statements.
4
ATLAS ENERGY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(Unaudited)
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
| 2013 |
|
| 2014 |
|
| 2013 |
|
| 2014 |
| 2013 |
| ||||||||||
Net income (loss) |
| $ | 21,933 |
|
| $ | (5,189 | ) |
| $ | 866 |
|
| $ | (46,883 | ) |
| $ | 31,513 |
|
| $ | (79,546 | ) |
| $ | 32,379 |
|
| $ | (126,429 | ) |
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Changes in fair value of derivative instruments accounted for as cash flow hedges |
|
| (28,840 | ) |
|
| 44,381 |
|
|
| (65,094 | ) |
| 19,437 |
|
|
| 70,362 |
|
|
| 16,438 |
|
|
| 5,268 |
|
| 35,875 |
| ||
Less: reclassification adjustment for realized (gains) losses of cash flow hedges in net income (loss) |
|
| 9,522 |
|
|
| (2,286 | ) |
|
| 24,091 |
|
|
| (3,279 | ) |
|
| (1,388 | ) |
|
| (1,300 | ) |
|
| 22,703 |
|
|
| (4,579 | ) |
Total other comprehensive income (loss) |
|
| (19,318 | ) |
|
| 42,095 |
|
|
| (41,003 | ) |
|
| 16,158 |
| ||||||||||||||||
Total other comprehensive income |
|
| 68,974 |
|
|
| 15,138 |
|
|
| 27,971 |
|
|
| 31,296 |
| ||||||||||||||||
Comprehensive income (loss) |
| 2,615 |
|
| 36,906 |
|
|
| (40,137 | ) |
|
| (30,725 | ) |
| 100,487 |
|
| (64,408 | ) |
|
| 60,350 |
|
|
| (95,133 | ) | ||||
Comprehensive (income) loss attributable to non-controlling interests |
|
| (18,096 | ) |
|
| (29,262 | ) |
|
| 2,534 |
|
|
| 14,110 |
|
|
| (90,511 | ) |
|
| 42,898 |
|
|
| (87,977 | ) |
|
| 57,008 |
|
Comprehensive income (loss) attributable to common limited partners |
| $ | (15,481 | ) |
| $ | 7,644 |
|
| $ | (37,603 | ) |
| $ | (16,615 | ) |
| $ | 9,976 |
|
| $ | (21,510 | ) |
| $ | (27,627 | ) |
| $ | (38,125 | ) |
See accompanying notes to consolidated financial statements.
5
ATLAS ENERGY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL
(in thousands, except unit data)
(Unaudited)
|
| Common Limited |
|
| Accumulated |
|
| Non- Controlling |
|
| Total |
|
| Common Limited |
|
| Accumulated |
|
| Non- Controlling |
|
| Total |
| ||||||||||||||||
|
| Units |
|
| Amount |
|
| Income/(Loss) |
|
| Interest |
|
| Capital |
|
| Units |
|
| Amount |
|
| Income |
|
| Interest |
|
| Capital |
| ||||||||||
Balance January 1, 2014 |
|
| 51,413,564 |
|
| $ | 361,511 |
|
| $ | 10,338 |
|
| $ | 2,851,027 |
|
| $ | 3,222,876 |
|
|
| 51,413,564 |
|
| $ | 361,511 |
|
| $ | 10,338 |
|
| $ | 2,851,027 |
|
| $ | 3,222,876 |
|
Distributions to non-controlling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (160,099 | ) |
|
| (160,099 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (252,121 | ) |
|
| (252,121 | ) |
Contributions from Atlas Pipeline Partners, L.P.’s non-controlling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,880 |
|
|
| 7,880 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10,680 |
|
|
| 10,680 |
|
Net issued and unissued units under incentive plans |
|
| 475,655 |
|
|
| 15,452 |
|
|
| — |
|
|
| 16,499 |
|
|
| 31,951 |
|
|
| 535,521 |
|
|
| 29,181 |
|
|
| — |
|
|
| 22,922 |
|
|
| 52,103 |
|
Distributions paid to common limited partners |
|
| — |
|
|
| (47,538 | ) |
|
| — |
|
|
| — |
|
|
| (47,538 | ) |
|
| — |
|
|
| (72,981 | ) |
|
| — |
|
|
| — |
|
|
| (72,981 | ) |
Distribution equivalent rights paid on unissued units under incentive plans |
|
| — |
|
|
| (2,050 | ) |
|
| — |
|
|
| (3,141 | ) |
|
| (5,191 | ) |
|
| — |
|
|
| (3,678 | ) |
|
| — |
|
|
| (4,840 | ) |
|
| (8,518 | ) |
Distributions payable by Atlas Resource Partners, L.P. |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (15,862 | ) |
|
| (15,862 | ) | ||||||||||||||||||||
Distributions payable. |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (15,274 | ) |
|
| (15,274 | ) | ||||||||||||||||||||
Gain on sale of subsidiary unit issuances |
|
| — |
|
|
| 42,676 |
|
|
| — |
|
|
| (42,676 | ) |
|
| — |
|
|
| — |
|
|
| 47,212 |
|
|
| — |
|
|
| (47,212 | ) |
|
| — |
|
Non-controlling interests’ capital contributions |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 609,377 |
|
|
| 609,377 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 714,016 |
|
|
| 714,016 |
|
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| (13,655 | ) |
|
| (27,348 | ) |
|
| (41,003 | ) | ||||||||||||||||||||
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| 5,406 |
|
|
| 22,565 |
|
|
| 27,971 |
| ||||||||||||||||||||
Net income (loss) |
|
| — |
|
|
| (23,948 | ) |
|
| — |
|
|
| 24,814 |
|
|
| 866 |
|
|
| — |
|
|
| (33,033 | ) |
|
| — |
|
|
| 65,412 |
|
|
| 32,379 |
|
Balance at June 30, 2014 |
|
| 51,889,219 |
|
| $ | 346,103 |
|
| $ | (3,317 | ) |
| $ | 3,260,471 |
|
| $ | 3,603,257 |
| ||||||||||||||||||||
Balance at September 30, 2014 |
|
| 51,949,085 |
|
| $ | 328,212 |
|
| $ | 15,744 |
|
| $ | 3,367,175 |
|
| $ | 3,711,131 |
|
See accompanying notes to consolidated financial statements.
6
ATLAS ENERGY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
|
| Six Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
|
| 2013 |
| ||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | 866 |
|
| $ | (46,883 | ) |
| $ | 32,379 |
|
| $ | (126,429 | ) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization |
|
| 210,904 |
|
|
| 120,246 |
|
|
| 326,145 |
|
|
| 214,313 |
|
Amortization of deferred financing costs |
|
| 8,430 |
|
|
| 9,228 |
|
|
| 13,106 |
|
|
| 14,392 |
|
Non-cash compensation expense |
|
| 34,755 |
|
|
| 26,154 |
|
|
| 56,495 |
|
|
| 41,700 |
|
(Gain) loss on asset sales and disposal |
|
| (46,874 | ) |
|
| 2,893 |
|
|
| (46,146 | ) |
|
| 3,554 |
|
Deferred income tax benefit |
|
| (896 | ) |
|
| (37 | ) |
|
| (1,519 | ) |
|
| (854 | ) |
Loss on early extinguishment of debt |
|
| — |
|
|
| 26,601 |
|
|
| — |
|
|
| 26,601 |
|
Distributions paid to non-controlling interests |
|
| (163,240 | ) |
|
| (104,869 | ) |
|
| (256,960 | ) |
|
| (175,182 | ) |
Equity (income) loss in unconsolidated companies |
|
| 5,277 |
|
|
| (1,856 | ) |
|
| 9,631 |
|
|
| (2,103 | ) |
Distributions received from unconsolidated companies |
|
| 4,886 |
|
|
| 4,329 |
|
|
| 6,508 |
|
|
| 6,129 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, prepaid expenses and other |
|
| (50,903 | ) |
|
| (49,812 | ) |
|
| (140,091 | ) |
|
| (59,642 | ) |
Accounts payable and accrued liabilities |
|
| 10,019 |
|
|
| (70,201 | ) |
|
| 48,145 |
|
|
| (1,869 | ) |
Net cash provided by (used in) operating activities |
|
| 13,224 |
|
|
| (84,207 | ) |
|
| 47,693 |
|
|
| (59,390 | ) |
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
| (386,808 | ) |
|
| (345,761 | ) |
|
| (635,873 | ) |
|
| (533,688 | ) |
Net cash paid for acquisitions |
|
| (518,522 | ) |
|
| (1,000,785 | ) |
|
| (507,093 | ) |
|
| (1,777,881 | ) |
Net proceeds from asset sales and disposal |
|
| 132,581 |
|
|
| — |
|
|
| 130,975 |
|
|
| — |
|
Investment in joint ventures |
|
| (7,908 | ) |
|
| (9,813 | ) | ||||||||
Other |
|
| (4,608 | ) |
|
| (5,190 | ) |
|
| 1,094 |
|
|
| (6,154 | ) |
Net cash used in investing activities |
|
| (777,357 | ) |
|
| (1,351,736 | ) |
|
| (1,018,805 | ) |
|
| (2,327,536 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under credit facilities |
|
| 1,341,500 |
|
|
| 1,139,000 |
|
|
| 1,872,500 |
|
|
| 1,996,000 |
|
Repayments under credit facilities |
|
| (1,232,700 | ) |
|
| (1,678,425 | ) |
|
| (1,585,300 | ) |
|
| (1,884,425 | ) |
Net proceeds from issuance of subsidiary long-term debt |
|
| 97,500 |
|
|
| 1,296,260 |
|
|
| 97,386 |
|
|
| 1,538,887 |
|
Repayments of subsidiary long-term debt |
|
| — |
|
|
| (365,822 | ) |
|
| — |
|
|
| (365,822 | ) |
Net proceeds from subsidiary equity offerings |
|
| 609,377 |
|
|
| 1,145,456 |
|
|
| 714,016 |
|
|
| 1,208,979 |
|
Distributions paid to unitholders |
|
| (47,718 | ) |
|
| (31,338 | ) |
|
| (72,981 | ) |
|
| (53,949 | ) |
Contributions from non-controlling interests |
|
| 7,880 |
|
|
| 4,676 |
|
|
| 10,680 |
|
|
| 8,277 |
|
Premium paid on retirement of Atlas Pipeline Partners, L.P. long-term debt |
|
| — |
|
|
| (25,581 | ) |
|
| — |
|
|
| (25,581 | ) |
Deferred financing costs, distribution equivalent rights and other |
|
| (14,155 | ) |
|
| (14,633 | ) |
|
| (21,223 | ) |
|
| (42,722 | ) |
Net cash provided by financing activities |
|
| 761,684 |
|
|
| 1,469,593 |
|
|
| 1,015,078 |
|
|
| 2,379,644 |
|
Net change in cash and cash equivalents |
|
| (2,449 | ) |
|
| 33,650 |
|
|
| 43,966 |
|
|
| (7,282 | ) |
Cash and cash equivalents, beginning of year |
|
| 23,501 |
|
|
| 36,780 |
|
|
| 23,501 |
|
|
| 36,780 |
|
Cash and cash equivalents, end of period |
| $ | 21,052 |
|
| $ | 70,430 |
|
| $ | 67,467 |
|
| $ | 29,498 |
|
See accompanying notes to consolidated financial statements.
7
ATLAS ENERGY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JuneSeptember 30, 2014
(Unaudited)
NOTE 1 — BASIS OF PRESENTATION
Atlas Energy, L.P., (the “Partnership” or “Atlas Energy”) is a publicly-traded Delaware master limited partnership (NYSE: ATLS). At JuneSeptember 30, 2014, the Partnership’s operations primarily consisted of its ownership interests in the following:
· | Atlas Resource Partners, L.P. (“ARP”), a publicly-traded Delaware master limited partnership (NYSE: ARP) and an independent developer and producer of natural gas, crude oil and natural gas liquids (“NGL”), with operations in basins across the United States. ARP sponsors and manages tax-advantaged investment partnerships (“Drilling Partnerships”), in which it coinvests, to finance a portion of its natural gas, crude oil and NGL production activities. At |
· | Atlas Pipeline Partners, L.P. (“APL”), a publicly-traded Delaware master limited partnership (NYSE: APL) and midstream energy service provider engaged in the gathering, processing and treating of natural gas in the mid-continent and southwestern regions of the United States and natural gas gathering services in the Appalachian Basin in the northeastern region of the United States and in the Eagle Ford Shale play in south Texas. At |
· | Lightfoot Capital Partners, L.P. (“Lightfoot LP”) and Lightfoot Capital Partners GP, LLC (“Lightfoot GP”), the general partner of Lightfoot L.P. (collectively, “Lightfoot”), entities which incubate new master limited partnerships (“MLPs”) and invest in existing MLPs. At |
· | Development Subsidiary, a |
· | Certain natural gas and oil producing assets. |
The accompanying consolidated financial statements, which are unaudited except that the balance sheet at December 31, 2013 is derived from audited financial statements, are presented in accordance with the requirements of Form 10-Q and accounting principles generally accepted in the United States (“U.S. GAAP”) for interim reporting. They do not include all disclosures normally made in financial statements contained in Form 10-K. In management’s opinion, all adjustments necessary for a fair presentation of the Partnership’s financial position, results of operations and cash flows for the periods disclosed have been made. These interim consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto presented in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2013. Certain amounts in the prior year’s consolidated financial statements have been reclassified to conform to the current year presentation. The results of operations for the three and sixnine months ended JuneSeptember 30, 2014 may not necessarily be indicative of the results of operations for the full year ending December 31, 2014.
8
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Partnership and its consolidated subsidiaries, all of which are wholly-owned at JuneSeptember 30, 2014, except for ARP, APL and the Development Subsidiary, which are controlled by the Partnership. Due to the structure of the Partnership’s ownership interests in ARP, APL and the Development Subsidiary, the Partnership consolidates the financial statements of ARP, APL and the Development Subsidiary into its consolidated financial statements rather than present its ownership interest as equity investments. As such, the non-controlling interests in ARP, APL and the Development Subsidiary are reflected as (income) loss attributable to non-controlling interests in its consolidated statements of operations and as a component of partners’ capital on its consolidated balance sheets. All material intercompany transactions have been eliminated.
In accordance with established practice in the oil and gas industry, the Partnership’s consolidated financial statements include its pro-rata share of assets, liabilities, income and lease operating and general and administrative costs and expenses of the Drilling Partnerships in which ARP has an interest. Such interests generally approximate 30%. The Partnership’s consolidated financial statements do not include proportional consolidation of the depletion or impairment expenses of ARP’s Drilling Partnerships. Rather, ARP calculates these items specific to its own economics as further explained under the heading “Property, Plant and Equipment” elsewhere within this note.
In connection with ARP’s acquisition of certain proved reserves and associated assets from Titan Operating, L.L.C. in July 2012, ARP issued 3.8 million ARP common units and 3.8 million newly-created convertible Class B ARP preferred units. While outstanding, the preferred units will receive regular quarterly cash distributions equal to the greater of (i) $0.40 and (ii) the quarterly common unit distribution. In March 2014, APL issued 5.1 million of its Class E cumulative redeemable perpetual preferred units (“Class E Preferred Units”). The initial distribution on the Class E Preferred Units was $0.67604 per unit, representing the distribution for the period March 17, 2014 through July 14, 2014. Subsequent to July 14, 2014, APL will pay a quarterly distribution of $0.515625 per unit. In May 2013, APL issued Class D convertible preferred units (“Class D Preferred Units”), which received distributions of additional Class D Preferred Units for the first four full quarterly periods following their issuance in May 2013, and thereafter will receive distributions in Class D Preferred Units, or a combination of Class D Preferred Units and cash (see Note 14). At September 30, 2014 and 2013, $733.3 million and $526.7 million, respectively, related to ARP’s and APL’s preferred units is included within non-controlling interests on the Partnership’s consolidated statements of partners’ capital.
The Partnership’s consolidated financial statements include APL’s 95% ownership interest in certain joint ventures, which individually own a 100% ownership interest in the WestOK natural gas gathering system and processing plants and a 72.8% undivided interest in the WestTX natural gas gathering system and processing plants. These joint ventures have a $1.9 billion note receivable from the holder of the 5% ownership interest in the joint ventures, which was reflected within non-controlling interests on the Partnership’s consolidated balance sheets.
The Partnership’s consolidated financial statements also include APL’s 60% interest in Centrahoma Processing LLC (“Centrahoma”), which was acquired on December 20, 2012 as part of the acquisition of assets from Cardinal Midstream, LLC (the “Cardinal Acquisition”). The remaining 40% ownership interest is held by MarkWest Oklahoma Gas Company LLC (“MarkWest”), a wholly-owned subsidiary of MarkWest Energy Partners, L.P. (NYSE: MWE).
APL consolidates 100% of these joint ventures and the non-controlling interest in the joint venture is reflected on the Partnership’s consolidated statements of operations. The Partnership also reflects the non-controlling interest in the net assets of the joint venture as a component of partners’ capital on its consolidated balance sheets (see Note 4).
The West TX joint venture has a 72.8% undivided joint venture interest in the WestTX system, of which the remaining 27.2% interest is owned by Pioneer Natural Resources Company (NYSE: PXD). Due to the WestTX system’s status as an undivided joint venture, the WestTX joint venture proportionally consolidates its 72.8% ownership interest in the assets and liabilities and operating results of the WestTX system.
During the nine months ended September 30, 2014, the Development Subsidiary issued $53.0 million of its common limited partner units, which was included within non-controlling interests in partners’ capital on the Partnership’s consolidated balance sheet. During the nine months ended September 30, 2014, the Development Subsidiary paid $0.6 million to unitholders, which was included within distributions paid to non-controlling interests on the Partnership’s consolidated statement of cash flows. For the nine months ended September 30, 2014, in connection with the issuance of the
9
Development Subsidiary’s common units, the Partnership recorded gains of $3.8 million within partners’ capital and a corresponding decrease in non-controlling interests on its consolidated statement of partners’ capital (see Note 14).
Use of Estimates
The preparation of the Partnership’s consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities that exist at the date of the Partnership’s consolidated financial statements, as well as the reported amounts of revenue and costs and expenses during the reporting periods. The Partnership’s consolidated financial statements are based on a number of significant estimates, including revenue and expense accruals, depletion, depreciation and amortization, asset impairments, fair value of derivative instruments, the probability of forecasted transactions and the allocation of purchase price to the fair value of assets acquired and liabilities assumed. Actual results could differ from those estimates.
The natural gas industry principally conducts its business by processing actual transactions as many as 60 days after the month of delivery. Consequently, the most recent two months’ financial results were recorded using estimated volumes and contract market prices. Differences between estimated and actual amounts are recorded in the following month’s financial results. Management believes that the operating results presented for the three and sixnine months ended JuneSeptember 30, 2014 and 2013 represent actual results in all material respects (see “Revenue Recognition”).
9
Receivables
Accounts receivable on the consolidated balance sheets consist primarily of the trade accounts receivable associated with the Partnership and its subsidiaries. In evaluating the realizability of its accounts receivable, management performs ongoing credit evaluations of customers and adjusts credit limits based upon payment history and the customer’s current creditworthiness, as determined by management’s review of customers’ credit information. The Partnership and its subsidiaries extend credit on sales on an unsecured basis to many of itstheir customers. At JuneSeptember 30, 2014 and December 31, 2013, the Partnership had recorded no allowance for uncollectible accounts receivable on its consolidated balance sheets.
Inventory
The Partnership had $33.4$30.3 million and $19.7 million of inventory at JuneSeptember 30, 2014 and December 31, 2013, respectively, which were included within prepaid expenses and other current assets on its consolidated balance sheets. The Partnership and its subsidiaries value inventories at the lower of cost or market. ARP’s inventories, which consist of materials, pipes, supplies and other inventories, were principally determined using the average cost method. APL’s crude oil and refined product inventory costs consist of APL’s natural gas liquids line fill, which represents amounts receivable for NGLs delivered to counterparties for which the counterparty will pay at a designated later period at a price determined by the then current market price.
Property, Plant and Equipment
Property, plant and equipment are stated at cost or, upon acquisition of a business, at the fair value of the assets acquired. Maintenance and repairs which generally do not extend the useful life of an asset for two years or more through the replacement of critical components are expensed as incurred. Major renewals and improvements which generally extend the useful life of an asset for two years or more through the replacement of critical components are capitalized. Depreciation and amortization expense is based on cost less the estimated salvage value primarily using the straight-line method over the asset’s estimated useful life. When entire pipeline systems, gas plants or other property and equipment are retired or sold, any gain or loss is included in the Partnership’s results of operations. APL follows the composite method of depreciation and has determined the composite groups to be the major asset classes of its gathering, processing and treating systems. Under the composite depreciation method, any gain or loss upon disposition or retirement of pipeline, gas gathering, processing and treating components, is recorded to accumulated depreciation. When entire pipeline systems, gas plants or other property and equipment are retired or sold, any gain or loss is included in the Partnership’s consolidated statements of operations.
The Partnership and ARP follow the successful efforts method of accounting for oil and gas producing activities. Exploratory drilling costs are capitalized pending determination of whether a well is successful. Exploratory wells subsequently determined to be dry holes are charged to expense. Costs resulting in exploratory discoveries and all development costs, whether successful or not, are capitalized. Geological and geophysical costs to enhance or evaluate development of proved fields or areas are capitalized. All other geological and geophysical costs, delay rentals and
10
unsuccessful exploratory wells are expensed. Oil and natural gas liquids are converted to gas equivalent basis (“Mcfe”) at the rate of one barrel to 6 Mcf of natural gas. Mcf is defined as one thousand cubic feet.
The Partnership and ARP’s depletion expense is determined on a field-by-field basis using the units-of-production method. Depletion rates for leasehold acquisition costs are based on estimated proved reserves, and depletion rates for well and related equipment costs are based on proved developed reserves associated with each field. Depletion rates are determined based on reserve quantity estimates and the capitalized costs of undeveloped and developed producing properties. Capitalized costs of developed producing properties in each field are aggregated to include ARP’s costs of property interests in proportionately consolidated Drilling Partnerships, joint venture wells, wells drilled solely by ARP for its interests, properties purchased and working interests with other outside operators.
Upon the sale or retirement of a complete field of a proved property, the cost is eliminated from the property accounts, and the resultant gain or loss is reclassified to the Partnership’s consolidated statements of operations. Upon the sale of an individual well, the proceeds are credited to accumulated depreciation and depletion within the Partnership’s consolidated balance sheets. Upon sale of an entire interest in an unproved property where the property had been assessed for impairment individually, a gain or loss is recognized in the Partnership’s consolidated statements of operations. If a partial interest in an unproved property is sold, any funds received are accounted for as a reduction of the cost in the interest retained.
10
Impairment of Long-Lived Assets
The Partnership and its subsidiaries review their long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined that an asset’s estimated future cash flows will not be sufficient to recover its carrying amount, an impairment charge will be recorded to reduce the carrying amount for that asset to its estimated fair value if such carrying amount exceeds the fair value.
The review of oil and gas properties is done on a field-by-field basis by determining if the historical cost of proved properties less the applicable accumulated depletion, depreciation and amortization and abandonment is less than the estimated expected undiscounted future cash flows. The expected future cash flows are estimated based on the Partnership’s and ARP’s plans to continue to produce and develop proved reserves. Expected future cash flows from the sale of production of reserves are calculated based on estimated future prices. The Partnership and ARP estimate prices based upon current contracts in place, adjusted for basis differentials and market related information including published futures prices. The estimated future level of production is based on assumptions surrounding future prices and costs, field decline rates, market demand and supply and the economic and regulatory climates. If the carrying value exceeds the expected future cash flows, an impairment loss is recognized for the difference between the estimated fair market value (as determined by discounted future cash flows) and the carrying value of the assets.
The determination of oil and natural gas reserve estimates is a subjective process, and the accuracy of any reserve estimate depends on the quality of available data and the application of engineering and geological interpretation and judgment. Estimates of economically recoverable reserves and future net cash flows depend on a number of variable factors and assumptions that are difficult to predict and may vary considerably from actual results. In particular, ARP’s reserve estimates for its investment in the Drilling Partnerships are based on its own assumptions rather than its proportionate share of the limited partnerships’ reserves. These assumptions include ARP’s actual capital contributions and a disproportionate share of salvage value upon plugging of the wells and lower operating and administrative costs.
ARP’s lower operating and administrative costs result from the limited partners in the Drilling Partnerships paying to ARP their proportionate share of these expenses plus a profit margin. These assumptions could result in ARP’s calculation of depletion and impairment being different than its proportionate share of the Drilling Partnerships’ calculations for these items. In addition, reserve estimates for wells with limited or no production history are less reliable than those based on actual production. Estimated reserves are often subject to future revisions, which could be substantial, based on the availability of additional information which could cause the assumptions to be modified. The Partnership and ARP cannot predict what reserve revisions may be required in future periods.
ARP’s method of calculating its reserves may result in reserve quantities and values which are greater than those which would be calculated by the Drilling Partnerships, which ARP sponsors and owns an interest in but does not control. ARP’s reserve quantities include reserves in excess of its proportionate share of reserves in Drilling Partnerships, which ARP may be unable to recover due to the Drilling Partnerships’ legal structure. ARP may have to pay additional consideration in the future as a Drilling Partnership’s wells become uneconomic to the Drilling Partnership under the terms of the Drilling Partnership’s drilling and operating agreement in order to recover these excess reserves, in addition to ARP becoming responsible for paying associated future operating, development and plugging costs of the well interests acquired, and to acquire any additional residual interests in the wells held by the Drilling Partnership’s limited partners. The acquisition of any such uneconomic well interest from the Drilling Partnership by ARP is governed under the Drilling Partnership’s limited
11
partner agreement. In general, ARP will seek consent from the Drilling Partnership’s limited partners to acquire the well interests from the Drilling Partnership based upon ARP’s determination of fair market value.
Unproved properties are reviewed annually for impairment or whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment charges are recorded if conditions indicate that the Partnership and ARP will not explore the acreage prior to expiration of the applicable leases or if it is determined that the carrying value of the properties is above their fair value. During the year ended December 31, 2013, ARP recognized $13.5 million of asset impairments related to its gas and oil properties within property, plant and equipment, net on the Partnership’s consolidated balance sheet, primarily for its unproved acreage in the Chattanooga and New Albany Shales. There were no impairments of unproved gas and oil properties recorded by ARP for the three and sixnine months ended JuneSeptember 30, 2014 and 2013.
11
Proved properties are reviewed annually for impairment or whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. During the year ended December 31, 2013, ARP recognized $24.5 million of asset impairments related to its gas and oil properties within property, plant and equipment, net on the Partnership’s consolidated balance sheet for its shallow natural gas wells in the New Albany Shale. There were no impairments of proved gas and oil properties recorded by ARP for the three and sixnine months ended JuneSeptember 30, 2014 and 2013.
The impairments of proved and unproved properties during the year ended December 31, 2013 related to the carrying amounts of these gas and oil properties being in excess of ARP’s estimate of their fair values at December 31, 2013 and ARP’s intention not to drill on certain expiring unproved acreage. The estimate of the fair values of these gas and oil properties was impacted by, among other factors, the deterioration of natural gas prices at the date of measurement.
Capitalized Interest
ARP and APL capitalize interest on borrowed funds related to capital projects only for periods that activities are in progress to bring these projects to their intended use. The weighted average interest rates used to capitalize interest on combined borrowed funds by ARP and APL were both 5.8%5.5% and 6.1% for the three months ended JuneSeptember 30, 2014 and 2013, respectively, and 5.7%5.6% and 6.0% for the sixnine months ended JuneSeptember 30, 2014 and 2013, respectively. The aggregate amounts of interest capitalized by ARP and APL were $6.3$7.5 million and $4.8$5.1 million for the three months ended JuneSeptember 30, 2014 and 2013, respectively, and $11.8$19.2 million and $10.7$15.8 million for the sixnine months ended JuneSeptember 30, 2014 and 2013, respectively.
Intangible Assets
Customer contracts and relationships. APL amortizes intangible assets with finite lives in connection with natural gas gathering contracts and customer relationships assumed in certain consummated acquisitions, including the acquisitions of assets from TEAK Midstream, LLC (“TEAK”) in 2013 (the “TEAK Acquisition”) (see Note 3), over their estimated useful lives. If an intangible asset has a finite useful life, but the precise length of that life is not known, that intangible asset must be amortized over the best estimate of its useful life. At a minimum, APL will assess the useful lives of all intangible assets on an annual basis to determine if adjustments are required. The estimated useful life for APL’s customer contract intangible assets is based upon the approximate average length of customer contracts in existence and expected renewals at the date of acquisition. The estimated useful life for APL’s customer relationship intangible assets is based upon the estimated average length of non-contracted customer relationships in existence at the date of acquisition, adjusted for APL’s management’s estimate of whether the individual relationships will continue in excess of or less than the average length. As part of the TEAK Acquisition, APL recognized $450.0 million of customer relationships with an estimated useful life of 13 years.
Partnership management and operating contracts. ARP has recorded intangible assets with finite lives in connection with partnership management and operating contracts acquired through prior consummated acquisitions. ARP amortizes contracts acquired on a declining balance method over their respective estimated useful lives.
12
The following table reflects the components of intangible assets being amortized at JuneSeptember 30, 2014 and December 31, 2013 (in thousands):
|
| June 30, |
|
| December 31, |
|
| Estimated |
|
| September 30, |
|
| December 31, |
|
| Estimated |
| ||||||
Gross Carrying Amount: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Customer contracts and relationships |
| $ | 871,072 |
|
| $ | 891,072 |
|
|
| 2–15 |
|
| $ | 871,072 |
|
| $ | 891,072 |
|
|
| 2–15 |
|
Partnership management and operating contracts |
|
| 14,344 |
|
|
| 14,344 |
|
|
| 13 |
|
|
| 14,344 |
|
|
| 14,344 |
|
|
| 13 |
|
|
| $ | 885,416 |
|
| $ | 905,416 |
|
|
|
|
| $ | 885,416 |
|
| $ | 905,416 |
|
|
|
| ||
Accumulated Amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Customer contracts and relationships |
| $ | (236,986 | ) |
| $ | (194,801 | ) |
|
|
|
| $ | (256,255 | ) |
| $ | (194,801 | ) |
|
|
| ||
Partnership management and operating contracts |
|
| (13,517 | ) |
|
| (13,381 | ) |
|
|
|
|
| (13,585 | ) |
|
| (13,381 | ) |
|
|
| ||
|
| $ | (250,503 | ) |
| $ | (208,182 | ) |
|
|
|
| $ | (269,840 | ) |
| $ | (208,182 | ) |
|
|
| ||
Net Carrying Amount: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Customer contracts and relationships |
| $ | 634,086 |
|
| $ | 696,271 |
|
|
|
|
| $ | 614,817 |
|
| $ | 696,271 |
|
|
|
| ||
Partnership management and operating contracts |
|
| 827 |
|
|
| 963 |
|
|
|
|
|
| 759 |
|
|
| 963 |
|
|
|
| ||
|
| $ | 634,913 |
|
| $ | 697,234 |
|
|
|
|
| $ | 615,576 |
|
| $ | 697,234 |
|
|
|
|
Amortization expense on intangible assets was $20.8$19.3 million and $22.3$24.0 million for the three months ended JuneSeptember 30, 2014 and 2013, respectively, and $42.3$61.7 million and $30.5$54.5 million for the sixnine months ended JuneSeptember 30, 2014 and 2013, respectively. Aggregate estimated annual amortization expense for all of the contracts described above for the next five years ending December 31 is as follows: 2014 - $80.3 million; 2015 - $74.3 million; 2016 - $74.2 million; 2017 - $68.1 million; and 2018 - $59.6 million.
Goodwill
The following table reflects the carrying amounts of goodwill by reportable operating segments at JuneSeptember 30, 2014 and December 31, 2013 (in thousands):
| June 30, |
|
| December 31, |
| September 30, |
|
| December 31, |
| ||||
| 2014 |
|
| 2013 |
| 2014 |
|
| 2013 |
| ||||
Atlas Resource | $ | 31,784 |
|
| $ | 31,784 |
| $ | 31,784 |
|
| $ | 31,784 |
|
Atlas Pipeline |
| 365,763 |
|
|
| 368,572 |
|
| 365,763 |
|
|
| 368,572 |
|
| $ | 397,547 |
|
| $ | 400,356 |
| $ | 397,547 |
|
| $ | 400,356 |
|
At JuneSeptember 30, 2014, the Partnership had $397.5 million of goodwill, which consisted of $31.8 million related to acquisitions previously consummated by ARP and $365.8 million related to acquisitions previously consummated by APL. The change in APL’s goodwill during the sixnine months ended JuneSeptember 30, 2014 is primarily related to a $2.8 million decrease in goodwill related to an adjustment of the fair value of assets acquired and liabilities assumed from the TEAK Acquisition (see Note 3).
13
ARP and APL test goodwill for impairment at each year end by comparing its reporting unit estimated fair values to carrying values, with the exception of APL’s SouthTX reporting unit which is tested as of April 30, 2014. Because quoted market prices for the reporting units are not available, management must apply judgment in determining the estimated fair value of these reporting units. ARP’s and APL’s management uses all available information to make these fair value determinations, including the present values of expected future cash flows using discount rates commensurate with the risks involved in the assets and the available market data of the respective industry group. A key component of these fair value determinations is a reconciliation of the sum of the fair value calculations to market capitalization. The observed market prices of individual trades of an entity’s equity securities (and thus its computed market capitalization) may not be representative of the fair value of the entity as a whole. Substantial value may arise from the ability to take advantage of synergies and other benefits that flow from control over another entity. Consequently, measuring the fair value of a collection of assets and liabilities that operate together in a controlled entity is different from measuring the fair value of that entity on a stand-alone basis. In most industries, including ARP’s and APL’s, an acquiring entity typically is willing to pay more for equity securities that give it a controlling interest than an investor would pay for a number of equity securities representing less than a controlling interest. Therefore, once the above fair value calculations have been determined, ARP and APL also consider the inclusion of a control premium within the calculations. This control premium is judgmental and is based on, among other items, observed acquisitions in ARP’s and APL’s industry. The resultant fair values calculated for the reporting units are compared to observable metrics on large mergers and acquisitions in ARP’s and APL’s industry to determine whether those valuations appear reasonable in management’s judgment. ARP’s and APL’s management will continue to evaluate goodwill at least annually or when impairment indicators arise.
Subsequent to recording the final estimated fair values of the assets acquired and liabilities assumed in the Cardinal Acquisition, APL determined that a portion of goodwill recorded in connection with the acquisition was impaired. APL performed a qualitative assessment for goodwill impairment of APL’s gas treating reporting unit. The assessment indicated the potential for goodwill to be impaired due to lower forecasted cash flows as compared to original forecasts. Using a combination of discounted cash flow models and market multiples for similar businesses, APL measured the amount of goodwill impairment to be $43.9 million, which was recorded within asset impairment on the Partnership’s consolidated statement of operations for the year ended December 31, 2013.
During the three and sixnine months ended JuneSeptember 30, 2014 and 2013, no impairment indicators arose and no goodwill impairments were recognized for ARP or APL by the Partnership.
Asset Retirement Obligations
The Partnership and ARP recognize an estimated liability for the plugging and abandonment of their respective gas and oil wells and related facilities (see Note 7). The Partnership and ARP also recognize a liability for their respective future asset retirement obligations in the current period if a reasonable estimate of the fair value of that liability can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. The Partnership and its subsidiaries also consider the estimated salvage value in the calculation of depreciation, depletion and amortization.
APL performs ongoing analysis of asset removal and site restoration costs that it may be required to perform under law or contract once an asset has been permanently taken out of service. APL has property, plant and equipment at locations it owns and at sites leased or under right of way agreements. APL is under no contractual obligation to remove the assets at locations it owns. In evaluating its asset retirement obligation, APL reviews its lease agreements, right of way agreements, easements and permits to determine which agreements, if any, require an asset removal and restoration obligation. Determination of the amounts to be recognized is based upon numerous estimates and assumptions, including expected settlement dates, future retirement costs, future inflation rates and the credit-adjusted-risk-free interest rates. However, APL was not able to reasonably measure the fair value of the asset retirement obligation as of JuneSeptember 30, 2014 or December 31, 2013 because the settlement dates were indeterminable. Any cost incurred in the future to remove assets and restore sites will be expensed as incurred.
Income Taxes
The Partnership is not subject to U.S. federal and most state income taxes. The partners of the Partnership are liable for income tax in regard to their distributive share of the Partnership’s taxable income. Such taxable income may vary substantially from net income (loss) reported in the accompanying consolidated financial statements.
14
The Partnership evaluates tax positions taken or expected to be taken in the course of preparing the Partnership’s tax returns and disallows the recognition of tax positions not deemed to meet a “more-likely-than-not” threshold of being sustained by the applicable tax authority. The Partnership’s management does not believe it has any tax positions taken within its consolidated financial statements that would not meet this threshold. The Partnership’s policy is to reflectrecord interest and penalties related to uncertain tax positions, when and if they become applicable. The Partnership has not recognized any potential interest or penalties in its consolidated financial statements for the three and sixnine months ended JuneSeptember 30, 2014 and 2013.
The Partnership files Partnership Returns of Income in the U.S. and various state jurisdictions. With few exceptions, the Partnership is no longer subject to income tax examinations by major tax authorities for years prior to 2010.2011. The Partnership is not currently being examined by any jurisdiction and is not aware of any potential examinations as of JuneSeptember 30, 2014, except for an ongoing examination by the Texas Comptroller of Public Accounts related to APL’s Texas Franchise Tax for franchise report years 2008 through 2011.
Certain corporate subsidiaries of the Partnership are subject to federal and state income tax. With the exception of a corporate subsidiary acquired by APL through the Cardinal acquisition in 2012, the federal and state income taxes related to the Partnership and these corporate subsidiaries were immaterial to the consolidated financial statements as of JuneSeptember 30, 2014 and are recorded in pre-tax income on a current basis only. Accordingly, no federal or state deferred income tax has been provided for these corporate subsidiaries in the accompanying consolidated financial statements. APL’s corporate subsidiary accounts for income taxes under the asset and liability method. Deferred income taxes are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and net operating loss and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of any tax rate change on deferred taxes is recognized in the period that includes the enactment date of the tax rate change. Realization of deferred tax assets is assessed and, if not more likely than not, a valuation allowance is recorded to write down the deferred tax assets to their net realizable value. The effective tax rate differs from the statutory rate due primarily to APL earnings that are generally not subject to federal and state income taxes at the APL level (see Note 11).
Net Income (Loss) Per Common Unit
Basic net income (loss) attributable to common limited partners per unit is computed by dividing net income (loss) attributable to common limited partners, which is determined after the deduction of net income attributable to participating securities, if applicable, by the weighted average number of common limited partner units outstanding during the period.
Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are included in the computation of earnings per unit pursuant to the two-class method. The Partnership’s phantom unit awards, which consist of common units issuable under the terms of its long-term incentive plans and incentive compensation agreements (see Note 16), contain non-forfeitable rights to distribution equivalents of the Partnership. The participation rights result in a non-contingent transfer of value each time the Partnership declares a distribution or distribution equivalent right during the award’s vesting period. However, unless the contractual terms of the participating securities require the holders to share in the losses of the entity, net loss is not allocated to the participating securities. As such, the net income utilized in the calculation of net income (loss) per unit must be after the allocation of only net income to the phantom units on a pro-rata basis.
The following is a reconciliation of net income (loss) allocated to the common limited partners for purposes of calculating net income (loss) attributable to common limited partners per unit (in thousands, except unit data):
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
Continuing Operations: |
| 2014 |
|
| 2013 |
|
| 2014 |
| 2013 |
|
| 2014 |
|
| 2013 |
|
| 2014 |
| 2013 |
| ||||||||||
Net income (loss) |
| $ | 21,933 |
|
| $ | (5,189 | ) |
| $ | 866 |
| $ | (46,883 | ) |
| $ | 31,513 |
|
| $ | (79,546 | ) |
| $ | 32,379 |
| $ | (126,429 | ) | ||
Loss (income) attributable to non-controlling interests |
|
| (31,956 | ) |
|
| (3,058 | ) |
|
| (24,814 | ) |
|
| 26,040 |
|
|
| (40,598 | ) |
|
| 52,022 |
|
|
| (65,412 | ) |
|
| 78,062 |
|
Net loss attributable to common limited partners |
|
| (10,023 | ) |
|
| (8,247 | ) |
|
| (23,948 | ) |
|
| (20,843 | ) |
|
| (9,085 | ) |
|
| (27,524 | ) |
|
| (33,033 | ) |
|
| (48,367 | ) |
Less: Net income attributable to participating securities – phantom units(1) |
|
| — |
|
|
| — |
|
|
| — |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| |
Net loss utilized in the calculation of net loss attributable to common limited partners per unit |
| $ | (10,023 | ) |
| $ | (8,247 | ) |
| $ | (23,948 | ) |
| $ | (20,843 | ) |
| $ | (9,085 | ) |
| $ | (27,524 | ) |
| $ | (33,033 | ) |
| $ | (48,367 | ) |
(1) | Net income attributable to common limited partners’ ownership interests is allocated to the phantom units on a pro-rata basis (weighted average phantom units outstanding as a percentage of the sum of the weighted average phantom units and common limited partner units outstanding). For the three months ended |
Diluted net income (loss) attributable to common limited partners per unit is calculated by dividing net income (loss) attributable to common limited partners, less income allocable to participating securities, by the sum of the weighted average number of common limited partner units outstanding and the dilutive effect of unit option awards, as calculated by the treasury stock method. Unit options consist of common units issuable upon payment of an exercise price by the participant under the terms of the Partnership’s long-term incentive plans (see Note 16).
The following table sets forth the reconciliation of the Partnership’s weighted average number of common limited partner units used to compute basic net income (loss) attributable to common limited partners per unit with those used to compute diluted net income (loss) attributable to common limited partners per unit (in thousands):
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
| 2013 |
|
| 2014 |
|
| 2013 |
|
| 2014 |
| 2013 |
| ||||||||||
Weighted average number of common limited partners per unit—basic |
|
| 51,886 |
|
|
| 51,380 |
|
|
| 51,689 |
|
| 51,375 |
|
|
| 51,913 |
|
|
| 51,390 |
|
|
| 51,765 |
|
| 51,380 |
| ||
Add effect of dilutive incentive awards(1) |
|
| — |
|
|
| — |
|
|
| — |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| — |
| ||
Weighted average number of common limited partners per unit—diluted |
|
| 51,886 |
|
|
| 51,380 |
|
|
| 51,689 |
|
| 51,375 |
|
|
| 51,913 |
|
|
| 51,390 |
|
|
| 51,765 |
|
| 51,380 |
|
(1) | For the three months ended |
Accrued Producer Liabilities
Accrued producer liabilities on the Partnership’s consolidated balance sheets represent APL’s accrued purchase commitments payable to producers related to the natural gas gathered and processed through its system under its Percentage of Proceeds (“POP”) and Keep-Whole contracts (see “Revenue Recognition”).
16
Revenue Recognition
Natural gas and oil production. The Partnership and ARP generally sell natural gas, crude oil and NGLs at prevailing market prices. Typically, sales contracts are based on pricing provisions that are tied to a market index, with certain fixed adjustments based on proximity to gathering and transmission lines and the quality of its natural gas. Generally, the market index is fixed two business days prior to the commencement of the production month. Revenue and the related accounts receivable are recognized when produced quantities are delivered to a custody transfer point, persuasive evidence of a sales arrangement exists, the rights and responsibility of ownership pass to the purchaser upon delivery, collection of revenue from the sale is reasonably assured and the sales price is fixed or determinable. Revenues from the production of natural gas, crude oil and NGLs, in which the Partnership or ARP has an interest with other producers, are recognized on the basis of the entity’s percentage ownership of the working interest and/or overriding royalty.
ARP’s Drilling Partnerships. Certain energy activities are conducted by ARP through, and a portion of its revenues are attributable to, the Drilling Partnerships. ARP contracts with the Drilling Partnerships to drill partnership wells. The contracts require that the Drilling Partnerships pay ARP the full contract price upon execution. The income from a drilling contract is recognized as the services are performed using the percentage of completion method. The contracts are typically completed between 60 and 270 days. On an uncompleted contract, ARP classifies the difference between the contract payments it has received and the revenue earned as a current liability titled “Liabilities Associated with Drilling Contracts” on the Partnership’s consolidated balance sheets. ARP recognizes well services revenues at the time the services are performed. ARP is also entitled to receive management fees according to the respective partnership agreements and recognizes such fees as income when earned, which are included in administration and oversight revenues within the Partnership’s consolidated statements of operations.
ARP’s Gathering and processing revenue. Gathering and processing revenue includes gathering fees ARP charges to the Drilling Partnership wells for ARP’s processing plants in the New Albany and the Chattanooga Shales. Generally, ARP charges a gathering fee to the Drilling Partnership wells equivalent to the fees ARP remits. In Appalachia, a majority of the Drilling Partnership wells are subject to a gathering agreement, whereby ARP remits a gathering fee of 16%. However, based on the respective Drilling Partnership agreements, ARP charges the Drilling Partnership wells a 13% gathering fee. As a result, some of ARP’s gathering expenses, specifically those in the Appalachian Basin, will generally exceed the revenues collected from the Drilling Partnerships by approximately 3%.
Atlas Pipeline. APL’s revenue primarily consists of the sale of natural gas and NGLs, along with the fees earned from its gathering, processing, treating and transportation operations. Under certain agreements, APL purchases natural gas from producers, moves it into receipt points on its pipeline systems and then sells the natural gas, or produced NGLs, if any, at delivery points on its systems. Under other agreements, APL gathers natural gas across its systems, from receipt to delivery point, without taking title to the natural gas. Revenue associated with the physical sale of natural gas and NGLs is recognized upon physical delivery. In connection with its gathering, processing and transportation operations, APL enters into the following types of contractual relationships with its producers and shippers:
· | Fee-Based Contracts. These contracts provide a set fee for gathering and/or processing raw natural gas and for transporting NGLs. APL’s revenue is a function of the volume of natural gas that it gathers and processes or the volume of NGLs transported and is not directly dependent on the value of the natural gas or NGLs. However, sustained low commodity prices could result in a decline in volumes and a corresponding decrease in fee revenue. APL is also paid a separate compression fee on many of its gathering systems. The fee is dependent upon the volume of gas flowing through its compressors and the quantity of compression stages utilized to gather the gas. |
· | POP Contracts. These contracts provide for APL to retain a negotiated percentage of the sale proceeds from residue gas and NGLs it gathers and processes, with the remainder being remitted to the producer. In this contract-type, APL and the producer are directly dependent on the volume of the commodity and its value; APL effectively owns a percentage of the commodity and revenues are directly correlated to its market value. POP contracts may include a fee component which is charged to the producer. |
· | Fixed Recoveries. Fee-based or POP contracts sometimes include fixed recovery terms, which mean that the prices paid or products returned to the producer are calculated using an agreed NGL recovery factor, regardless of the volumes of NGLs actually recovered through processing. |
17
· | Keep-Whole Contracts. These contracts require APL, as the processor and gatherer, to gather or purchase raw natural gas at current market rates per MMBtu. The volume and energy content of gas gathered or purchased is based on the measurement at an agreed upon location (generally at the wellhead). The Btu quantity of gas redelivered or sold at the tailgate of APL’s processing facility may be lower than the Btu quantity purchased at the wellhead primarily due to the NGLs extracted from the natural gas when processed through a plant. APL must make up or “keep the producer whole” for this loss in Btu quantity. To offset the make-up obligation, APL retains the NGLs which are extracted and sells them for its own account. Therefore, APL bears the economic risk (the “processing margin risk”) that (i) the Btu quantity of residue gas available for redelivery to the producer may be less than APL received from the producer; and/or (ii) aggregate proceeds from the sale of the processed natural gas and NGLs could be less than the amount that it paid for the unprocessed natural gas. In order to help mitigate the risk associated with Keep-Whole contracts, APL generally imposes a fee to gather the gas that is settled under this arrangement. Also, because the natural gas volumes contracted under some Keep-Whole agreements are lower in Btu content and thus can meet downstream pipeline specifications without being processed, the natural gas can be bypassed around the processing plants on these systems and delivered directly into downstream pipelines during periods when the processing margin is uneconomic. |
The Partnership and its subsidiaries accrue unbilled revenue and APL accrues the related purchase costs due to timing differences between the delivery of natural gas, NGLs, crude oil and condensate and the receipt of a delivery statement. These revenues are recorded based upon volumetric data and management estimates of the related commodity sales and transportation and compression fees which are, in turn, based upon applicable product prices (see “Use of Estimates” for further description). The Partnership and its subsidiaries had unbilled revenues of $267.7$267.9 million and $191.8 million at JuneSeptember 30, 2014 and December 31, 2013, respectively, which were included in accounts receivable within its consolidated balance sheets. APL’s accrued purchase costs at JuneSeptember 30, 2014 and December 31, 2013 are included within accrued producer liabilities within the Partnership’s consolidated balance sheets.
Comprehensive Income (Loss)
Comprehensive income (loss) includes net income (loss) and all other changes in the equity of a business during a period from transactions and other events and circumstances from non-owner sources that, under U.S. GAAP, have not been recognized in the calculation of net income (loss). These changes, other than net income (loss), are referred to as “other comprehensive income (loss)” on the Partnership’s consolidated financial statements, and for all periods presented, only include changes in the fair value of unsettled derivative contracts accounted for as cash flow hedges (see Note 9). The Partnership does not have any other type of transaction which would be included within other comprehensive income (loss).
Recently Adopted Accounting Standards
In July 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-11, Income Taxes (Topic 740) – Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (“Update 2013-11”), which, among other changes, requires an entity to present an unrecognized tax benefit as a liability and not net with deferred tax assets when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date to settle any additional income taxes under the tax law of the applicable jurisdiction that would result from the disallowance of a tax position or when the tax law of the applicable tax jurisdiction does not require, and the entity does not intend to, use the deferred tax asset for such purpose. These requirements are effective for interim and annual reporting periods beginning after December 15, 2013. Early adoption was permitted. These amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application was permitted. The Partnership adopted the requirements of Update 2013-11 upon its effective date of January 1, 2014, and it had no material impact on its financial position, results of operations or related disclosures.
18
In February 2013, the FASB issued ASU 2013-04, Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date (“Update 2013-04”). Update 2013-04 provides guidance for the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements, for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, except for obligations addressed within existing guidance in U.S. GAAP. Examples of obligations within the scope of this update include debt arrangements, other contractual obligations and settled litigation and judicial rulings. Update 2013-04 requires an entity to measure joint and several liability arrangements, for which the total amount of the obligation is fixed at the reporting date as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. In addition, Update 2013-04 provides disclosure guidance on the nature and amount of the obligation as well as other information. Update 2013-04 is effective for fiscal years and interim periods within those years, beginning after December 15, 2013. The Partnership adopted the requirements of Update 2013-04 upon its effective date of January 1, 2014, and it had no material impact on its financial position, results of operations or related disclosures.
Recently Issued Accounting Standards
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40) (“Update 2014-15”). The amendments in Update 2014-15 provide U.S. GAAP guidance on the responsibility of an entity’s management in evaluating whether there is substantial doubt about the entity’s ability to continue as a going concern and about related footnote disclosures. For each reporting period, an entity’s management will be required to evaluate whether there are conditions or events that raise substantial doubt about its ability to continue as a going concern within one year from the date the financial statements are issued. In doing so, the amendments in Update 2014-15 should reduce diversity in the timing and content of footnote disclosures. The amendments in Update 2014-15 are effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter. Early adoption is permitted. The Partnership will adopt the requirements of Update 2014-15 upon its effective date of January 1, 2016, and it does not anticipate it having a material impact on its financial position, results of operations or related disclosures.
In June 2014, the FASB issued ASU 2014-12, Compensation – Stock Compensation (Topic 718) (“Update 2014-12”). The amendments in Update 2014-12 require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. The amendments in Update 2014-12 are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. Entities may apply the amendments in Update 2014-12 either (a) prospectively to all awards granted or modified after the effective date, or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. The Partnership will adopt the requirements of Update 2014-12 upon its effective date of January 1, 2016, and is evaluating the impact of the adoption on its financial position, results of operations or related disclosures.
19
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“Update 2014-09”), which supersedes the revenue recognition requirements (and some cost guidance) in Topic 605, Revenue Recognition, and most industry-specific guidance throughout the industry topics of the Accounting Standards Codification. In addition, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer (for example, assets within the scope of Topic 360, Property, Plant and Equipment, and intangible assets within the scope of Topic 350, Intangibles – Goodwill and Other) are amended to be consistent with the guidance on recognition and measurement (including the constraint on revenue) in Update 2014-09. Topic 606 requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this, an entity should identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract and recognize revenue when (or as) the entity satisfies the performance obligations. These requirements are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. The Partnership will adopt the requirements of Update 2014-09 retrospectively upon its effective date of January 1, 2017, and is evaluating the impact of the adoption on its financial position, results of operations or related disclosures.
19
NOTE 3 – ACQUISITIONS
ARP’s Rangely Acquisition
On June 30, 2014, ARP completed an acquisition of a 25% non-operated net working interest in oil and natural gas liquids producing assets in the Rangely field in northwest Colorado for approximately $420.0$407.8 million in cash, net of purchase price adjustments (the “Rangely Acquisition”). The purchase price was funded through borrowings under ARP’s revolving credit facility, the issuance of an additional $100.0 million of ARP’s 7.75% senior notes due 2021 (“7.75% ARP Senior Notes”) (see Note 8) and the issuance of 15,525,000 of ARP’s common limited partner units (see Note 14). The Rangely Acquisition had an effective date of April 1, 2014. The Partnership’s consolidated financial statements reflected the operating results of the acquired business commencing June 30, 2014 with the transaction closing.
ARP accounted for this transaction under the acquisition method of accounting. Accordingly, ARP evaluated the identifiable assets acquired and liabilities assumed at their respective acquisition date fair values (see Note 10). In conjunction with the issuance of ARP’s common limited partner units associated with the acquisition, ARP recorded $11.5$11.6 million of transaction fees, which were included within non-controlling interests at JuneSeptember 30, 2014 on the Partnership’s consolidated balance sheet. All other costs associated with the acquisition of assets were expensed as incurred. Due to the recent date of the acquisition, the accounting for the business combination is based upon preliminary data that remains subject to adjustment and could further change as ARP continues to evaluate the facts and circumstances that existed as of the acquisition date.
The following table presents the preliminary values assigned to the assets acquired and liabilities assumed in the acquisition, based on their estimated fair values at the date of the acquisition (in thousands):
Assets: |
|
|
|
|
|
|
| |
Prepaid expenses and other |
| $ | 4,041 |
|
| $ | 4,041 |
|
Property, plant and equipment |
|
| 417,264 |
|
|
| 405,065 |
|
Other assets, net |
|
| 2,944 |
| ||||
Total current assets |
| $ | 421,305 |
|
| $ | 412,050 |
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
| |
Accrued liabilities |
|
| 2,936 |
| ||||
Asset retirement obligation |
|
| 1,305 |
|
|
| 1,305 |
|
Total liabilities assumed |
|
| 1,305 |
|
|
| 4,241 |
|
Net assets acquired |
| $ | 420,000 |
|
| $ | 407,809 |
|
ARP’s EP Energy Acquisition
On July 31, 2013, ARP completed the acquisition of assets from EP Energy E&P Company, L.P. (“EP Energy”) for approximately $709.6 million in cash, net of purchase price adjustments (the “EP Energy Acquisition”). ARP funded the purchase price through borrowings under its revolving credit facility, the issuance of its 9.25% senior notes due 2021 (“9.25% ARP Senior Notes”) (see Note 8), and the issuance of 14,950,000 ARP common limited partner units and 3,749,986 newly created ARP Class C convertible preferred units (see Note 14). The assets acquired by ARP in the EP Energy Acquisition included coal-bed methane producing natural gas assets in the Raton Basin in northern New Mexico, the Black Warrior Basin in central Alabama and the County Line area of Wyoming. The EP Energy Acquisition had an effective date of May 1, 2013. The Partnership’s consolidated financial statements reflected the operating results of the acquired business commencing July 31, 2013 with the transaction closing.
ARP accounted for this transaction under the acquisition method of accounting. Accordingly, ARP evaluated the identifiable assets acquired and liabilities assumed at their respective acquisition date fair values (see Note 10). In conjunction with the issuance of ARP’s common limited partner units associated with the acquisition, ARP recorded $12.1 million of transaction fees, which were included within non-controlling interests for the year ended December 31, 2013 on the Partnership’s consolidated balance sheet. All other costs associated with the acquisition of assets were expensed as incurred.
20
The following table presents the values assigned to the assets acquired and liabilities assumed in the acquisition, based on their fair values at the date of the acquisition (in thousands):
Assets: |
|
|
|
|
Prepaid expenses and other |
| $ | 5,268 |
|
Property, plant and equipment |
|
| 723,842 |
|
Total current assets |
| $ | 729,110 |
|
Liabilities: |
|
|
|
|
Accounts payable |
|
| 2,747 |
|
Asset retirement obligation |
|
| 16,728 |
|
Total liabilities assumed |
|
| 19,475 |
|
Net assets acquired |
| $ | 709,635 |
|
APL’s TEAK Acquisition.
On May 7, 2013, APL completed the TEAK Acquisition for $974.7 million in cash, including final purchase price adjustments, less cash received. Through the TEAK Acquisition, APL acquired natural gas gathering and processing facilities in Texas, which included a 75% interest in T2 LaSalle Gathering Company L.L.C. (“T2 LaSalle”), a 50% interest in T2 Eagle Ford Gathering Company L.L.C. (“T2 Eagle Ford”), and a 50% interest in T2 EF Cogeneration Holdings L.L.C. (“T2 Co-Gen”) (collectively, the “T2 Joint Ventures”).
APL funded the purchase price for the TEAK Acquisition through:
· | the private placement of $400.0 million of its Class D |
· | the sale of 11,845,000 APL common limited partner units in a public offering at a purchase price of $34.00 per unit, generating net proceeds of approximately $388.4 million, plus the Partnership’s general partner contribution of $8.3 million to maintain its 2.0% general partner interest in APL (see Note 14); and |
· | borrowings under its senior secured revolving credit facility. |
Subsequent to the closing of the TEAK Acquisition, on May 10, 2013, APL issued $400.0 million of its 4.75% unsecured senior notes due November 15, 2021 (“4.75 APL Senior Notes”) for net proceeds of $391.2 million, which were used to reduce the level of borrowings under its revolving credit facility, including amounts borrowed in connection with the TEAK Acquisition (see Note 8).
21
APL accounted for this transaction under the acquisition method of accounting. Accordingly, APL evaluated the identifiable assets acquired and liabilities assumed at their respective acquisition date fair values (see Note 10). In conjunction with the issuance of APL’s common and preferred limited partner units associated with the acquisition, $16.6 million of transaction fees were included in the net proceeds recorded within non-controlling interests on the Partnership’s consolidated balance sheet for the year ended December 31, 2013. In conjunction with APL’s issuance of the 4.75% APL Senior Notes and an amendment to its revolving credit facility (see Note 8), APL recorded $9.7 million of transaction fees as deferred financing costs, which are included in other assets, net on the Partnership’s consolidated balance sheet at December 31, 2013. All other costs associated with the acquisition were expensed as incurred.
21
The following table presents the final values assigned to the assets acquired and liabilities assumed in the TEAK Acquisition, based on their fair values as the date of the acquisition (in thousands):
Assets: |
|
|
|
|
Cash |
| $ | 8,074 |
|
Accounts receivable |
|
| 11,055 |
|
Prepaid expenses and other |
|
| 1,626 |
|
Total current assets |
|
| 20,755 |
|
Property, plant and equipment |
|
| 197,683 |
|
Intangible assets |
|
| 430,000 |
|
Goodwill |
|
| 186,050 |
|
Equity method investment in joint ventures |
|
| 184,327 |
|
Total assets acquired |
| $ | 1,018,815 |
|
Liabilities: |
|
|
|
|
Accounts payable and accrued liabilities |
|
| 34,995 |
|
Other long term liabilities |
|
| 1,075 |
|
Total liabilities assumed |
|
| 36,070 |
|
Net assets acquired |
|
| 982,745 |
|
Less cash received |
|
| (8,074 | ) |
Net cash paid for acquisition |
| $ | 974,671 |
|
Pro Forma Financial Information
The following data presents pro forma revenues, net income (loss) and basic and diluted net income (loss) per unit for the Partnership as if the Rangely, EP Energy and TEAK acquisitions, including the related borrowings, net proceeds from the issuances of debt and issuances of common and preferred limited partner units had occurred on January 1, 2013. The Partnership prepared these pro forma unaudited financial results for comparative purposes only; they may not be indicative of the results that would have occurred if the Rangely, EP Energy and TEAK acquisitions and related offerings had occurred on January 1, 2013 or the results that will be attained in future periods (in thousands, except per share data; unaudited):
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
| 2014 |
|
| 2013 |
|
| 2014 |
|
| 2013 |
| ||||
Total revenues and other | $ | 874,785 |
|
| $ | 719,076 |
|
| $ | 1,758,190 |
|
| $ | 1,319,765 |
|
Net income |
| 40,021 |
|
|
| 32,561 |
|
|
| 29,739 |
|
|
| 3,960 |
|
Net income (loss) attributable to common limited partners |
| (5,097 | ) |
|
| 1,111 |
|
|
| (16,081 | ) |
|
| (7,183 | ) |
Net income (loss) attributable to common limited partners per unit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted | $ | (0.10 | ) |
| $ | 0.02 |
|
| $ | (0.31 | ) |
| $ | (0.14 | ) |
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
| 2014 |
|
| 2013 |
|
| 2014 |
|
| 2013 |
| ||||
Total revenues and other | $ | 963,980 |
|
| $ | 686,556 |
|
| $ | 2,722,170 |
|
| $ | 2,007,827 |
|
Net income (loss) |
| 31,513 |
|
|
| (47,185 | ) |
|
| 63,267 |
|
|
| (45,936 | ) |
Net loss attributable to common limited partners |
| (9,085 | ) |
|
| (18,822 | ) |
|
| (24,523 | ) |
|
| (29,394 | ) |
Net loss attributable to common limited partners per unit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted | $ | (0.18 | ) |
| $ | (0.36 | ) |
| $ | (0.47 | ) |
| $ | (0.57 | ) |
Other Acquisitions
On May 12, 2014, ARP completed the acquisition of certain assets from GeoMet, Inc. (“GeoMet”) (OTCQB: GMET) for approximately $107.0$99.3 million in cash, net of purchase price adjustments, with an effective date of January 1, 2014. The assets include coal-bed methane producing natural gas assets in West Virginia and Virginia.
In September 2013, ARP completed the acquisition of certain assets from Norwood Natural Resources (“Norwood”) for $5.4 million (the “Norwood Acquisition”). The assets acquired included Norwood’s non-operating working interest in certain producing wells in the Barnett Shale. The Norwood Acquisition had an effective date of June 1, 2013.
In July 2013, the Partnership completed the acquisition of certain natural gas and oil producing assets in the Arkoma Basin from EP Energy for approximately $64.5 million, net of purchase price adjustments (the “Arkoma Acquisition”). The Arkoma Acquisition was funded with a portion of the proceeds from the issuance of the Partnership’s term loan facility (see Note 8). The Arkoma Acquisition had an effective date of May 1, 2013.
22
NOTE 4 — APL EQUITY METHOD INVESTMENTS
West Texas LPG Pipeline Limited Partnership
On May 14, 2014, APL completed the sale of its 20% interest in the West Texas LPG Pipeline Limited Partnership (“WTLPG”) to a subsidiary of Martin Midstream Partners, L.P.LP (NYSE: MMLP). APL received $132.7$131.0 million in proceeds, net of selling costs and final working capital adjustments, which were used to pay down its revolving credit facility (see Note 8). As a result of the sale, APL recorded a $48.5$0.6 million loss and a $47.8 million gain on asset sales and disposal on the Partnership’s consolidated statements of operations for the three and sixnine months ended JuneSeptember 30, 2014.2014, respectively.
WTLPG owns a common-carrier pipeline system that transports NGLs from New Mexico and Texas to Mont Belvieu, Texas for fractionation. WTLPG is operated by Chevron Pipeline Company, an affiliate of Chevron Corporation, a Delaware corporation (NYSE: CVX), which owns the remaining 80% interest. Prior to the sale of WTLPG, APL accounted for its ownership interest in WTLPG under the equity method of accounting, with recognition of its ownership interest in the income of WTLPG included within other, net on the Partnership’s consolidated statements of operations.
T2 Joint Ventures
On May 7, 2013, APL acquired a 75% interest in T2 LaSalle, a 50% interest in T2 Eagle Ford and a 50% interest in T2 EF Co-Gen as part of the TEAK Acquisition (see Note 3). The T2 Joint Ventures are operated by TexStar Midstream Services,a subsidiary of Southcross Holdings, L.P. (“TexStar”Southcross”), which owns the remaining interests. The T2 Joint Ventures were formed to provide services for the benefit of the joint interest owners. The T2 Joint Ventures have capacity lease agreements with the joint interest owners, which cover the costs of operations of the T2 Joint Ventures. As APL does not have controlling financial interests in the T2 joint ventures even though APL owns a 50% or greater interest in the T2 Joint Ventures, APL accounts for its investments in the joint ventures under the equity method of accounting. APL’s proportionate share of the net income (loss) of the T2 Joint Ventures is included within other, net on the Partnership’s consolidated statement of operations for the three and sixnine months ended JuneSeptember 30, 2014 and 2013. APL’s maximum exposure to loss as a result of its involvement with the VIEs includes its equity investment, any additional capital contribution commitments and APL’s share of any approved operating expenses incurred by the VIEs.
The following tables present the values of APL’s equity method investments as of JuneSeptember 30, 2014 and December 31, 2013 and equity income (loss) in joint ventures for the three and sixnine months ended JuneSeptember 30, 2014 and 2013 (in thousands):
|
| Investment in Joint Ventures |
|
| Investment in Joint Ventures |
| ||||||||||
|
| June 30, |
|
| December 31, |
|
| September 30, |
|
| December 31, |
| ||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
|
| 2013 |
| ||||
WTLPG |
| $ | — |
|
| $ | 85,790 |
|
| $ | — |
|
| $ | 85,790 |
|
T2 LaSalle |
|
| 57,578 |
|
|
| 50,534 |
|
|
| 56,449 |
|
|
| 50,534 |
|
T2 Eagle Ford |
|
| 107,314 |
|
|
| 97,437 |
|
|
| 110,845 |
|
|
| 97,437 |
|
T2 Co-Gen |
|
| 14,162 |
|
|
| 14,540 |
|
|
| 13,308 |
|
|
| 14,540 |
|
Equity method investment in joint ventures |
| $ | 179,054 |
|
| $ | 248,301 |
|
| $ | 180,602 |
|
| $ | 248,301 |
|
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
|
| 2013 |
| ||||
Equity income in WTLPG |
| $ | 884 |
|
| $ | 1,687 |
|
| $ | 2,611 |
|
| $ | 3,727 |
|
Equity loss in T2 LaSalle |
|
| (1,364 | ) |
|
| (898 | ) |
|
| (2,477 | ) |
|
| (898 | ) |
Equity loss in T2 Eagle Ford |
|
| (2,693 | ) |
|
| (1,078 | ) |
|
| (4,738 | ) |
|
| (1,078 | ) |
Equity loss in T2 Co-Gen |
|
| (702 | ) |
|
| (183 | ) |
|
| (1,149 | ) |
|
| (183 | ) |
Equity income (loss) in joint ventures |
| $ | (3,875 | ) |
| $ | (472 | ) |
| $ | (5,753 | ) |
| $ | 1,568 |
|
23
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
|
| 2013 |
| ||||
Equity income in WTLPG |
| $ | — |
|
| $ | 1,389 |
|
| $ | 2,611 |
|
| $ | 5,116 |
|
Equity loss in T2 LaSalle |
|
| (1,246 | ) |
|
| (1,263 | ) |
|
| (3,724 | ) |
|
| (2,162 | ) |
Equity loss in T2 Eagle Ford |
|
| (2,611 | ) |
|
| (1,120 | ) |
|
| (7,349 | ) |
|
| (2,198 | ) |
Equity loss in T2 Co-Gen |
|
| (854 | ) |
|
| (888 | ) |
|
| (2,002 | ) |
|
| (1,070 | ) |
Equity loss in joint ventures |
| $ | (4,711 | ) |
| $ | (1,882 | ) |
| $ | (10,464 | ) |
| $ | (314 | ) |
23
NOTE 5 — PROPERTY, PLANT AND EQUIPMENT
The following is a summary of property, plant and equipment at the dates indicated (in thousands):
|
| June 30, |
|
| December 31, |
|
| Estimated |
|
| September 30, |
|
| December 31, |
|
| Estimated |
| ||||||
|
| 2014 |
|
| 2013 |
|
| in Years |
|
| 2014 |
|
| 2013 |
|
| in Years |
| ||||||
Natural gas and oil properties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Proved properties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Leasehold interests |
| $ | 329,582 |
|
| $ | 322,217 |
|
|
|
|
| $ | 404,328 |
|
| $ | 322,217 |
|
|
|
| ||
Pre-development costs |
|
| 4,879 |
|
|
| 4,367 |
|
|
|
|
|
| 6,247 |
|
|
| 4,367 |
|
|
|
| ||
Wells and related equipment |
|
| 2,872,006 |
|
|
| 2,231,213 |
|
|
|
|
|
| 2,840,144 |
|
|
| 2,231,213 |
|
|
|
| ||
Total proved properties |
|
| 3,206,467 |
|
|
| 2,557,797 |
|
|
|
|
|
| 3,250,719 |
|
|
| 2,557,797 |
|
|
|
| ||
Unproved properties |
|
| 214,862 |
|
|
| 211,851 |
|
|
|
|
|
| 215,021 |
|
|
| 211,851 |
|
|
|
| ||
Support equipment |
|
| 31,530 |
|
|
| 23,258 |
|
|
|
|
|
| 34,970 |
|
|
| 23,258 |
|
|
|
| ||
Total natural gas and oil properties |
|
| 3,452,859 |
|
|
| 2,792,906 |
|
|
|
|
|
| 3,500,710 |
|
|
| 2,792,906 |
|
|
|
| ||
Pipelines, processing and compression facilities |
|
| 3,243,704 |
|
|
| 2,926,134 |
|
|
| 2–40 |
|
|
| 3,419,460 |
|
|
| 2,926,134 |
|
|
| 2–40 |
|
Rights of way |
|
| 202,689 |
|
|
| 203,966 |
|
|
| 20–40 |
|
|
| 206,744 |
|
|
| 203,966 |
|
|
| 20–40 |
|
Land, buildings and improvements |
|
| 29,758 |
|
|
| 30,216 |
|
|
| 3–40 |
|
|
| 29,860 |
|
|
| 30,216 |
|
|
| 3–40 |
|
Other |
|
| 37,920 |
|
|
| 36,752 |
|
|
| 3–10 |
|
|
| 38,539 |
|
|
| 36,752 |
|
|
| 3–10 |
|
|
|
| 6,966,930 |
|
|
| 5,989,974 |
|
|
|
|
|
| 7,195,313 |
|
|
| 5,989,974 |
|
|
|
| ||
Less – accumulated depreciation, depletion and |
|
| (1,240,088 | ) |
|
| (1,079,099 | ) |
|
|
|
|
| (1,333,853 | ) |
|
| (1,079,099 | ) |
|
|
| ||
|
| $ | 5,726,842 |
|
| $ | 4,910,875 |
|
|
|
|
| $ | 5,861,460 |
|
| $ | 4,910,875 |
|
|
|
|
During the nine months ended September 30, 2014 and 2013, the Partnership recognized $66.6 million and $36.8 million, respectively, of non-cash property, plant and equipment additions, which were included within the changes in accounts payable and accrued liabilities on the Partnership’s consolidated statements of cash flows.
During the three months ended JuneSeptember 30, 2014, the Partnership and its subsidiaries recognized $48.5$0.7 million of gainloss on asset sales and disposal, primarily related to APL’s gain on the sale of WTLPG, partially offset by ARP’s loss on the sale of producing wells in the Niobrara Shale in connection with the settlement of a third party farm out agreement.WTLPG. During the sixnine months ended JuneSeptember 30, 2014, the Partnership and its subsidiaries recognized $46.9$46.1 million of gain on asset sales and disposal, primarily related to APL’s gain on the sale of WTLPG, partially offset by ARP’s loss on the sale of producing wells in the Niobrara Shale in connection with the settlement of a third party farm out agreement. During the three and sixnine months ended JuneSeptember 30, 2013, ARP recognized $0.7 million and $1.4$2.0 million, respectively, of loss on asset sales and disposal, pertaining to its decision not to drill wells on leasehold property that expired in such periodsduring the three and nine months ended September 30, 2013 in Indiana and Tennessee. During the three and sixnine months ended JuneSeptember 30, 2013, APL recognized $1.5 million of loss on asset sales and disposal primarily related to its decision to not pursue a project to construct pipelines in an area where acquired rights of way had expired. No gain or loss was recognized by APL during the three months ended September 30, 2013.
During the year ended December 31, 2013, ARP recognized $38.0 million of asset impairments related to its gas and oil properties within property, plant and equipment, net on the Partnership’s consolidated balance sheet primarily for its shallow natural gas wells in the New Albany Shale and unproved acreage in the Chattanooga and New Albany Shales. These impairments related to the carrying amounts of gas and oil properties being in excess of ARP’s estimate of their fair values at December 31, 2013, and ARP’s intention not to drill on certain expiring unproved acreage. The estimate of fair values of these gas and oil properties was impacted by, among other factors, the deterioration of natural gas prices at the date of measurement.
24
NOTE 6 — OTHER ASSETS
The following is a summary of other assets at the dates indicated (in thousands):
|
| June 30, |
|
| December 31, |
|
| September 30, |
|
| December 31, |
| ||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
|
| 2013 |
| ||||
Deferred financing costs, net of accumulated amortization of $52,133 and $43,702 at June 30, 2014 and December 31, 2013, respectively |
| $ | 89,551 |
|
| $ | 86,617 |
| ||||||||
Deferred financing costs, net of accumulated amortization of $56,808 and $43,702 at September 30, 2014 and December 31, 2013, respectively |
| $ | 88,165 |
|
| $ | 86,617 |
| ||||||||
Investment in Lightfoot |
|
| 21,313 |
|
|
| 21,454 |
|
|
| 21,225 |
|
|
| 21,454 |
|
Rabbi trust |
|
| 5,600 |
|
|
| 3,705 |
| ||||||||
Security deposits |
|
| 6,482 |
|
|
| 5,631 |
|
|
| 2,502 |
|
|
| 5,631 |
|
ARP notes receivable |
|
| 3,875 |
|
|
| 3,978 |
|
|
| 3,754 |
|
|
| 3,978 |
|
Long-term derivative asset receivable from Drilling Partnerships |
|
| 947 |
|
|
| 863 |
|
|
| 621 |
|
|
| 863 |
|
Other |
|
| 9,516 |
|
|
| 6,129 |
|
|
| 11,782 |
|
|
| 2,424 |
|
|
| $ | 131,684 |
|
| $ | 124,672 |
|
| $ | 133,649 |
|
| $ | 124,672 |
|
Deferred financing costs. Deferred financing costs are recorded at cost and amortized over the terms of the respective debt agreements (see Note 8). Amortization expense of the Partnership and its subsidiaries’ deferred financing costs was $4.3$4.7 million and $3.0$5.2 million for the three months ended JuneSeptember 30, 2014 and 2013, respectively, and $8.4$13.1 million and $6.0$11.1 million for the sixnine months ended JuneSeptember 30, 2014 and 2013, respectively, which was recorded within interest expense on the Partnership’s consolidated statements of operations. During the three and sixnine months ended JuneSeptember 30, 2014, ARP recognized $8.3$0.2 million and $8.4 million, respectively, of deferred financing costs relating to the amendment to its revolving credit facility in connection with the Rangely Acquisition (see Note 8). During the sixnine months ended JuneSeptember 30, 2013, ARP recognized $3.2 million for accelerated amortization of deferred financing costs associated with the retirement of a portion of its then-existing term loan facility and a portion of the outstanding indebtedness under its revolving credit facility with a portion of the proceeds from its issuance of the senior unsecured notes due 2021 (“7.75% ARP Senior NotesNotes”) (see Note 8). During the sixnine months ended JuneSeptember 30, 2013, APL recorded an additional $5.3 million of accelerated amortization of deferred financing costs related to the retirement of its 8.75% unsecured senior unsecured notes due June 15, 2018 (“8.75% APL Senior Notes”) to loss on early extinguishment of debt on the Partnership’s consolidated statement of operations (see Note 8). There was no accelerated amortization of deferred financing costs for the three and nine months ended JuneSeptember 30, 2014.
ARP notes receivable. At JuneSeptember 30, 2014 and December 31, 2013, ARP had notes receivable with certain investors of its Drilling Partnerships, which were included within other assets on the Partnership’s consolidated balance sheet. The notes have a maturity date of March 31, 2022, and a 2.25% per annum interest rate. The maturity date of the notes can be extended to March 31, 2027, subject to certain closing conditions, including an extension fee of 1.0% of the outstanding principal balance. For the three and sixnine months ended JuneSeptember 30, 2014, $23,000$21,000 and $46,000,$68,000, respectively, of interest income, respectively, was recognized within other, net on the Partnership’s consolidated statement of operations. For the three and sixnine months ended JuneSeptember 30, 2013, approximately $25,000 and $50,000, respectively, of interest income was recognized within other, net on the Partnership’s consolidated statements of operations. At JuneSeptember 30, 2014 and December 31, 2013, ARP recorded no allowance for credit losses within the Partnership’s consolidated balance sheets based upon payment history and ongoing credit evaluations associated with the ARP notes receivable.
Investment in Lightfoot. At JuneSeptember 30, 2014, the Partnership owned an approximate 12.0% interest in Lightfoot L.P. and an approximate 15.9% interest in Lightfoot G.P., the general partner of Lightfoot L.P., an entity for which Jonathan Cohen, Executive Chairman of the General Partner’s board of directors, is the Chairman of the Board. Lightfoot L.P. focuses its investments primarily on incubating new MLPs and providing capital to existing MLPs in need of additional equity or structured debt. The Partnership accounts for its investment in Lightfoot under the equity method of accounting. During both the three months ended JuneSeptember 30, 2014 and 2013, the Partnership recognized equity income of approximately $0.3$0.4 million and $2.1 million, respectively, within other, net on the Partnership’s consolidated statements of operations. During the sixnine months ended JuneSeptember 30, 2014 and 2013, the Partnership recognized equity income of approximately $0.5$0.8 million and $0.3$2.4 million, respectively, within other, net on the Partnership’s consolidated statements of operations. During the three months ended JuneSeptember 30, 2014, the Partnership received net cash distributions of $0.5 million. During the three months ended September 30, 2013, no cash distribution was received by the Partnership. During the nine months ended September 30, 2014 and 2013, the Partnership received net cash distributions of $0.3$1.2 million and $0.7 million, respectively. During both the six months ended June 30, 2014 and 2013, the Partnership received net cash distributions of $0.7 million.
25
On November 6, 2013, Arc Logistics Partners, L.P. (“ARCX”), an MLP, owned and controlled by Lightfoot, which is involved in terminalling, storage, throughput and transloading of crude oil and petroleum products, began trading publicly on the NYSE under the ticker symbol “ARCX”.
NOTE 7 — ASSET RETIREMENT OBLIGATIONS
The Partnership and ARP recognized an estimated liability for the plugging and abandonment of their respective gas and oil wells and related facilities. The Partnership and ARP also recognized a liability for their respective future asset retirement obligations where a reasonable estimate of the fair value of that liability could be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. The Partnership and its subsidiaries also consider the estimated salvage value in the calculation of depreciation, depletion and amortization.
The estimated liability for asset retirement obligations was based on historical experience in plugging and abandoning wells, the estimated remaining lives of those wells based on reserve estimates, external estimates as to the cost to plug and abandon the wells in the future and federal and state regulatory requirements. The liability was discounted using an assumed credit-adjusted risk-free interest rate. Revisions to the liability could occur due to changes in estimates of plugging and abandonment costs or remaining lives of the wells, or if federal or state regulators enact new plugging and abandonment requirements. The Partnership and ARP have no assets legally restricted for purposes of settling asset retirement obligations. Except for the Partnership and ARP’s gas and oil properties, the Partnership and its subsidiaries determined that there were no other material retirement obligations associated with tangible long-lived assets.
ARP proportionately consolidates its ownership interest of the asset retirement obligations of its Drilling Partnerships. At JuneSeptember 30, 2014, the Drilling Partnerships had $55.7$56.0 million of aggregate asset retirement obligation liabilities recognized on their combined balance sheets allocable to the limited partners, exclusive of ARP’s proportional interest in such liabilities. Under the terms of the respective partnership agreements, ARP maintains the right to retain a portion or all of the distributions to the limited partners of its Drilling Partnerships to cover the limited partners’ share of the plugging and abandonment costs up to a specified amount per month. As of JuneSeptember 30, 2014, ARP withheld approximately $0.7$1.3 million of limited partner distributions related to the asset retirement obligations of certain Drilling Partnerships. ARP’s historical practice and continued intention is to retain distributions from the limited partners as the wells within each Drilling Partnership near the end of their useful life. On a partnership-by-partnership basis, ARP assesses its right to withhold amounts related to plugging and abandonment costs based on several factors including commodity price trends, the natural decline in the production of the wells, and current and future costs. Generally, ARP’s intention is to retain distributions from the limited partners as the fair value of the future cash flows of the limited partners’ interest approaches the fair value of the future plugging and abandonment cost. Upon ARP’s decision to retain all future distributions to the limited partners of its Drilling Partnerships, ARP will assume the related asset retirement obligations of the limited partners.
A reconciliation of the Partnership and ARP’s liability for well plugging and abandonment costs for the periods indicated is as follows (in thousands):
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
|
| 2013 |
|
| 2014 |
|
| 2013 |
|
| 2014 |
|
| 2013 |
| ||||||||
Asset retirement obligations, beginning of period |
| $ | 92,926 |
|
| $ | 66,386 |
|
| $ | 91,214 |
|
| $ | 64,794 |
|
| $ | 101,455 |
|
| $ | 67,732 |
|
| $ | 91,214 |
|
| $ | 64,794 |
|
Liabilities incurred |
|
| 7,345 |
|
|
| 599 |
|
|
| 7,947 |
|
|
| 1,244 |
|
|
| 336 |
|
|
| 17,306 |
|
|
| 8,283 |
|
|
| 18,550 |
|
Liabilities settled |
|
| (332 | ) |
|
| (216 | ) |
|
| (549 | ) |
|
| (223 | ) |
|
| (271 | ) |
|
| (158 | ) |
| (820 | ) |
| (381 | ) | ||
Accretion expense |
|
| 1,516 |
|
|
| 963 |
|
|
| 2,843 |
|
|
| 1,917 |
|
|
| 1,471 |
|
|
| 1,353 |
|
|
| 4,314 |
|
|
| 3,270 |
|
Asset retirement obligations, end of period |
| $ | 101,455 |
|
| $ | 67,732 |
|
| $ | 101,455 |
|
| $ | 67,732 |
|
| $ | 102,991 |
|
| $ | 86,233 |
|
| $ | 102,991 |
|
| $ | 86,233 |
|
The above accretion expense was included in depreciation, depletion and amortization in the Partnership’s consolidated statements of operations and the asset retirement obligation liabilities were included within asset retirement obligations in the Partnership’s consolidated balance sheets. During the three and sixnine months ended JuneSeptember 30, 2014, ARP incurred $6.6 million of future plugging and abandonment liabilities within purchase accounting for the Rangely and GeoMet acquisitions it consummated during the period (see Note 3). During the year ended December 31, 2013, the Partnership incurred $1.3 million of future plugging and abandonment costs related to the Arkoma Acquisition it consummated during the period. During the year ended December 31, 2013, ARP incurred $16.7 million of future plugging and abandonment liabilities within purchase accounting for the EP Energy Acquisition it consummated during the period.
26
NOTE 8 — DEBT
Total debt consists of the following at the dates indicated (in thousands):
|
| June 30, |
|
| December 31, |
|
| September 30, |
|
| December 31, |
| ||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
|
| 2013 |
| ||||
Term loan facility |
| $ | 238,200 |
|
| $ | 239,400 |
|
| $ | 237,600 |
|
| $ | 239,400 |
|
Revolving credit facility |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
ARP revolving credit facility |
|
| 581,000 |
|
|
| 419,000 |
|
|
| 660,000 |
|
|
| 419,000 |
|
ARP 7.75% Senior Notes – due 2021 |
|
| 374,530 |
|
|
| 275,000 |
|
|
| 374,525 |
|
|
| 275,000 |
|
ARP 9.25% Senior Notes – due 2021 |
|
| 248,443 |
|
|
| 248,334 |
|
|
| 248,497 |
|
|
| 248,334 |
|
APL revolving credit facility |
|
| 100,000 |
|
|
| 152,000 |
|
|
| 200,000 |
|
|
| 152,000 |
|
APL 6.625% Senior Notes – due 2020 |
|
| 504,219 |
|
|
| 504,556 |
|
|
| 504,050 |
|
|
| 504,556 |
|
APL 5.875% Senior Notes – due 2023 |
|
| 650,000 |
|
|
| 650,000 |
|
|
| 650,000 |
|
|
| 650,000 |
|
APL 4.750% Senior Notes – due 2021 |
|
| 400,000 |
|
|
| 400,000 |
|
|
| 400,000 |
|
|
| 400,000 |
|
APL capital leases |
|
| 420 |
|
|
| 754 |
|
|
| 317 |
|
|
| 754 |
|
Total debt |
|
| 3,096,812 |
|
|
| 2,889,044 |
|
|
| 3,274,989 |
|
|
| 2,889,044 |
|
Less current maturities |
|
| (2,720 | ) |
|
| (2,924 | ) |
|
| (2,674 | ) |
|
| (2,924 | ) |
Total long-term debt |
| $ | 3,094,092 |
|
| $ | 2,886,120 |
|
| $ | 3,272,315 |
|
| $ | 2,886,120 |
|
Partnership’s Term Loan Facility.
On July 31, 2013, in connection with the Arkoma Acquisition (see Note 3), the Partnership entered into a $240.0 million secured term facility with a group of outside investors (the “Term Facility”). The Term Facility has a maturity date of July 31, 2019. Borrowings under the Term Facility bear interest, at the Partnership’s election at either an adjusted LIBOR rate plus an applicable margin of 5.50% per annum or the alternate base rate (as defined in the Term Facility) (“ABR”) plus an applicable margin of 4.50% per annum. Interest is generally payable quarterly for ABR loans and, for LIBOR loans at the interest periods selected by the Partnership. The Partnership is required to repay principal at the rate of $0.6 million per quarter commencing December 31, 2013 and continuing until the maturity date when the remaining balance is due. At JuneSeptember 30, 2014, the weighted average interest rate on outstanding borrowings under the Term Facility was 6.5%.
The Term Facility contains customary covenants, similar to those in the Partnership’s credit facility, that limit the Partnership’s ability to incur additional indebtedness, grant liens, make loans or investments, make distributions if a default exists or would result from the distribution, merge into or consolidate with other persons, enter into commodity or interest rate swap agreements that do not conform to specified terms or that exceed specified amounts, or engage in certain asset dispositions including a sale of all or substantially all of the Partnership’s assets. The Term Facility also contains covenants that require the Partnership to maintain a ratio of Total Funded Debt (as defined in the Term Facility) to EBITDA (as defined in the Term Facility), calculated over a period of four consecutive fiscal quarters, of not greater than 4.5 to 1.0 as of the last day of each of the quarters ending on or before September 30, 2014; 4.0 to 1.0 as of the last day of each of the quarters ending on or before September 30, 2015; and 3.5 to 1.0 for the last day of each of the quarters thereafter. At JuneSeptember 30, 2014, the Partnership was in compliance with these covenants. The events which constitute events of default are also customary for credit facilities of this nature, including payment defaults, breaches of representations, warranties or covenants, defaults in the payment of other indebtedness over a specified threshold, insolvency and change of control.
The Partnership’s obligations under the Term Facility are secured by first priority security interests in substantially all of its assets, including all of its ownership interests in its material subsidiaries and its ownership interests in APL and ARP. Additionally, the Partnership’s obligations under its Term Facility are guaranteed by its material wholly-owned subsidiaries (excluding Atlas Pipeline Partners GP, LLC) and may be guaranteed by future subsidiaries. Any of the Partnership’s subsidiaries, other than the subsidiary guarantors, are minor. The Term Facility is subject to an intercreditor agreement, which provides for certain rights and procedures, between the lenders under the Term Facility and the Partnership’s credit facility, with respect to enforcement of rights, collateral and application of payment proceeds.
27
Partnership’s Revolving Credit Facility
On July 31, 2013, in connection with the Arkoma Acquisition (see Note 3), the Partnership amended its credit facility with a syndicate of banks that matures on July 31, 2018. The credit facility has a maximum credit amount of $50.0 million, of which up to $5.0 million may be in the form of standby letters of credit. The Partnership’s obligations under the credit facility are secured by first priority security interests in substantially all of its assets, including all of its ownership interests in its material subsidiaries and its ownership interests in APL and ARP. Additionally, the Partnership’s obligations under the credit facility are guaranteed by its material wholly-owned subsidiaries (excluding Atlas Pipeline Partners GP, LLC) and may be guaranteed by future subsidiaries. Any of the Partnership’s subsidiaries, other than the subsidiary guarantors, are minor. At the Partnership’s election, interest on borrowings under the credit agreement is determined by reference to either an adjusted LIBOR rate plus an applicable margin of 5.50% per year or the ABR plus an applicable margin of 4.50% per year. Interest is generally payable quarterly for ABR loans and at the interest payment periods selected by the Partnership for LIBOR loans. The Partnership is required to pay a fee between 0.5% and 0.625% per annum on the unused portion of the commitments under the credit facility.
The credit facility contains customary covenants that limit the Partnership’s ability to incur additional indebtedness, grant liens, make loans or investments, make distributions if a default exists or would result from the distribution, merge into or consolidate with other persons, enter into commodity or interest rate swap agreements that do not conform to specified terms or that exceed specified amounts, or engage in certain asset dispositions including a sale of all or substantially all of the Partnership’s assets. The credit facility also contains covenants the same as those in the Partnership’s Term Facility with respect to the required ratio of Total Funded Debt (as defined in the credit facility) to EBITDA (as defined in the credit facility). At JuneSeptember 30, 2014, the Partnership was in compliance with these covenants. Based on the definition in the Partnership’s Term Facility and credit facility, the Partnership’s ratio of Total Funded Debt to EBITDA was 2.22.0 to 1.0.
The credit facility is subject to an intercreditor agreement as described above under the “Partnership’s Term Loan Facility”.
At JuneSeptember 30, 2014, the Partnership has not guaranteed any of ARP’s or APL’s debt obligations.
ARP’s Credit Facility
On June 30,September 24, 2014, in connection with the Rangely Acquisitionits Eagle Ford acquisition (see Note 3)18), ARP entered into ana fourth amendment to its amended and restatedrevolving credit agreement ( as amended, the “ARP Credit Agreement”) with Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto.thereto (as so amended, the “ARP Credit Agreement”). The ARP Credit Agreement provides for a senior secured revolving credit facility with a syndicate of banks with a current borrowing base of $ 825.0$825.0 million and a maximum facility amount of $1.5 billion scheduled to mature in July 2018. The fourth amendment amends the ARP Credit Agreement to permit the guarantee by ARP of certain deferred purchase price obligations and contingent indemnity obligations in connection with the Eagle Ford acquisition, and, with certain constraints, to permit ARP and its subsidiaries to enter into certain derivative instruments related to the producing wells to be acquired in the Eagle Ford acquisition.
ARP’s borrowing base under the revolving credit facility is scheduled for semi-annual redeterminations on May 1 and November 1 of each year. Up to $20.0 million of the revolving credit facility may be in the form of standby letters of credit, of which $4.4 million was outstanding at JuneSeptember 30, 2014. ARP’s obligations under the facility are secured by mortgages on its oil and gas properties and first priority security interests in substantially all of its assets. Additionally, obligations under the facility are guaranteed by certain of ARP’s material subsidiaries, and any non-guarantor subsidiaries of ARP are minor. Borrowings under the revolving credit facility bear interest, at ARP’s election, at either an adjusted LIBOR rate plus an applicable margin between 1.50% and 2.75% per annum or the base rate (which is the higher of the bank’s prime rate, the Federal Funds rate plus 0.5% or one-month LIBOR plus 1.00%) plus an applicable margin between 0.50% and 1.75% per annum. ARP is also required to pay a fee on the unused portion of the borrowing base at a rate of 0.375% if less than 50% of the borrowing base is utilized and 0.5% if 50% or more of the borrowing base is utilized, which is included within interest expense on the Partnership’s consolidated statements of operations. At JuneSeptember 30, 2014, the weighted average interest rate on outstanding borrowings under the revolving credit facility was 2.3%2.5%.
28
The ARP Credit Agreement contains customary covenants that limit ARP’s ability to incur additional indebtedness, grant liens, make loans or investments, make distributions if a borrowing base deficiency or default exists or would result from the distribution, merger or consolidation with other persons, or engage in certain asset dispositions including a sale of all or substantially all of its assets. ARP was in compliance with these covenants as of JuneSeptember 30, 2014. The ARP Credit Agreement also requires ARP to maintain a ratio of Total Funded Debt (as defined in the ARP Credit Agreement) to four quarters of EBITDA (as defined in the ARP Credit Agreement) (actual or annualized, as applicable), calculated over a period of four consecutive fiscal quarters, of not greater than 4.50 to 1.0 as of the last day of the quarters ended through December 31, 2014, 4.25 to 1.0 as of the last day of the quarter ended March 31, 2015 and 4.00 to 1.0 as of the last day of fiscal quarters ending thereafter, and a ratio of current assets (as defined in the ARP Credit Agreement) to current liabilities (as defined in the ARP Credit Agreement) of not less than 1.0 to 1.0 as of the last day of any fiscal quarter. Based on the definitions contained in ARP’s Credit Agreement, at JuneSeptember 30, 2014, ARP’s ratio of current assets to current liabilities was 1.41.2 to 1.0, and its ratio of Total Funded Debt to EBITDA was 3.74.0 to 1.0.
ARP Senior Notes
At JuneSeptember 30, 2014, ARP had $374.5 million outstanding of its 7.75% senior unsecured notes due 2021 (“7.75% ARP Senior Notes”), inclusive of an additional $100.0 million of such notes issued in a private placement transaction on June 2, 2014 at an offering price of 99.5% of par value, yielding net proceeds of approximately $97.5$97.4 million. The net proceeds were used to partially fund the Rangely Acquisition (see Note 3). ARP issued $275.0 million of its 7.75% ARP Senior Notes in a private placement transaction at par on January 23, 2013. The 7.75% ARP Senior Notes were presented net of a $0.5 million unamortized discount as of JuneSeptember 30, 2014. Interest is payable semi-annually on January 15 and July 15. At any time prior to January 15, 2016, the 7.75% ARP Senior Notes are redeemable for up to 35% of the outstanding principal amount with the net cash proceeds of equity offerings at the redemption price of 107.75%. The 7.75% ARP Senior Notes are also subject to repurchase at a price equal to 101% of the principal amount, plus accrued and unpaid interest, upon a change of control. At any time prior to January 15, 2017, the 7.75% ARP Senior Notes are redeemable, in whole or in part, at a redemption price as defined in the governing indenture, plus accrued and unpaid interest and additional interest, if any. On and after January 15, 2017, the 7.75% ARP Senior Notes are redeemable, in whole or in part, at a redemption price of 103.875%, decreasing to 101.938% on January 15, 2018 and 100% on January 15, 2019.
ARP entered into registration rights agreements with respect to the $100.0 million 7.75% ARP Senior Notes issued in June 2014. Under the registration rights agreements, ARP will cause to be filed with the SEC registration statements with respect to offers to exchange the 7.75% ARP Senior Notes for substantially identical notes that are registered under the Securities Act. ARP will use reasonable best efforts to cause such exchange offer registration statements to become effective under the Securities Act. In addition, ARP will use reasonable best efforts to cause an exchange offer to be consummated not later than 270 days after the issuance of the 7.75% ARP Senior Notes. Under some circumstances, in lieu of, or in addition to, a registered exchange offer, ARP has agreed to file a shelf registration statement with respect to the 7.75% ARP Senior Notes. ARP is required to pay additional interest if it fails to comply with its obligations to register the 7.75% ARP Senior Notes within the specified time periods.periods.
At JuneSeptember 30, 2014, ARP had $250.0$248.5 million outstanding of its 9.25% senior unsecured notes due 2021 (“9.25% ARP Senior Notes, issued in a private placement transaction at an offering price of 99.297% of par value, yielding net proceeds of approximately $242.8 million.Notes”). The net proceeds were used to partially fund the EP Energy Acquisition (see Note 3). The 9.25% ARP Senior Notes were presented net of a $1.6$1.5 million unamortized discount as of JuneSeptember 30, 2014. Interest on the 9.25% ARP Senior Notes is payable semi-annually on February 15 and August 15. At any time on or after August 15, 2017, ARP may redeem some or all of the 9.25% ARP Senior Notes at a redemption price of 104.625%. On or after August 15, 2018, ARP may redeem some or all of the 9.25% ARP Senior Notes at the redemption price of 102.313% and on or after August 15, 2019, ARP may redeem some or all of the 9.25% ARP Senior Notes at the redemption price of 100.0%. In addition, at any time prior to August 15, 2016, ARP may redeem up to 35% of the 9.25% ARP Senior Notes with the proceeds received from certain equity offerings at a redemption price of 109.25%. Under certain conditions, including if ARP sells certain assets and does not reinvest the proceeds or repay senior indebtedness or if it experiences specific kinds of changes of control, ARP must offer to repurchase the 9.25% ARP Senior Notes.
In connection with the issuance of the 9.25% ARP Senior Notes, ARP entered into a registration rights agreement, whereby it agreed to (a) file an exchange offer registration statement with the SEC to exchange the privately issued notes for registered notes, and (b) cause the exchange offer to be consummated by July 30, 2014. On March 28, 2014, the registration statement relating to the exchange offer for the 9.25% ARP Senior Notes was declared effective, and the exchange offer was completed on April 29, 2014.
29
The 9.25% ARP Senior Notes and 7.75% ARP Senior Notes are guaranteed by certain of ARP’s material subsidiaries. The guarantees under the 9.25% ARP Senior Notes and 7.75% ARP Senior Notes are full and unconditional and joint and several, and any subsidiaries of ARP, other than the subsidiary guarantors, are minor. There are no restrictions on ARP’s ability to obtain cash or any other distributions of funds from the guarantor subsidiaries.
The indentures governing the 9.25% ARP Senior Notes and 7.75% ARP Senior Notes contain covenants, including limitations on ARP’s ability to incur certain liens; incur additional indebtedness; declare or pay distributions if an event of default has occurred; redeem, repurchase, or retire equity interests or subordinated indebtedness; make certain investments; or merge, consolidate or sell substantially all of ARP’s assets. ARP was in compliance with these covenants as of JuneSeptember 30, 2014.
APL Credit Facility
At JuneSeptember 30, 2014, APL had a $600.0an $800.0 million senior secured revolving credit facility with a syndicate of banks, which matures in May 2017,August 2019, of which $100.0$203.4 million was outstanding. Borrowings under APL’s credit facility bear interest, at APL’s option, at either (i) the higher of (a) the prime rate, (b) the federal funds rate plus 0.50% and (c) three-month LIBOR plus 1.0%, or (ii) the LIBOR rate for the applicable period (each plus the applicable margin). The weighted average interest rate on APL’s outstanding revolving credit facility borrowings at JuneSeptember 30, 2014 was 3.2%2.7%. Up to $50.0 million of the credit facility may be utilized for letters of credit, of which $3.1$3.4 million was outstanding at JuneSeptember 30, 2014. These outstanding letter of credit amounts were not reflected as borrowings on the Partnership’s consolidated balance sheet at JuneSeptember 30, 2014. At JuneSeptember 30, 2014, APL had $496.9$596.6 million of remaining committed capacity under its credit facility, subject to covenant limitations. The Partnership has not guaranteed any of the obligations under APL’s senior secured revolving credit facility.
Borrowings under APL’s credit facility are secured by (i) a lien on and security interest in all of APL’s property and that of its subsidiaries, except for the assets owned by the West OK, West TX and Centrahoma joint ventures and their respective subsidiaries; and (ii) the guarantee of each of APL’s consolidated subsidiaries other than the joint venture companies.
The revolving credit facility contains customary covenants, including requirements that APL maintain certain financial thresholds and restrictions on its ability to (i) incur additional indebtedness, (ii) make certain acquisitions, loans or investments, (iii) make distribution payments to its unitholders if an event of default exists, or (iv) enter into a merger or sale of assets, including the sale or transfer of interests in its subsidiaries. APL is also unable to borrow under its credit facility to pay distributions of available cash to unitholders because such borrowings would not constitute “working capital borrowings” pursuant to its partnership agreement.
The events which constitute an event of default under the revolving credit facility are also customary for loans of this size, including payment defaults, breaches of representations or covenants contained in the credit agreement, adverse judgments against APL in excess of a specified amount and a change of control of APL’s general partner.
On August 28, 2014, APL entered into a Second Amended and Restated Credit Agreement (the “Revised APL Credit Agreement”) which, among other changes:
· | extended the maturity date to August 28, 2019; |
· | increased the revolving credit commitment from $600 million to $800 million and the incremental revolving credit amount from $200 million to $250 million; |
· | reduced by 0.25% the applicable margin used to determine interest rates for LIBOR Rate Loans, as defined in the Revised APL Credit Agreement, and for Base Rate Loans, as defined in the Revised APL Credit Agreement, depending on APL’s Consolidated Funded Debt Ratio, as defined in the Revised APL Credit Agreement; |
· | allows APL to request incremental term loans, provided the sum of any revolving credit commitments and incremental term loans may not exceed $1.05 billion; and |
· | changed the per annum interest rate on borrowings to (i) the higher of (a) the prime rate, (b) the federal funds rate plus 0.50% and (c) the three-month LIBOR plus 1.0%, or (ii) the LIBOR rate for the applicable period (each plus the applicable margin). Previously, part (c) was as: one-month LIBOR plus 1.0%. |
On March 11, 2014, APL entered into an amendment to the credit agreement governing its revolving credit facility which, among other changes:
· | adjusted the duration of, and maximum ratios allowed during, the Acquisition Period, as defined in the credit agreement, for the Consolidated Funded Debt Ratio, as defined in the credit agreement; and |
· | permitted the payment of cash distributions, if any, on APL’s Class E Preferred Units so long as APL has a pro forma Minimum Liquidity, as defined in the credit agreement, of greater than or equal to $50 million. |
APL was in compliance with these covenants as of JuneSeptember 30, 2014.
APL Senior Notes
At JuneSeptember 30, 2014, APL had $400.0 million of 4.75% Senior Notes due 2021 (“4.75% APL Senior Notes”), $650.0 million principal outstanding of 5.875% unsecured senior notes due August 1, 2023 (“5.875% APL Senior Notes”) and $500.0 million principal outstanding of 6.625% unsecured senior notes due October 1, 2020 (“6.625% APL Senior Notes”) (collectively, the “APL Senior Notes”).
30
On May 10, 2013, APL issued $400.0 million of the 4.75% APL Senior Notes in a private placement transaction. APL received net proceeds of $391.2 million after underwriting commissions and other transaction costs and utilized the proceeds to repay a portion of the outstanding indebtedness under its revolving credit facility as part of the TEAK Acquisition (see Note 3). The 4.75% APL Senior Notes were issued at par. Interest on the 4.75% APL Senior Notes is payable semi-annually in arrears on May 15 and November 15. The 4.75% APL Senior Notes are due on November 15, 2021 and are redeemable any time after March 15, 2016, at certain redemption prices, together with accrued and unpaid interest to the date of redemption. APL commenced an exchange offer for the 4.75% APL Senior Notes on December 10, 2013 and the exchange offer was completed on January 9, 2014.
On February 11, 2013, APL issued $650.0 million of the 5.875% APL Senior Notes in a private placement transaction. The 5.875% APL Senior Notes were issued at par. APL received net proceeds of $637.3 million after underwriting commissions and other transaction costs and utilized the proceeds to redeem APL’s previously outstanding 8.75% unsecured senior notes due June 15, 2018 (“8.75% APL Senior Notes”) and repay a portion of the outstanding indebtedness under its revolving credit agreement. Interest on the 5.875% APL Senior Notes is payable semi-annually in arrears on February 1 and August 1. The 5.875% APL Senior Notes are redeemable any time after February 1, 2018, at certain redemption prices, together with accrued and unpaid interest to the date of redemption. APL commenced an exchange offer for the 5.875% APL Senior Notes on December 10, 2013 and the exchange offer was completed on January 9, 2014.
The 6.625% APL Senior Notes are presented combined with a net $4.2$4.1 million unamortized premium as of JuneSeptember 30, 2014. Interest on the 6.625% APL Senior Notes is payable semi-annually in arrears on April 1 and October 1. The 6.625% APL Senior Notes are redeemable at any time after October 1, 2016, at certain redemption prices, together with accrued and unpaid interest to the date of redemption.
On January 28, 2013, APL commenced a cash tender offer for any and all of its outstanding $365.8 million 8.75% APL Senior Notes and a solicitation of consents to eliminate most of the restrictive covenants and certain of the events of default contained in the indenture governing the 8.75% APL Senior Notes (“8.75% APL Senior Notes Indenture”). Approximately $268.4 million aggregate principal amount of the 8.75% APL Senior Notes were validly tendered as of the expiration date of the consent solicitation. In February 2013, APL accepted for purchase all 8.75% APL Senior Notes validly tendered as of the expiration of the consent solicitation and paid $291.4 million to redeem the $268.4 million principal plus $11.2 million make-whole premium, $3.7 million accrued interest and $8.0 million consent payment. APL entered into a supplemental indenture amending and supplementing the 8.75% APL Senior Notes Indenture.
On March 12, 2013, APL paid $105.6 million to redeem the remaining $97.3 million 8.75% APL Senior Notes not purchased in connection with the tender offer, plus a $6.3 million make-whole premium and $2.0 million in accrued interest. APL funded the redemption with a portion of the net proceeds from the issuance of the 5.875% APL Senior Notes. During the sixnine months ended JuneSeptember 30, 2013, APL recorded a loss of $26.6 million within loss on early extinguishment of debt on the Partnership’s consolidated statements of operations, related to the redemption of the 8.75% APL Senior Notes. The loss includes $17.5 million premiums paid; $8.0 million consent payment; $5.3 million write off of deferred financing costs, offset by $4.2 million recognition of unamortized premium.
31
The APL Senior Notes are subject to repurchase by APL at a price equal to 101% of their principal amount, plus accrued and unpaid interest, upon a change of control or upon certain asset sales if APL does not reinvest the net proceeds within 360 days. The APL Senior Notes are junior in right of payment to APL’s secured debt, including its obligations under its revolving credit facility.
Indentures governing the APL Senior Notes contain covenants, including limitations on APL’s ability to: incur certain liens; engage in sale/leaseback transactions; incur additional indebtedness; declare or pay distributions if an event of default has occurred; redeem, repurchase or retire equity interests or subordinated indebtedness; make certain investments; or merge, consolidate or sell substantially all its assets. APL was in compliance with these covenants as of JuneSeptember 30, 2014.
31
APL Capital Leases
The following is a summary of the leased property under capital leases as of JuneSeptember 30, 2014 and December 31, 2013, which are included within property, plant and equipment, net (see Note 5) (in thousands):
|
| June 30, |
|
| December 31, |
|
| September 30, |
|
| December 31, |
| ||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
|
| 2013 |
| ||||
Pipelines, processing and compression facilities |
| $ | 1,142 |
|
| $ | 2,281 |
|
| $ | 946 |
|
| $ | 2,281 |
|
Less – accumulated depreciation |
|
| (175 | ) |
|
| (330 | ) |
|
| (175 | ) |
|
| (330 | ) |
|
| $ | 967 |
|
| $ | 1,951 |
|
| $ | 771 |
|
| $ | 1,951 |
|
In MarchDuring the three and nine months ended September 30, 2014, APL took ownership of $1.1$0.2 million and $1.3 million, respectively, of facilities in connection with the conclusion of a capital lease.leases. During the year ended December 31, 2013, APL accelerated payment on certain leases and purchased the leased property by paying approximately $7.5 million in accordance with the lease agreements. These leases were to mature in August 2013.
Depreciation expense for leased properties was approximately $32,000$27,000 and $39,000$44,000 for the three months ended JuneSeptember 30, 2014 and 2013, respectively and $0.1 million and $0.3 million for the sixnine months ended JuneSeptember 30, 2014 and 2013, respectively. Depreciation expense for leased properties is included within depreciation, depletion and amortization expense on the Partnership’s consolidated statements of operations.
Total cash payments for interest by the Partnership and its subsidiaries were $81.8$152.0 million and $29.3$62.3 million for the sixnine months ended JuneSeptember 30, 2014 and 2013, respectively.
NOTE 9 — DERIVATIVE INSTRUMENTS
The Partnership and its subsidiaries use a number of different derivative instruments, principally swaps, collars, and options, in connection with their commodity and interest rate price risk management activities. The Partnership and its subsidiaries enter into financial instruments to hedge forecasted commodity sales against the variability in expected future cash flows attributable to changes in market prices. Swap instruments are contractual agreements between counterparties to exchange obligations of money as the underlying commodities are sold or interest payments on the underlying debt instrument are due. Under commodity-based swap agreements, the Partnership and its subsidiaries receive or pay a fixed price and receive or remit a floating price based on certain indices for the relevant contract period. To manage the risk of regional commodity price differences, the Partnership and its subsidiaries occasionally enter into basis swaps. Basis swaps are contractual arrangements that guarantee a price differential for a commodity from a specified delivery point price and the comparable national exchange price. For natural gas basis swaps, which have negative differentials to NYMEX, the Partnership and its subsidiaries receive or pay a payment from the counterparty if the price differential to NYMEX is greater or less than the stated terms of the contract. Commodity-based put option instruments are contractual agreements that require the payment of a premium and grant the purchaser of the put option the right, but not the obligation, to receive the difference between a fixed, or strike, price and a floating price based on certain indices for the relevant contract period, if the floating price is lower than the fixed price. The put option instrument sets a floor price for commodity sales being hedged. Costless collars are a combination of a purchased put option and a sold call option, in which the premiums net to zero. The costless collar eliminates the initial cost of the purchased put, but places a ceiling price for commodity sales being hedged.
32
The Partnership and ARP apply the principles of hedge accounting for derivatives qualifying as hedges. Accordingly, the Partnership and ARP formally document all relationships between hedging instruments and the items being hedged, including their risk management objective and strategy for undertaking the hedging transactions. This includes matching the commodity and interest derivative contracts to the forecasted transactions. The Partnership and ARP assess, both at the inception of the derivative and on an ongoing basis, whether the derivative is effective in offsetting changes in the forecasted cash flow of the hedged item. If it is determined that a derivative is not effective as a hedge or that it has ceased to be an effective hedge due to the loss of adequate correlation between the hedging instrument and the underlying item being hedged, the Partnership and ARP will discontinue hedge accounting for the derivative and subsequent changes in the derivative fair value, which are determined by management through the utilization of market data, will be recognized immediately within gain (loss) on mark-to-market derivatives in the Partnership’s consolidated statements of operations. For derivatives qualifying as hedges, the Partnership and ARP recognize the effective portion of changes in fair value of derivative instruments in partners’ capital as accumulated other comprehensive income (loss) and reclassify the portion relating to the Partnership and ARP’s commodity derivatives within gas and oil production revenues and the portion relating to interest rate derivatives to interest expense within the Partnership’s consolidated statements of operations as the underlying transactions are settled. For non-qualifying derivatives and for the ineffective portion of qualifying derivatives, changes in fair value are recognized within gain (loss) on mark-to-market derivatives in the Partnership’s consolidated statements of operations as they occur.
APL does not apply the principles of hedge accounting to its derivative instruments. Accordingly, any changes in the derivative fair value, which are determined by management through the utilization of market data, will be recognized immediately within gain (loss) on mark-to-market derivatives in the Partnership’s consolidated statements of operations. APL recognizes the portion relating to commodity derivatives within gathering and processing revenues on the Partnership’s consolidated statement of operations as the derivative instruments are settled.
The Partnership and its subsidiaries enter into derivative contracts with various financial institutions, utilizing master contracts based upon the standards set by the International Swaps and Derivatives Association, Inc. These contracts allow for rights of offset at the time of settlement of the derivatives. Due to the right of offset, derivatives are recorded on the Partnership’s consolidated balance sheets as assets or liabilities at fair value on the basis of the net exposure to each counterparty. Potential credit risk adjustments are also analyzed based upon the net exposure to each counterparty. Premiums paid for purchased options are recorded on the Partnership’s consolidated balance sheets as the initial value of the options.
The Partnership and its subsidiaries enter into commodity future option and collar contracts to achieve more predictable cash flows by hedging their exposure to changes in commodity prices. At any point in time, such contracts may include regulated New York Mercantile Exchange (“NYMEX”) futures and options contracts and non-regulated over-the-counter futures contracts with qualified counterparties. NYMEX contracts are generally settled with offsetting positions, but may be settled by the physical delivery of the commodity. Crude oil contracts are based on a West Texas Intermediate (“WTI”) index. Natural gas liquids fixed price swaps are priced based on a WTI crude oil index, while other natural gas liquids contracts are based on an OPIS Mt. Belvieu index.
Derivatives are recorded on the Partnership’s consolidated balance sheets as assets or liabilities at fair value. The Partnership reflected net derivative liabilitiesassets on its consolidated balance sheets of $28.6$66.1 million and net derivative assets of $14.9 million at JuneSeptember 30, 2014 and December 31, 2013, respectively. Of the $3.3$15.7 million of net lossincome in accumulated other comprehensive income (loss) within partners’ capital on the Partnership’s consolidated balance sheet related to derivatives at JuneSeptember 30, 2014, if the fair values of the instruments remain at current market values, the Partnership will reclassify $5.3$6.0 million of lossesgains to gas and oil production revenue on its consolidated statement of operations over the next twelve month period as these contracts expire. Aggregate gains of $2.0$9.7 million of gas and oil production revenues will be reclassified to the Partnership’s consolidated statements of operations in later periods as the remaining contracts expire. Actual amounts that will be reclassified will vary as a result of future commodity price changes. No amountsApproximately $0.3 million and $0.8 million of derivative gains were reclassified from other comprehensive income related to derivative instruments entered into during the three and sixnine months ended JuneSeptember 30, 2014.2014, respectively. Approximately $0.5$1.4 million and $0.9 million of derivative loss wasgains were reclassified from other comprehensive income related to derivative instruments entered into during the three and sixnine months ended JuneSeptember 30, 2013.2013, respectively.
33
The following table summarizes the Partnership’s and ARP’s gains or losses recognized in the Partnership’s consolidated statements of operations for effective derivative instruments, excluding the effect of non-controlling interest, for the periods indicated (in thousands):
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
| 2013 |
|
| 2014 |
|
| 2013 |
|
| 2014 |
| 2013 |
| ||||||||
(Gain) loss reclassified from accumulated other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas and oil production revenue |
| $ | 9,522 |
|
| $ | (2,286 | ) |
| $ | 24,091 |
| $ | (3,279 | ) |
| $ | (1,388 | ) |
| $ | (1,300 | ) |
| $ | 22,703 |
| $ | (4,579 | ) |
Total |
| $ | 9,522 |
|
| $ | (2,286 | ) |
| $ | 24,091 |
| $ | (3,279 | ) |
| $ | (1,388 | ) |
| $ | (1,300 | ) |
| $ | 22,703 |
| $ | (4,579 | ) |
The Partnership
The following table summarizes the gross fair values of the Partnership’s derivative instruments, presenting the impact of offsetting the derivative assets and liabilities on the Partnership’s consolidated balance sheets as of the dates indicated (in thousands):
|
| Gross |
|
| Gross |
|
| Net Amount of |
|
| Gross |
|
| Gross |
|
| Net Amount of |
| ||||||
Offsetting Derivative Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
As of June 30, 2014 |
|
|
|
|
|
|
|
| ||||||||||||||||
As of September 30, 2014 |
|
|
|
|
|
|
|
| ||||||||||||||||
Current portion of derivative assets |
| $ | 591 |
|
| $ | (7 | ) |
| $ | 584 |
| ||||||||||||
Long-term portion of derivative assets |
| $ | 788 |
|
| $ | (22 | ) |
| $ | 766 |
|
|
| 1,270 |
|
|
| — |
|
|
| 1,270 |
|
Current portion of derivative liabilities |
|
| 137 |
|
|
| (137 | ) |
|
| — |
| ||||||||||||
Total derivative assets |
| $ | 925 |
|
| $ | (159 | ) |
| $ | 766 |
|
| $ | 1,861 |
|
| $ | (7 | ) |
| $ | 1,854 |
|
As of December 31, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current portion of derivative assets |
| $ | 24 |
|
| $ | (23 | ) |
| $ | 1 |
|
| $ | 24 |
|
| $ | (23 | ) |
| $ | 1 |
|
Long-term portion of derivative assets |
|
| 1,547 |
|
|
| (33 | ) |
|
| 1,514 |
|
|
| 1,547 |
|
|
| (33 | ) |
|
| 1,514 |
|
Current portion of derivative liabilities |
|
| 63 |
|
|
| (63 | ) |
|
| — |
|
|
| 63 |
|
|
| (63 | ) |
|
| — |
|
Total derivative assets |
| $ | 1,634 |
|
| $ | (119 | ) |
| $ | 1,515 |
|
| $ | 1,634 |
|
| $ | (119 | ) |
| $ | 1,515 |
|
|
| Gross |
|
| Gross |
|
| Net Amount of |
|
| Gross |
|
| Gross |
|
| Net Amount of |
| ||||||
Offsetting Derivative Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
As of June 30, 2014 |
|
|
|
|
|
|
|
| ||||||||||||||||
As of September 30, 2014 |
|
|
|
|
|
|
|
| ||||||||||||||||
Long-term portion of derivative assets |
| $ | (22 | ) |
| $ | 22 |
|
| $ | — |
|
| $ | (7 | ) |
| $ | 7 |
|
| $ | — |
|
Current portion of derivative liabilities |
|
| (516 | ) |
|
| 137 |
|
|
| (379 | ) | ||||||||||||
Total derivative liabilities |
| $ | (538 | ) |
| $ | 159 |
|
| $ | (379 | ) |
| $ | (7 | ) |
| $ | 7 |
|
| $ | — |
|
As of December 31, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current portion of derivative assets |
| $ | (23 | ) |
| $ | 23 |
|
| $ | — |
|
| $ | (23 | ) |
| $ | 23 |
|
| $ | — |
|
Long-term portion of derivative assets |
|
| (33 | ) |
|
| 33 |
|
|
| — |
|
|
| (33 | ) |
|
| 33 |
|
|
| — |
|
Current portion of derivative liabilities |
|
| (96 | ) |
|
| 63 |
|
|
| (33 | ) |
|
| (96 | ) |
|
| 63 |
|
|
| (33 | ) |
Total derivative liabilities |
| $ | (152 | ) |
| $ | 119 |
|
| $ | (33 | ) |
| $ | (152 | ) |
| $ | 119 |
|
| $ | (33 | ) |
34
During the three and sixnine months ended JuneSeptember 30, 2014, the Partnership recorded gains of $0.1 million and losses of $0.3 million and $0.9$0.8 million, respectively, on settled derivative contracts within its consolidated statements of operations. During the three and nine months ended September 30, 2013, the Partnership recorded gains of $0.2 million on settled derivative contracts within its consolidated statements of operations. These gains and losses were included within gas and oil production revenue in the Partnership’s consolidated statement of operations. No gains or losses were recorded on settled derivative contracts within the Partnership’s consolidated statements of operations for the three and six months ended June 30, 2013 as the Partnership had no derivative contracts in those months. As the underlying prices and terms in the Partnership’s derivative contracts were consistent with the indices used to sell its natural gas and oil, there were no gains or losses recognized during the three and sixnine months ended JuneSeptember 30, 2014 and 2013 for hedge ineffectiveness or as a result of the discontinuance of any cash flow hedges.
In connection with the Arkoma Acquisition, the Partnership entered into contracts which provided the option to enter into swap contracts for future production periods (“swaptions”) up through September 30, 2013 for production volumes related to the Arkoma assets acquired from EP Energy (see Note 3). In connection with the swaption contacts, the Partnership paid premiums of $2.3 million which represented their fair value on the date the transactions were initiated, were initially recorded as a derivative asset on the Partnership’s consolidated balance sheet and were fully amortized into other, net on the Partnership’s consolidated statement of operations as of September 30, 2013.
At JuneSeptember 30, 2014, the Partnership had the following commodity derivatives:
Natural Gas – Fixed Price Swaps
Production |
|
|
|
|
| Volumes |
|
| Average |
|
| Fair Value |
|
|
|
|
| Volumes |
|
| Average |
|
| Fair Value |
| |||||||
|
|
|
|
|
| (MMBtu)(1) |
|
| (per MMBtu)(1) |
|
| (in thousands)(2) |
|
|
|
|
| (MMBtu)(1) |
|
| (per MMBtu)(1) |
|
| (in thousands)(2) |
| |||||||
2014 |
|
|
|
|
|
| 1,380,000 |
|
| $ | 4.177 |
|
| $ | (383 | ) |
|
|
|
|
| 690,000 |
|
| $ | 4.177 |
|
| $ | 55 |
| |
2015 |
|
|
|
|
|
| 2,280,000 |
|
| $ | 4.302 |
|
|
| 187 |
|
|
|
|
|
| 2,280,000 |
|
| $ | 4.302 |
|
|
| 683 |
| |
2016 |
|
|
|
|
|
| 1,440,000 |
|
| $ | 4.433 |
|
|
| 267 |
|
|
|
|
|
| 1,440,000 |
|
| $ | 4.433 |
|
|
| 501 |
| |
2017 |
|
|
|
|
|
| 1,200,000 |
|
| $ | 4.590 |
|
|
| 228 |
|
|
|
|
|
| 1,200,000 |
|
| $ | 4.590 |
|
|
| 432 |
| |
2018 |
|
|
|
|
|
| 420,000 |
|
| $ | 4.797 |
|
|
| 88 |
|
|
|
|
|
| 420,000 |
|
| $ | 4.797 |
|
|
| 183 |
| |
|
|
|
|
|
|
| The Partnership’s net asset |
|
| $ | 387 |
|
|
|
|
|
| The Partnership’s net asset |
|
| $ | 1,854 |
|
(1) | “MMBtu” represents million British Thermal Units. |
(2) | Fair value based on forward NYMEX natural gas prices, as applicable. |
Atlas Resource Partners
The following table summarizes the gross fair values of ARP’s derivative instruments, presenting the impact of offsetting the derivative assets and liabilities on the Partnership’s consolidated balance sheets as of the dates indicated (in thousands):
|
| Gross |
|
| Gross |
|
| Net Amount of |
|
| Gross |
|
| Gross |
|
| Net Amount of |
| ||||||
Offsetting Derivative Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
As of June 30, 2014 |
|
|
|
|
|
|
|
|
|
| ||||||||||||||
As of September 30, 2014 |
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Current portion of derivative assets |
| $ | 3,324 |
|
| $ | (3,069 | ) |
| $ | 255 |
|
| $ | 23,604 |
|
| $ | (2,554 | ) |
| $ | 21,050 |
|
Long-term portion of derivative assets |
|
| 9,439 |
|
|
| (6,024 | ) |
|
| 3,415 |
|
|
| 31,950 |
|
|
| (1,124 | ) |
|
| 30,826 |
|
Current portion of derivative liabilities |
|
| 3,004 |
|
|
| (3,004 | ) |
|
| — |
| ||||||||||||
Long-term portion of derivative liabilities |
|
| 3,915 |
|
|
| (3,915 | ) |
|
| — |
| ||||||||||||
Total derivative assets |
| $ | 19,682 |
|
| $ | (16,012 | ) |
| $ | 3,670 |
|
| $ | 55,554 |
|
| $ | (3,678 | ) |
| $ | 51,876 |
|
As of December 31, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Current portion of derivative assets |
| $ | 2,664 |
|
| $ | (773 | ) |
| $ | 1,891 |
|
| $ | 2,664 |
|
| $ | (773 | ) |
| $ | 1,891 |
|
Long-term portion of derivative assets |
|
| 31,146 |
|
|
| (4,062 | ) |
|
| 27,084 |
|
|
| 31,146 |
|
|
| (4,062 | ) |
|
| 27,084 |
|
Current portion of derivative liabilities |
|
| 4,341 |
|
|
| (4,341 | ) |
|
| — |
|
|
| 4,341 |
|
|
| (4,341 | ) |
|
| — |
|
Long-term portion of derivative liabilities |
|
| 122 |
|
|
| (122 | ) |
|
| — |
|
|
| 122 |
|
|
| (122 | ) |
|
| — |
|
Total derivative assets |
| $ | 38,273 |
|
| $ | (9,298 | ) |
| $ | 28,975 |
|
| $ | 38,273 |
|
| $ | (9,298 | ) |
| $ | 28,975 |
|
35
|
| Gross |
|
| Gross |
|
| Net Amount of |
|
| Gross |
|
| Gross |
|
| Net Amount of |
| ||||||
Offsetting Derivative Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
As of June 30, 2014 |
|
|
|
|
|
|
|
|
| |||||||||||||||
As of September 30, 2014 |
|
|
|
|
|
|
|
|
| |||||||||||||||
Current portion of derivative assets |
| $ | (3,069 | ) |
| $ | 3,069 |
|
| $ | — |
|
| $ | (2,554 | ) |
| $ | 2,554 |
|
| $ | — |
|
Long-term portion of derivative assets |
|
| (6,024 | ) |
|
| 6,024 |
|
|
| — |
|
|
| (1,124 | ) |
|
| 1,124 |
|
|
| — |
|
Current portion of derivative liabilities |
|
| (22,987 | ) |
|
| 3,004 |
|
|
| (19,983 | ) |
|
| (1,792 | ) |
|
| — |
|
|
| (1,792 | ) |
Long-term portion of derivative liabilities |
|
| (5,335 | ) |
|
| 3,915 |
|
|
| (1,420 | ) | ||||||||||||
Total derivative liabilities |
| $ | (37,415 | ) |
| $ | 16,012 |
|
| $ | (21,403 | ) |
| $ | (5,470 | ) |
| $ | 3,678 |
|
| $ | (1,792 | ) |
As of December 31, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Current portion of derivative assets |
| $ | (773 | ) |
| $ | 773 |
|
| $ | — |
|
| $ | (773 | ) |
| $ | 773 |
|
| $ | — |
|
Long-term portion of derivative assets |
|
| (4,062 | ) |
|
| 4,062 |
|
|
| — |
|
|
| (4,062 | ) |
|
| 4,062 |
|
|
| — |
|
Current portion of derivative liabilities |
|
| (10,694 | ) |
|
| 4,341 |
|
|
| (6,353 | ) |
|
| (10,694 | ) |
|
| 4,341 |
|
|
| (6,353 | ) |
Long-term portion of derivative liabilities |
|
| (189 | ) |
|
| 122 |
|
|
| (67 | ) |
|
| (189 | ) |
|
| 122 |
|
|
| (67 | ) |
Total derivative liabilities |
| $ | (15,718 | ) |
| $ | 9,298 |
|
| $ | (6,420 | ) |
| $ | (15,718 | ) |
| $ | 9,298 |
|
| $ | (6,420 | ) |
In JuneDuring the nine months ended September 30, 2013, ARP entered into contracts which provided the option to enter into swaptions up through September 30, 2013 for production volumes related to assets acquired from EP Energy (see Note 3). In connection with these swaption contracts, ARP paid premiums of $11.3$14.5 million, which represented their fair value on the date the transactions were initiated and were initially recorded as a derivative asset on the Partnership’s consolidated balance sheet. Swaption contract premiums paid are amortized over the period from initiation of the contract through their termination date. For the three and nine months ended JuneSeptember 30, 2013, ARP recognized approximately $1.3$13.2 million and $14.5 million, respectively, of amortization expense in other, net on the Partnership’s consolidated statement of operations related to the swaption contracts.
ARP recognized lossesgains of $9.2$1.3 million and gains of $2.3$1.1 million for the three months ended JuneSeptember 30, 2014 and 2013, respectively, and losses of $23.2$21.9 million and gains of $3.3$4.4 million for the sixnine months ended JuneSeptember 30, 2014 and 2013, respectively on settled contracts covering commodity production. These gains and losses were included within gas and oil production revenue in the Partnership’s consolidated statements of operations. As the underlying prices and terms in ARP’s derivative contracts were consistent with the indices used to sell its natural gas and oil, there were no gains or losses recognized during the three and sixnine months ended JuneSeptember 30, 2014 and 2013, respectively, for hedge ineffectiveness or as a result of the discontinuance of any cash flow hedges.
At JuneSeptember 30, 2014, ARP had the following commodity derivatives:
Natural Gas – Fixed Price Swaps
Production |
|
|
|
| Volumes |
|
| Average |
|
| Fair Value |
|
|
|
|
| Volumes |
|
| Average |
|
| Fair Value |
| ||||||||
|
|
|
|
| (MMBtu)(1) |
|
| (per MMBtu)(1) |
|
| (in thousands)(2) |
|
|
|
|
| (MMBtu)(1) |
|
| (per MMBtu)(1) |
|
| (in thousands)(2) |
| ||||||||
2014 |
|
|
|
|
| 30,076,500 |
|
| $ | 4.152 |
|
| $ | (9,117 | ) |
|
|
|
|
| 15,038,200 |
|
| $ | 4.152 |
|
| $ | 804 |
| ||
2015 |
|
|
|
|
| 51,924,500 |
|
| $ | 4.239 |
|
|
| 882 |
|
|
|
|
|
| 51,924,500 |
|
| $ | 4.239 |
|
|
| 12,192 |
| ||
2016 |
|
|
|
|
| 45,746,300 |
|
| $ | 4.311 |
|
|
| 3,003 |
|
|
|
|
|
| 45,746,300 |
|
| $ | 4.311 |
|
|
| 10,462 |
| ||
2017 |
|
|
|
|
| 24,840,000 |
|
| $ | 4.532 |
|
|
| 3,321 |
|
|
|
|
|
| 24,840,000 |
|
| $ | 4.532 |
|
|
| 7,552 |
| ||
2018 |
|
|
|
|
| 9,360,000 |
|
| $ | 4.619 |
|
|
| 360 |
|
|
|
|
|
| 9,360,000 |
|
| $ | 4.619 |
|
|
| 2,590 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
| $ | (1,551 | ) |
|
|
|
|
|
|
|
|
|
|
|
| $ | 33,600 |
|
36
Natural Gas - Costless Collars
Production |
| Option Type |
|
| Volumes |
|
| Average Floor |
|
| Fair Value |
|
| Option Type |
|
| Volumes |
|
| Average Floor |
|
| Fair Value |
| ||||||
|
|
|
|
| (MMBtu)(1) |
|
| (per MMBtu)(1) |
|
| (in thousands)(2) |
|
|
|
|
| (MMBtu)(1) |
|
| (per MMBtu)(1) |
|
| (in thousands)(2) |
| ||||||
2014 |
| Puts purchased |
|
|
| 1,920,000 |
|
| $ | 4.221 |
|
| $ | 310 |
|
| Puts purchased |
|
|
| 960,000 |
|
| $ | 4.221 |
|
| $ | 279 |
|
2014 |
| Calls sold |
|
|
| 1,920,000 |
|
| $ | 5.120 |
|
|
| (198 | ) |
| Calls sold |
|
|
| 960,000 |
|
| $ | 5.120 |
|
|
| (23 | ) |
2015 |
| Puts purchased |
|
|
| 3,480,000 |
|
| $ | 4.234 |
|
|
| 1,487 |
|
| Puts purchased |
|
|
| 3,480,000 |
|
| $ | 4.234 |
|
|
| 1,948 |
|
2015 |
| Calls sold |
|
|
| 3,480,000 |
|
| $ | 5.129 |
|
|
| (616 | ) |
| Calls sold |
|
|
| 3,480,000 |
|
| $ | 5.129 |
|
|
| (452 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 983 |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 1,752 |
|
Natural Gas – Put Options – Drilling Partnerships
Production |
| Option Type |
|
| Volumes |
|
| Average Fixed |
|
| Fair Value |
|
| Option Type |
|
| Volumes |
|
| Average Fixed Price |
|
| Fair Value |
| ||||||
|
|
|
|
| (MMBtu)(1) |
|
| (per MMBtu)(1) |
|
| (in thousands)(2) |
|
|
|
|
| (MMBtu)(1) |
|
| (per MMBtu)(1) |
|
| (in thousands)(2) |
| ||||||
2014 |
| Puts purchased |
|
|
| 900,000 |
|
| $ | 3.800 |
|
| $ | 27 |
|
| Puts purchased |
|
|
| 450,000 |
|
| $ | 3.800 |
|
| $ | 17 |
|
2015 |
| Puts purchased |
|
|
| 1,440,000 |
|
| $ | 4.000 |
|
|
| 385 |
|
| Puts purchased |
|
|
| 1,440,000 |
|
| $ | 4.000 |
|
|
| 550 |
|
2016 |
| Puts purchased |
|
|
| 1,440,000 |
|
| $ | 4.150 |
|
|
| 582 |
|
| Puts purchased |
|
|
| 1,440,000 |
|
| $ | 4.150 |
|
|
| 738 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 994 |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 1,305 |
|
Natural Gas – WAHA Basis Swaps
Production |
|
|
|
| Volumes |
|
| Average |
|
| Fair Value |
|
|
|
|
| Volumes |
|
| Average |
|
| Fair Value |
| ||||||||
|
|
|
|
| (MMBtu)(1) |
|
| (per MMBtu)(1) |
|
| (in thousands)(8) |
|
|
|
|
| (MMBtu)(1) |
|
| (per MMBtu)(1) |
|
| (in thousands)(8) |
| ||||||||
2014 |
|
|
|
|
| 5,400,000 |
|
| $ | (0.110 | ) |
| $ | (306 | ) |
|
|
|
|
| 2,700,000 |
|
| $ | (0.110 | ) |
| $ | 3 |
| ||
2015 |
|
|
|
|
| 3,000,000 |
|
| $ | (0.068 | ) |
|
| (31 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
| $ | (306 | ) |
|
|
|
|
|
|
|
| $ | (28 | ) |
Natural Gas – NGPL Basis Swaps
Production |
|
|
|
| Volumes |
|
| Average |
|
| Fair Value |
|
|
|
|
| Volumes |
|
| Average |
|
| Fair Value |
| ||||||||
|
|
|
|
| (MMBtu)(1) |
|
| (per MMBtu)(1) |
|
| (in thousands)(9) |
|
|
|
|
| (MMBtu)(1) |
|
| (per MMBtu)(1) |
|
| (in thousands)(9) |
| ||||||||
2014 |
|
|
|
|
| 2,700,000 |
|
| $ | (0.110 | ) |
| $ | (22 | ) |
|
|
|
|
| 2,250,000 |
|
| $ | (0.108 | ) |
| $ | 1 |
| ||
|
|
|
|
|
|
|
|
| $ | (22 | ) |
|
|
|
|
|
|
|
| $ | 1 |
|
Natural Gas Liquids – Natural Gasoline Fixed Price Swaps
Production |
|
|
|
| Volumes |
|
| Average Fixed |
|
| Fair Value |
|
|
|
|
| Volumes |
|
| Average Fixed |
|
| Fair Value |
| ||||||||
|
|
|
|
| (Bbl)(1) |
|
| (per Bbl)(1) |
|
| (in thousands)(3) |
|
|
|
|
| (Gal)(1) |
|
| (per Gal)(1) |
|
| (in thousands)(10) |
| ||||||||
2014 |
|
|
|
|
| 1,386,000 |
|
| $ | 2.123 |
|
| $ | 238 |
| |||||||||||||||||
2015 |
|
|
|
|
| 96,000 |
|
| $ | 88.550 |
|
| $ | (787 | ) |
|
|
|
|
| 5,040,000 |
|
| $ | 1.983 |
|
|
| 570 |
| ||
2016 |
|
|
|
|
| 84,000 |
|
| $ | 85.651 |
|
|
| (479 | ) | |||||||||||||||||
2017 |
|
|
|
|
| 60,000 |
|
| $ | 83.780 |
|
|
| (306 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| $ | (1,572 | ) |
|
|
|
|
|
|
|
|
|
|
|
| $ | 808 |
|
37
Natural Gas Liquids – Ethane Fixed Price Swaps
Production |
|
|
|
| Volumes |
|
| Average |
|
| Fair Value |
|
|
|
|
| Volumes |
|
| Average |
|
| Fair Value |
| ||||||||
|
|
|
|
| (Gal)(1) |
|
| (per Gal)(1) |
|
| (in thousands)(4) |
|
|
|
|
| (Gal)(1) |
|
| (per Gal)(1) |
|
| (in thousands)(4) |
| ||||||||
2014 |
|
|
|
|
| 1,260,000 |
|
| $ | 0.303 |
|
| $ | 18 |
|
|
|
|
|
| 630,000 |
|
| $ | 0.303 |
|
| $ | 37 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 18 |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 37 |
|
Natural Gas Liquids – Propane Fixed Price Swaps
Production |
|
|
|
| Volumes |
|
| Average |
|
| Fair Value |
|
|
|
|
| Volumes |
|
| Average |
|
| Fair Value |
| ||||||||
|
|
|
|
| (Gal)(1) |
|
| (per Gal)(1) |
|
| (in thousands)(5) |
|
|
|
|
| (Gal)(1) |
|
| (per Gal)(1) |
|
| (in thousands)(5) |
| ||||||||
2014 |
|
|
|
|
| 6,174,000 |
|
| $ | 0.999 |
|
| $ | (443 | ) |
|
|
|
|
| 3,087,000 |
|
| $ | 1.000 |
|
| $ | (144 | ) | ||
2015 |
|
|
|
|
| 8,064,000 |
|
| $ | 1.016 |
|
|
| (403 | ) |
|
|
|
|
| 8,064,000 |
|
| $ | 1.016 |
|
|
| (76 | ) | ||
|
|
|
|
|
|
|
|
| $ | (846 | ) |
|
|
|
|
|
|
|
| $ | (220 | ) |
Natural Gas Liquids – Butane Fixed Price Swaps
Production |
|
|
| Volumes |
|
| Average |
|
| Fair Value |
|
|
|
| Volumes |
|
| Average |
|
| Fair Value |
| ||||||||||
|
|
|
|
| (Gal)(1) |
|
| (per Gal)(1) |
|
| (in thousands)(6) |
|
|
|
|
| (Gal)(1) |
|
| (per Gal)(1) |
|
| (in thousands)(6) |
| ||||||||
2014 |
|
|
|
| 756,000 |
| $ | 1.308 |
| $ | — |
|
|
|
|
| 378,000 |
| $ | 1.308 |
| $ | 34 |
| ||||||||
2015 |
|
|
|
| 1,512,000 |
| $ | 1.248 |
|
| (58 | ) |
|
|
|
| 1,512,000 |
| $ | 1.248 |
|
|
| 98 |
| |||||||
|
|
|
|
|
|
|
|
|
| $ | (58 | ) |
|
|
|
|
|
|
|
|
| $ | 132 |
|
Natural Gas Liquids – Iso Butane Fixed Price Swaps
Production |
|
|
|
| Volumes |
|
| Average |
|
| Fair Value |
|
|
|
|
| Volumes |
|
| Average |
|
| Fair Value |
| ||||||||
|
|
|
|
| (Gal)(1) |
|
| (per Gal)(1) |
|
| (in thousands)(7) |
|
|
|
|
| (Gal)(1) |
|
| (per Gal)(1) |
|
| (in thousands)(7) |
| ||||||||
2014 |
|
|
|
|
| 756,000 |
|
| $ | 1.323 |
|
| $ | (16 | ) |
|
|
|
|
| 378,000 |
|
| $ | 1.323 |
|
| $ | 32 |
| ||
2015 |
|
|
|
|
| 1,512,000 |
|
| $ | 1.263 |
|
|
| (69 | ) |
|
|
|
|
| 1,512,000 |
|
| $ | 1.263 |
|
|
| 91 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
| $ | (85 | ) |
|
|
|
|
|
|
|
|
|
|
|
| $ | 123 |
|
Natural Gas Liquids – Crude Oil Fixed Price Swaps
Production |
|
|
|
|
| Volumes |
|
| Average |
|
| Fair Value |
| |||
|
|
|
|
|
| (Bbl)(1) |
|
| (per Bbl)(1) |
|
| (in thousands)(3) |
| |||
2016 |
|
|
|
|
|
| 84,000 |
|
| $ | 85.651 |
|
| $ | (24 | ) |
2017 |
|
|
|
|
|
| 60,000 |
|
| $ | 83.780 |
|
|
| (58 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | (82 | ) |
38
Crude Oil – Fixed Price Swaps
Production |
|
|
|
| Volumes |
|
| Average |
|
| Fair Value |
|
|
|
|
| Volumes |
|
| Average |
|
| Fair Value |
| ||||||||
|
|
|
|
| (Bbl)(1) |
|
| (per Bbl)(1) |
|
| (in thousands)(3) |
|
|
|
|
| (Bbl)(1) |
|
| (per Bbl)(1) |
|
| (in thousands)(3) |
| ||||||||
2014 |
|
|
|
|
| 591,000 |
|
| $ | 95.599 |
|
| $ | (4,471 | ) |
|
|
|
|
| 439,500 |
|
| $ | 95.090 |
|
| $ | 2,144 |
| ||
2015 |
|
|
|
|
| 1,095,000 |
|
| $ | 90.160 |
|
|
| (7,207 | ) |
|
|
|
|
| 1,743,000 |
|
| $ | 90.645 |
|
|
| 4,977 |
| ||
2016 |
|
|
|
|
| 777,000 |
|
| $ | 87.785 |
|
|
| (2,802 | ) |
|
|
|
|
| 1,029,000 |
|
| $ | 88.650 |
|
|
| 2,731 |
| ||
2017 |
|
|
|
|
| 132,000 |
|
| $ | 83.305 |
|
|
| (734 | ) |
|
|
|
|
| 492,000 |
|
| $ | 87.752 |
|
|
| 1,409 |
| ||
2018 |
|
|
|
|
| 360,000 |
|
| $ | 88.283 |
|
|
| 1,302 |
| |||||||||||||||||
|
|
|
|
|
|
|
|
| $ | (15,214 | ) |
|
|
|
|
|
|
|
| $ | 12,563 |
|
38
Crude Oil – Costless Collars
Production |
| Option Type |
|
| Volumes |
|
| Average |
|
| Fair Value |
|
| Option Type |
|
| Volumes |
|
| Average |
|
| Fair Value |
| ||||||
|
|
|
|
| (Bbl)(1) |
|
| (per Bbl)(1) |
|
| (in thousands)(3) |
|
|
|
|
| (Bbl)(1) |
|
| (per Bbl)(1) |
|
| (in thousands)(3) |
| ||||||
2014 |
| Puts purchased |
|
|
| 20,580 |
|
| $ | 84.169 |
|
| $ | 5 |
|
| Puts purchased |
|
|
| 10,290 |
|
| $ | 84.169 |
|
| $ | 15 |
|
2014 |
| Calls sold |
|
|
| 20,580 |
|
| $ | 113.308 |
|
|
| (35 | ) |
| Calls sold |
|
|
| 10,290 |
|
| $ | 113.308 |
|
|
| (1 | ) |
2015 |
| Puts purchased |
|
|
| 29,250 |
|
| $ | 83.846 |
|
|
| 47 |
|
| Puts purchased |
|
|
| 29,250 |
|
| $ | 83.846 |
|
|
| 110 |
|
2015 |
| Calls sold |
|
|
| 29,250 |
|
| $ | 110.654 |
|
|
| (91 | ) |
| Calls sold |
|
|
| 29,250 |
|
| $ | 110.654 |
|
|
| (31 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | (74 | ) |
|
|
|
|
|
|
|
|
|
|
|
| $ | 93 |
|
|
|
|
|
|
|
|
| ARP’s net liability |
|
| $ | (17,733 | ) |
|
|
|
|
|
|
| ARP’s net asset |
|
| $ | 50,084 |
|
(1) | “MMBtu” represents million British Thermal Units; “Bbl” represents barrels; “Gal” represents gallons. |
(2) | Fair value based on forward NYMEX natural gas prices, as applicable. |
(3) | Fair value based on forward WTI crude oil prices, as applicable. |
(4) | Fair value based on forward Mt. Belvieu ethane prices, as applicable. |
(5) | Fair value based on forward Mt. Belvieu propane prices, as applicable. |
(6) | Fair value based on forward Mt. Belvieu butane prices, as applicable. |
(7) | Fair value based on forward Mt. Belvieu iso butane prices, as applicable. |
| Fair value based on forward WAHA natural gas prices, as applicable. |
| Fair value based on forward NGPL natural gas prices, as applicable. |
(10) | Fair value based on forward Mt. Belvieu natural gasoline prices, as applicable. |
At JuneSeptember 30, 2014, ARP had net cash proceeds of $1.3$0.8 million related to hedging positions monetized on behalf of the Drilling Partnerships’ limited partners, which were included within cash and cash equivalents on the Partnership’s consolidated balance sheet. ARP will allocate the monetization net proceeds to the Drilling Partnerships’ limited partners based on their natural gas and oil production generated over the period of the original derivative contracts.
In June 2012, ARP entered into natural gas put option contracts which related to future natural gas production of the Drilling Partnerships. Therefore, a portion of any unrealized derivative gain or loss is allocable to the limited partners of the Drilling Partnerships based on their share of estimated gas production related to the derivatives not yet settled. At JuneSeptember 30, 2014, net unrealized derivative assets of $1.0$1.3 million were payable to the limited partners in the Drilling Partnerships related to these natural gas put option contracts.
At JuneSeptember 30, 2014, ARP had a secured hedge facility agreement with a syndicate of banks under which certain Drilling Partnerships have the ability to enter into derivative contracts to manage their exposure to commodity price movements. Under its revolving credit facility (see Note 8), ARP is required to utilize this secured hedge facility for future commodity risk management activity for its equity production volumes within the participating Drilling Partnerships. Each participating Drilling Partnership’s obligations under the facility are secured by mortgages on its oil and gas properties and first priority security interests in substantially all of its assets and by a guarantee of the general partner of the Drilling Partnership. ARP, as general partner of the Drilling Partnerships, administers the commodity price risk management activity for the Drilling Partnerships under the secured hedge facility. The secured hedge facility agreement contains covenants that limit each of the participating Drilling Partnerships’ ability to incur indebtedness, grant liens, make loans or investments, make distributions if a default under the secured hedge facility agreement exists or would result from the distribution, merge into or consolidate with other persons, enter into commodity or interest rate swap agreements that do not conform to specified terms or that exceed specified amounts, or engage in certain asset dispositions including a sale of all or substantially all of its assets.
39
Atlas Pipeline Partners
The following table summarizes APL’s gross fair values of its derivative instruments, presenting the impact of offsetting the derivative assets and liabilities on the Partnership’s consolidated balance sheets as of the dates indicated (in thousands):
|
| Gross |
|
| Gross |
|
| Net Amounts of Assets |
|
| Gross |
|
| Gross |
|
| Net Amounts of Assets |
| ||||||
Offsetting Derivative Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
As of June 30, 2014 |
|
|
|
|
|
|
|
| ||||||||||||||||
As of September 30, 2014 |
|
|
|
|
|
|
|
| ||||||||||||||||
Current portion of derivative assets |
| $ | 10,960 |
|
| $ | (2,943 | ) |
| $ | 8,017 |
| ||||||||||||
Long-term portion of derivative assets |
| $ | 1,365 |
|
| $ | (914 | ) |
| $ | 451 |
|
|
| 6,647 |
|
|
| (509 | ) |
|
| 6,138 |
|
Current portion of derivative liabilities |
|
| 2,478 |
|
|
| (2,478 | ) |
|
| — |
| ||||||||||||
Long-term portion of derivative liabilities |
|
| 1,651 |
|
|
| (1,651 | ) |
|
| — |
| ||||||||||||
Total derivative assets |
| $ | 5,494 |
|
| $ | (5,043 | ) |
| $ | 451 |
|
| $ | 17,607 |
|
| $ | (3,452 | ) |
| $ | 14,155 |
|
As of December 31, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Current portion of derivative assets |
| $ | 1,310 |
|
| $ | (1,136 | ) |
| $ | 174 |
|
| $ | 1,310 |
|
| $ | (1,136 | ) |
| $ | 174 |
|
Long-term portion of derivative assets |
|
| 5,082 |
|
|
| (2,812 | ) |
|
| 2,270 |
|
|
| 5,082 |
|
|
| (2,812 | ) |
|
| 2,270 |
|
Current portion of derivative liabilities |
|
| 1,612 |
|
|
| (1,612 | ) |
|
| — |
|
|
| 1,612 |
|
|
| (1,612 | ) |
|
| — |
|
Long-term portion of derivative liabilities |
|
| 949 |
|
|
| (949 | ) |
|
| — |
|
|
| 949 |
|
|
| (949 | ) |
|
| — |
|
Total derivative assets |
| $ | 8,953 |
|
| $ | (6,509 | ) |
| $ | 2,444 |
|
| $ | 8,953 |
|
| $ | (6,509 | ) |
| $ | 2,444 |
|
|
| Gross |
|
| Gross |
|
| Net Amounts of |
|
| Gross |
|
| Gross |
|
| Net Amounts of |
| ||||||
Offsetting Derivative Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
As of June 30, 2014 |
|
|
|
|
|
|
|
| ||||||||||||||||
As of September 30, 2014 |
|
|
|
|
|
|
|
| ||||||||||||||||
Current portion of derivative assets |
| $ | (2,943 | ) |
| $ | 2,943 |
|
| $ | — |
| ||||||||||||
Long-term portion of derivative assets |
| $ | (914 | ) |
| $ | 914 |
|
| $ | — |
|
|
| (509 | ) |
|
| 509 |
|
|
| — |
|
Current portion of derivative liabilities |
|
| (13,932 | ) |
|
| 2,478 |
|
|
| (11,454 | ) | ||||||||||||
Long-term portion of derivative liabilities |
|
| (1,867 | ) |
|
| 1,651 |
|
|
| (216 | ) | ||||||||||||
Total derivative liabilities |
| $ | (16,713 | ) |
| $ | 5,043 |
|
| $ | (11,670 | ) |
| $ | (3,452 | ) |
| $ | 3,452 |
|
| $ | — |
|
As of December 31, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current portion of derivative assets |
| $ | (1,136 | ) |
| $ | 1,136 |
|
| $ | — |
|
| $ | (1,136 | ) |
| $ | 1,136 |
|
| $ | — |
|
Long-term portion of derivative assets |
|
| (2,812 | ) |
|
| 2,812 |
|
|
| — |
|
|
| (2,812 | ) |
|
| 2,812 |
|
|
| — |
|
Current portion of derivative liabilities |
|
| (12,856 | ) |
|
| 1,612 |
|
|
| (11,244 | ) |
|
| (12,856 | ) |
|
| 1,612 |
|
|
| (11,244 | ) |
Long-term portion of derivative liabilities |
|
| (1,269 | ) |
|
| 949 |
|
|
| (320 | ) |
|
| (1,269 | ) |
|
| 949 |
|
|
| (320 | ) |
Total derivative liabilities |
| $ | (18,073 | ) |
| $ | 6,509 |
|
| $ | (11,564 | ) |
| $ | (18,073 | ) |
| $ | 6,509 |
|
| $ | (11,564 | ) |
40
As of JuneSeptember 30, 2014, APL had the following commodity derivatives:
Fixed Price Swaps
Production Period |
|
| Purchased/ |
| Commodity |
| Volumes(1) |
|
| Average |
|
| Fair Value |
|
|
| Purchased/ |
| Commodity |
| Volumes(1) |
|
| Average |
|
| Fair Value |
| ||||||
Natural Gas | Natural Gas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Natural Gas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 | 2014 |
| Sold |
| Natural Gas |
|
| 10,400,000 |
|
| $ | 4.109 |
|
| $ | (3,612 | ) | 2014 |
| Sold |
| Natural Gas |
|
| 5,350,000 |
|
| $ | 4.154 |
|
| $ | 298 |
|
2015 | 2015 |
| Sold |
| Natural Gas |
|
| 19,510,000 |
|
| $ | 4.267 |
|
|
| 495 |
| 2015 |
| Sold |
| Natural Gas |
|
| 19,810,000 |
|
| $ | 4.264 |
|
|
| 4,877 |
|
2016 | 2016 |
| Sold |
| Natural Gas |
|
| 8,100,000 |
|
| $ | 4.278 |
|
|
| 48 |
| 2016 |
| Sold |
| Natural Gas |
|
| 9,300,000 |
|
| $ | 4.262 |
|
|
| 1,356 |
|
2017 | 2017 |
| Sold |
| Natural Gas |
|
| 1,200,000 |
|
| $ | 4.474 |
|
|
| (72 | ) | 2017 |
| Sold |
| Natural Gas |
|
| 1,800,000 |
|
| $ | 4.433 |
|
|
| 106 |
|
Natural Gas Liquids | Natural Gas Liquids |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Natural Gas Liquids |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 | 2014 |
| Sold |
| Natural Gas Liquids |
|
| 38,052,000 |
|
| $ | 1.244 |
|
|
| (3,131 | ) | 2014 |
| Sold |
| Natural Gas Liquids |
|
| 19,278,000 |
|
| $ | 1.248 |
|
|
| (110 | ) |
2015 | 2015 |
| Sold |
| Natural Gas Liquids |
|
| 68,166,000 |
|
| $ | 1.207 |
|
|
| (2,472 | ) | 2015 |
| Sold |
| Natural Gas Liquids |
|
| 71,442,000 |
|
| $ | 1.215 |
|
|
| 2,642 |
|
2016 | 2016 |
| Sold |
| Natural Gas Liquids |
|
| 9,450,000 |
|
| $ | 1.035 |
|
|
| (84 | ) | 2016 |
| Sold |
| Natural Gas Liquids |
|
| 34,650,000 |
|
| $ | 1.030 |
|
|
| 1,476 |
|
2017 | 2017 |
| Sold |
| Natural Gas Liquids |
|
| 10,080,000 |
|
| $ | 1.040 |
|
|
| 565 |
| |||||||||||||||||
Crude Oil | Crude Oil |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Crude Oil |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 | 2014 |
| Sold |
| Crude Oil |
|
| 159,000 |
|
| $ | 92.090 |
|
|
| (1,828 | ) | 2014 |
| Sold |
| Crude Oil |
|
| 69,000 |
|
| $ | 91.707 |
|
|
| 90 |
|
2015 | 2015 |
| Sold |
| Crude Oil |
|
| 210,000 |
|
| $ | 90.263 |
|
|
| (1,597 | ) | 2015 |
| Sold |
| Crude Oil |
|
| 210,000 |
|
| $ | 90.263 |
|
|
| 444 |
|
2016 | 2016 |
| Sold |
| Crude Oil |
|
| 30,000 |
|
| $ | 90.000 |
|
|
| (73 | ) | 2016 |
| Sold |
| Crude Oil |
|
| 30,000 |
|
| $ | 90.000 |
|
|
| 110 |
|
Total Fixed Price Swaps | Total Fixed Price Swaps |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | (12,326 | ) | Total Fixed Price Swaps |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 11,854 |
|
Options
Production Period |
| Purchased/ |
|
| Type |
|
| Commodity |
|
| Volumes(1) |
|
| Average |
|
| Fair Value |
|
| Purchased/ |
|
| Type |
|
| Commodity |
|
| Volumes(1) |
|
| Average |
|
| Fair Value |
| ||||||||||||
Natural Gas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
2014 |
|
| Purchased |
|
|
| Put |
|
|
| Natural Gas |
|
|
| 200,000 |
|
| $ | 4.150 |
|
| $ | 11 |
| ||||||||||||||||||||||||
Natural Gas Liquids |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
| Purchased |
|
|
| Put |
|
|
| Natural Gas Liquids |
|
|
| 5,040,000 |
|
| $ | 0.959 |
|
|
| 51 |
|
|
| Purchased |
|
|
| Put |
|
|
| Natural Gas Liquids |
|
|
| 2,520,000 |
|
| $ | 0.964 |
|
| $ | 26 |
|
2014 |
|
| Sold |
|
|
| Call |
|
|
| Natural Gas Liquids |
|
|
| 2,520,000 |
|
| $ | 1.323 |
|
|
| (5 | ) |
|
| Sold |
|
|
| Call |
|
|
| Natural Gas Liquids |
|
|
| 1,260,000 |
|
| $ | 1.340 |
|
|
| — |
|
2015 |
|
| Purchased |
|
|
| Put |
|
|
| Natural Gas Liquids |
|
|
| 3,150,000 |
|
| $ | 0.941 |
|
|
| 88 |
|
|
| Purchased |
|
|
| Put |
|
|
| Natural Gas Liquids |
|
|
| 3,150,000 |
|
| $ | 0.941 |
|
|
| 111 |
|
2015 |
|
| Sold |
|
|
| Call |
|
|
| Natural Gas Liquids |
|
|
| 1,260,000 |
|
| $ | 1.275 |
|
|
| (24 | ) |
|
| Sold |
|
|
| Call |
|
|
| Natural Gas Liquids |
|
|
| 1,260,000 |
|
| $ | 1.275 |
|
|
| (11 | ) |
Crude Oil |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
| Purchased |
|
|
| Put |
|
|
| Crude Oil |
|
|
| 207,000 |
|
| $ | 90.849 |
|
|
| 120 |
|
|
| Purchased |
|
|
| Put |
|
|
| Crude Oil |
|
|
| 117,000 |
|
| $ | 91.569 |
|
|
| 463 |
|
2015 |
|
| Purchased |
|
|
| Put |
|
|
| Crude Oil |
|
|
| 270,000 |
|
| $ | 89.175 |
|
|
| 866 |
|
|
| Purchased |
|
|
| Put |
|
|
| Crude Oil |
|
|
| 270,000 |
|
| $ | 89.175 |
|
|
| 1,712 |
|
Total Options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 1,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 2,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| APL’s net liability |
|
| $ | (11,219 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| APL’s net asset |
|
| $ | 14,155 |
|
(1) | Volumes for natural gas are stated in MMBtu’s. Volumes for NGLs are stated in gallons. Volumes for crude oil are stated in barrels. |
(2) | See Note 10 for discussion on fair value methodology. |
The following table summarizes APL’s derivatives not designated as hedges, which are included within gain (loss) on mark-to market derivatives on the Partnerships consolidated statements of operations:
|
| Three Months Ended |
|
| Six Months Ended June 30, |
|
| Three Months Ended |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
| 2013 |
|
| 2014 |
|
| 2013 |
|
| 2014 |
| 2013 |
| ||||||||||
Gain (loss) recognized in gain (loss) on mark-to-market derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contract—realized(1) |
| $ | (6,619 | ) |
| $ | 2,844 |
|
| $ | (16,454 | ) |
| $ | 4,480 |
|
| $ | (2,529 | ) |
| $ | (907 | ) |
| $ | (18,983 | ) |
| $ | 3,573 |
|
Commodity contract – unrealized(2) |
|
| 252 |
|
|
| 24,263 |
|
|
| 1,416 |
|
|
| 10,544 |
|
|
| 26,684 |
|
|
| (23,610 | ) |
|
| 28,100 |
|
|
| (13,066 | ) |
Gain (loss) on mark-to-market derivatives |
| $ | (6,367 | ) |
| $ | 27,107 |
|
| $ | (15,038 | ) |
| $ | 15,024 |
|
| $ | 24,155 |
|
| $ | (24,517 | ) |
| $ | 9,117 |
|
| $ | (9,493 | ) |
(1) | Realized gain (loss) represents the gain (loss) incurred when the derivative contract expires and/or is cash settled. |
(2) | Unrealized gain represents the mark-to-market gain recognized on open derivative contracts, which have not yet settled. |
41
The fair value of the derivatives included in the Partnership’s consolidated balance sheets for the periods indicated was as follows (in thousands):
|
| June 30, |
|
| December 31, |
|
| September 30, |
|
| December 31, |
| ||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
|
| 2013 |
| ||||
Current portion of derivative asset |
| $ | 255 |
|
| $ | 2,066 |
|
| $ | 29,651 |
|
| $ | 2,066 |
|
Long-term derivative asset |
|
| 4,632 |
|
|
| 30,868 |
|
|
| 38,234 |
|
|
| 30,868 |
|
Current portion of derivative liability |
|
| (31,816 | ) |
|
| (17,630 | ) |
|
| (1,792 | ) |
|
| (17,630 | ) |
Long-term derivative liability |
|
| (1,636 | ) |
|
| (387 | ) |
|
| — |
|
|
| (387 | ) |
Total Partnership net asset (liability) |
| $ | (28,565 | ) |
| $ | 14,917 |
| ||||||||
Total Partnership net asset |
| $ | 66,093 |
|
| $ | 14,917 |
|
NOTE 10 — FAIR VALUE OF FINANCIAL INSTRUMENTS
The Partnership and its subsidiaries have established a hierarchy to measure their financial instruments at fair value which requires them to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs represent market data obtained from independent sources, whereas, unobservable inputs reflect the Partnership and its subsidiaries own market assumptions, which are used if observable inputs are not reasonably available without undue cost and effort. The hierarchy defines three levels of inputs that may be used to measure fair value:
Level 1– Unadjusted quoted prices in active markets for identical, unrestricted assets and liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability.
Level 3 – Unobservable inputs that reflect the entity’s own assumptions about the assumptions market participants would use in the pricing of the asset or liability and are consequently not based on market activity but rather through particular valuation techniques.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The Partnership and its subsidiaries use a market approach fair value methodology to value the assets and liabilities for their outstanding derivative contracts (see Note 9) and investments held in the Partnership’s rabbi trust (see Note 16). The Partnership and its subsidiaries manage and report derivative assets and liabilities on the basis of their exposure to market risks and credit risks by counterparty. The Partnership and its subsidiaries’ commodity derivative contracts, with the exception of APL’s NGL fixed price swaps and NGL options, are valued based on observable market data related to the change in price of the underlying commodity and are therefore defined as Level 2 assets and liabilities within the same class of nature and risk. These derivative instruments are calculated by utilizing commodity indices quoted prices for futures and options contracts traded on open markets that coincide with the underlying commodity, expiration period, strike price (if applicable) and pricing formula utilized in the derivative instrument. Investments held within the Partnership’s rabbi trust are publicly traded equity and debt securities and are therefore defined as Level 1 fair value measurements.
Valuations for APL’s NGL fixed price swaps are based on forward price curves provided by a third party, which are considered to be Level 3 inputs. The prices for propane, iso butane, normal butane and natural gasoline are adjusted based upon the relationship between the prices for the product/locations quoted by the third party and the underlying product/locations utilized for the swap contracts, as determined by a regression model of the historical settlement prices for the different product/locations. The regression model is recalculated on a quarterly basis. This adjustment is an unobservable Level 3 input. The NGL fixed price swaps are over the counter instruments which are not actively traded in an open market. However, the prices for the underlying products and locations do have a direct correlation to the prices for the products and locations provided by the third party, which are based upon trading activity for the products and locations quoted. A change in the relationship between these prices would have a direct impact upon the unobservable adjustment utilized to calculate the fair value of the NGL fixed price swaps. Valuations for APL’s NGL options are based on forward price curves developed by financial institutions, and therefore are defined as Level 3. The NGL options are over the counter instruments that are not actively traded in an open market, thus APL utilizes the valuations provided by the financial institutions that provide the NGL options for trade. These valuations are tested for reasonableness through the use of an internal valuation model.
42
Information for the Partnership’s, ARP’s and APL’s assets and liabilities measured at fair value at JuneSeptember 30, 2014 and December 31, 2013 was as follows (in thousands):
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||||||
As of June 30, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Derivative assets, gross |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
As of September 30, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Assets, gross |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Rabbi trust |
| $ | 5,600 |
|
| $ | — |
|
| $ | — |
|
| $ | 5,600 |
| ||||||||||||||||
Commodity swaps |
| $ | — |
|
| $ | 925 |
|
| $ | — |
|
| $ | 925 |
|
|
| — |
|
|
| 1,861 |
|
|
| — |
|
|
| 1,861 |
|
ARP Commodity swaps |
|
| — |
|
|
| 16,814 |
|
|
| — |
|
|
| 16,814 |
|
|
| — |
|
|
| 51,734 |
|
|
| — |
|
|
| 51,734 |
|
ARP Commodity basis swaps |
|
| — |
|
|
| 25 |
|
|
| — |
|
|
| 25 |
|
|
| — |
|
|
| 163 |
|
|
| — |
|
|
| 163 |
|
ARP Commodity puts |
|
| — |
|
|
| 994 |
|
|
| — |
|
|
| 994 |
|
|
| — |
|
|
| 1,305 |
|
|
| — |
|
|
| 1,305 |
|
ARP Commodity options |
|
| — |
|
|
| 1,849 |
|
|
| — |
|
|
| 1,849 |
|
|
| — |
|
|
| 2,352 |
|
|
| — |
|
|
| 2,352 |
|
APL Commodity swaps |
|
| — |
|
|
| 2,595 |
|
|
| 1,763 |
|
|
| 4,358 |
|
|
| — |
|
|
| 8,166 |
|
|
| 7,129 |
|
|
| 15,295 |
|
APL Commodity options |
|
| — |
|
|
| 997 |
|
| �� | 139 |
|
|
| 1,136 |
|
|
| — |
|
|
| 2,175 |
|
|
| 137 |
|
|
| 2,312 |
|
Total derivative assets, gross |
|
| — |
|
|
| 24,199 |
|
|
| 1,902 |
|
|
| 26,101 |
| ||||||||||||||||
Derivative liabilities, gross |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Total assets, gross |
|
| 5,600 |
|
|
| 67,756 |
|
|
| 7,266 |
|
|
| 80,622 |
| ||||||||||||||||
Liabilities, gross |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Commodity swaps |
|
| — |
|
|
| (538 | ) |
|
| — |
|
|
| (538 | ) |
|
| — |
|
|
| (7 | ) |
|
| — |
|
|
| (7 | ) |
ARP Commodity swaps |
|
| — |
|
|
| (36,123 | ) |
|
| — |
|
|
| (36,123 | ) |
|
| — |
|
|
| (4,773 | ) |
|
| — |
|
|
| (4,773 | ) |
ARP Commodity basis swaps |
|
| — |
|
|
| (352 | ) |
|
| — |
|
|
| (352 | ) |
|
| — |
|
|
| (190 | ) |
|
| — |
|
|
| (190 | ) |
ARP Commodity options |
|
| — |
|
|
| (940 | ) |
|
| — |
|
|
| (940 | ) |
|
| — |
|
|
| (507 | ) |
|
| — |
|
|
| (507 | ) |
APL Commodity swaps |
|
| — |
|
|
| (9,233 | ) |
|
| (7,451 | ) |
|
| (16,684 | ) |
|
| — |
|
|
| (885 | ) |
|
| (2,556 | ) |
|
| (3,441 | ) |
APL Commodity options |
|
| — |
|
|
| — |
|
|
| (29 | ) |
|
| (29 | ) |
|
| — |
|
|
| — |
|
|
| (11 | ) |
|
| (11 | ) |
Total derivative liabilities, gross |
|
| — |
|
|
| (47,186 | ) |
|
| (7,480 | ) |
|
| (54,666 | ) | ||||||||||||||||
Total derivatives, fair value, net |
| $ | — |
|
| $ | (22,987 | ) |
| $ | (5,578 | ) |
| $ | (28,565 | ) | ||||||||||||||||
Total liabilities, gross |
|
| — |
|
|
| (6,362 | ) |
|
| (2,567 | ) |
|
| (8,929 | ) | ||||||||||||||||
Total assets, fair value, net |
| $ | — |
|
| $ | 61,394 |
|
| $ | 4,699 |
|
| $ | 66,093 |
| ||||||||||||||||
As of December 31, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Derivative assets, gross |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Assets, gross |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Rabbi trust |
| $ | 3,705 |
|
| $ | — |
|
| $ | — |
|
| $ | 3,705 |
| ||||||||||||||||
Commodity swaps |
| $ | — |
|
| $ | 1,634 |
|
| $ | — |
|
| $ | 1,634 |
|
|
| — |
|
|
| 1,634 |
|
| $ | — |
|
|
| 1,634 |
|
ARP Commodity swaps |
|
| — |
|
|
| 33,594 |
|
|
| — |
|
|
| 33,594 |
|
|
| — |
|
|
| 33,594 |
|
|
| — |
|
|
| 33,594 |
|
ARP Commodity puts |
|
| — |
|
|
| 1,374 |
|
|
| — |
|
|
| 1,374 |
|
|
| — |
|
|
| 1,374 |
|
|
| — |
|
|
| 1,374 |
|
ARP Commodity options |
|
| — |
|
|
| 3,305 |
|
|
| — |
|
|
| 3,305 |
|
|
| — |
|
|
| 3,305 |
|
|
| — |
|
|
| 3,305 |
|
APL Commodity swaps |
|
| — |
|
|
| 2,994 |
|
|
| 1,412 |
|
|
| 4,406 |
|
|
| — |
|
|
| 2,994 |
|
|
| 1,412 |
|
|
| 4,406 |
|
APL Commodity options |
|
| — |
|
|
| 4,337 |
|
|
| 210 |
|
|
| 4,547 |
|
|
| — |
|
|
| 4,337 |
|
|
| 210 |
|
|
| 4,547 |
|
Total derivative assets, gross |
|
| — |
|
|
| 47,238 |
|
|
| 1,622 |
|
|
| 48,860 |
| ||||||||||||||||
Derivative liabilities, gross |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Total assets, gross |
|
| 3,705 |
|
|
| 47,238 |
|
|
| 1,622 |
|
|
| 52,565 |
| ||||||||||||||||
Liabilities, gross |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Commodity swaps |
|
| — |
|
|
| (152 | ) |
|
| — |
|
|
| (152 | ) |
|
| — |
|
|
| (152 | ) |
|
| — |
|
|
| (152 | ) |
ARP Commodity swaps |
|
| — |
|
|
| (14,624 | ) |
|
| — |
|
|
| (14,624 | ) |
|
| — |
|
|
| (14,624 | ) |
|
| — |
|
|
| (14,624 | ) |
ARP Commodity options |
|
| — |
|
|
| (1,094 | ) |
|
| — |
|
|
| (1,094 | ) |
|
| — |
|
|
| (1,094 | ) |
|
| — |
|
|
| (1,094 | ) |
APL Commodity swaps |
|
| — |
|
|
| (4,695 | ) |
|
| (13,378 | ) |
|
| (18,073 | ) |
|
| — |
|
|
| (4,695 | ) |
|
| (13,378 | ) |
|
| (18,073 | ) |
Total derivative liabilities, gross |
|
| — |
|
|
| (20,565 | ) |
|
| (13,378 | ) |
|
| (33,943 | ) |
|
| — |
|
|
| (20,565 | ) |
|
| (13,378 | ) |
|
| (33,943 | ) |
Total derivatives, fair value, net |
| $ | — |
|
| $ | 26,673 |
|
| $ | (11,756 | ) |
| $ | 14,917 |
|
| $ | — |
|
| $ | 26,673 |
|
| $ | (11,756 | ) |
| $ | 14,917 |
|
43
APL’s Level 3 fair value amounts relate to its derivative contracts on NGL fixed price swaps and NGL options. The following table provides a summary of changes in fair value of APL’s Level 3 derivative instruments for the periods indicated (in thousands):
| NGL Fixed Price Swaps |
| NGL Put Options |
| NGL Call Options |
| Total |
| NGL Fixed Price |
| NGL Put Options |
| NGL Call Options |
| Total |
| ||||||||||||||||||||||||||||||||||||||
| Gallons |
|
| Amount |
| Gallons |
|
| Amount |
| Gallons |
| Amount |
| Amount |
| Gallons |
|
| Amount |
| Gallons |
| Amount |
| Gallons |
| Amount |
| Amount |
| |||||||||||||||||||||||
Balance – January 1, 2014 |
| 130,158 |
|
| $ | (11,966 | ) |
|
| 6,300 |
|
| $ | 210 |
|
| — |
| $ | — |
| $ | (11,756 | ) |
| 130,158 |
|
| $ | (11,966 | ) |
|
| 6,300 |
|
| $ | 210 |
|
| — |
| $ | — |
| $ | (11,756 | ) | ||||||
New contracts(1) |
| 31,626 |
|
|
| — |
|
| 5,040 |
|
|
| 200 |
| 5,040 |
| (200 | ) |
| — |
|
| 70,560 |
|
|
| — |
|
| 5,040 |
|
| 200 |
| 5,040 |
| (200 | ) |
| — |
| |||||||||||||
Cash settlements from unrealized gain (loss)(2)(3) |
| (46,116 | ) |
|
| 8,447 |
|
| (3,150 | ) |
|
| 225 |
| (1,260 | ) |
| (20 | ) |
| 8,652 |
|
| (65,268 | ) |
|
| 9,326 |
|
| (5,670 | ) |
| 402 |
| (2,520 | ) |
| (63 | ) |
| 9,665 |
| |||||||||||
Net change in unrealized gain |
| — |
|
|
| (2,169 | ) |
| — |
|
|
| (271 | ) |
| — |
| 171 |
| (2,269 | ) |
| — |
|
|
| 7,213 |
|
| — |
|
| (273 | ) |
| — |
| 189 |
| 7,129 |
| |||||||||||||
Option premium recognition(3) |
| — |
|
|
| — |
|
|
| — |
|
|
| (225 | ) |
|
| — |
|
| 20 |
|
| (205 | ) |
| — |
|
|
| — |
|
|
| — |
|
|
| (402 | ) |
|
| — |
|
| 63 |
|
| (339 | ) | ||||
Balance – June 30, 2014 |
| 115,668 |
|
| $ | (5,688 | ) |
|
| 8,190 |
|
| $ | 139 |
|
| 3,780 |
| $ | (29 | ) |
| $ | (5,578 | ) | |||||||||||||||||||||||||||||
Balance – September 30, 2014 |
| 135,450 |
|
| $ | 4,573 |
|
|
| 5,670 |
|
| $ | 137 |
|
| 2,520 |
| $ | (11 | ) |
| $ | 4,699 |
|
(1) | Swaps are entered into with no value on the date of trade. Options include premiums paid, which are included in the value of the derivatives on the date of trade. |
(2) | Included within gain (loss) on mark-to-market derivatives on the Partnership’s consolidated statements of operations. |
(3) | Includes option premium cost reclassified from unrealized gain (loss) to realized gain (loss) at time of option expiration. |
The following table provides a summary of the unobservable inputs used in the fair value measurement of APL’s NGL fixed price swaps at JuneSeptember 30, 2014 and December 31, 2013 (in thousands):
|
| Gallons |
|
| Third Party |
|
| Adjustments(2) |
|
| Total |
|
| Gallons |
|
| Third Party |
|
| Adjustments(2) |
|
| Total |
| ||||||||
As of June 30, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
As of September 30, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Propane swaps |
|
| 89,460 |
|
| $ | (5,008 | ) |
| $ | — |
|
| $ | (5,008 | ) |
|
| 114,408 |
|
| $ | 1,403 |
|
| $ | — |
|
| $ | 1,403 |
|
Iso butane swaps |
|
| 2,520 |
|
|
| (767 | ) |
|
| 313 |
|
|
| (454 | ) |
|
| 1,260 |
|
|
| (174 | ) |
|
| 109 |
|
|
| (65 | ) |
Normal butane swaps |
|
| 2,520 |
|
|
| 342 |
|
|
| 85 |
|
|
| 427 |
|
|
| 1,260 |
|
|
| 321 |
|
|
| 31 |
|
|
| 352 |
|
Natural gasoline swaps |
|
| 21,168 |
|
|
| 539 |
|
|
| (1,192 | ) |
|
| (653 | ) |
|
| 18,522 |
|
|
| 3,787 |
|
|
| (904 | ) |
|
| 2,883 |
|
Total NGL swaps — June 30, 2014 |
|
| 115,668 |
|
| $ | (4,894 | ) |
| $ | (794 | ) |
| $ | (5,688 | ) | ||||||||||||||||
Total NGL swaps — September 30, 2014 |
|
| 135,450 |
|
| $ | 5,337 |
|
| $ | (764 | ) |
| $ | 4,573 |
| ||||||||||||||||
As of December 31, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Propane swaps |
|
| 100,296 |
|
| $ | (10,260 | ) |
| $ | — |
|
| $ | (10,260 | ) |
|
| 100,296 |
|
| $ | (10,260 | ) |
| $ | — |
|
| $ | (10,260 | ) |
Iso butane swaps |
|
| 6,300 |
|
|
| (2,342 | ) |
|
| 955 |
|
|
| (1,387 | ) |
|
| 6,300 |
|
|
| (2,342 | ) |
|
| 955 |
|
|
| (1,387 | ) |
Normal butane swaps |
|
| 7,560 |
|
|
| 40 |
|
|
| 322 |
|
|
| 362 |
|
|
| 7,560 |
|
|
| 40 |
|
|
| 322 |
|
|
| 362 |
|
Natural gasoline swaps |
|
| 16,002 |
|
|
| 132 |
|
|
| (813 | ) |
|
| (681 | ) |
|
| 16,002 |
|
|
| 132 |
|
|
| (813 | ) |
|
| (681 | ) |
Total NGL swaps — December 31, 2013 |
|
| 130,158 |
|
| $ | (12,430 | ) |
| $ | 464 |
|
| $ | (11,966 | ) |
|
| 130,158 |
|
| $ | (12,430 | ) |
| $ | 464 |
|
| $ | (11,966 | ) |
(1) | Based upon the difference between the quoted market price provided by the third party and the fixed price of the swap. |
(2) | Product and location basis differentials calculated through the use of a regression model, which compares the difference between the settlement prices for the products and locations quoted by the third party and the settlement prices for the actual products and locations underlying the derivatives, using a |
44
The following table provides a summary of the regression coefficient utilized in the calculation of the unobservable inputs for the Level 3 fair value measurements for APL’s NGL fixed price swaps for the periods indicated (in thousands):
|
|
|
|
| Adjustment Based upon |
|
|
|
|
| Adjustment Based upon |
| ||||||||||||||||||||
|
| Level 3 Fair |
|
| Lower |
|
| Upper |
|
| Average |
|
| Level 3 Fair |
|
| Lower |
|
| Upper |
|
| Average |
| ||||||||
As of June 30, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
As of September 30, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Iso butane swaps |
| $ | 313 |
|
| $ | 1.1090 |
|
| $ | 1.1194 |
|
| $ | 1.1142 |
|
| $ | 109 |
|
|
| 1.1011 |
|
|
| 1.1117 |
|
|
| 1.1064 |
|
Normal butane swaps |
|
| 85 |
|
|
| 1.0292 |
|
|
| 1.0329 |
|
|
| 1.0311 |
|
|
| 31 |
|
|
| 1.0292 |
|
|
| 1.0329 |
|
|
| 1.0311 |
|
Natural gasoline swaps |
|
| (1,192 | ) |
|
| 0.9695 |
|
|
| 0.9726 |
|
|
| 0.9711 |
|
|
| (904 | ) |
|
| 0.9704 |
|
|
| 0.9738 |
|
|
| 0.9721 |
|
Total NGL swaps – June 30, 2014 |
| $ | (794 | ) |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total NGL swaps – September 30, 2014 |
| $ | (764 | ) |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
As of December 31, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Iso butane swaps |
| $ | 955 |
|
|
| 1.1184 |
|
|
| 1.1284 |
|
|
| 1.1234 |
|
| $ | 955 |
|
|
| 1.1184 |
|
|
| 1.1284 |
|
|
| 1.1234 |
|
Normal butane swaps |
|
| 322 |
|
|
| 1.0341 |
|
|
| 1.0386 |
|
|
| 1.0364 |
|
|
| 322 |
|
|
| 1.0341 |
|
|
| 1.0386 |
|
|
| 1.0364 |
|
Natural gasoline swaps |
|
| (813 | ) |
|
| 0.9727 |
|
|
| 0.9751 |
|
|
| 0.9739 |
|
|
| (813 | ) |
|
| 0.9727 |
|
|
| 0.9751 |
|
|
| 0.9739 |
|
Total NGL swaps – December 31, 2013 |
| $ | 464 |
|
|
|
|
|
|
|
|
| $ | 464 |
|
|
|
|
|
|
|
|
APL had $23.4$20.5 million and $14.5 million of NGL linefill at JuneSeptember 30, 2014 and December 31, 2013, respectively, which were included within prepaid expenses and other on the Partnership’s consolidated balance sheets. The NGL linefill represents amounts receivable for NGLs delivered to counterparties for which the counterparty will pay at a designated later period at a price determined by the then market price. APL’s NGL linefill held by some counterparties will be settled at various periods in the future and is defined as a Level 3 asset, which is valued at fair value using the same forward price curve utilized to value APL’s NGL fixed price swaps. The product/location adjustment based upon the multiple regression analysis, which was included in the value of the linefill, was a reductionan increase of $0.4$0.1 million and a decrease of $0.4 million as of JuneSeptember 30, 2014 and December 31, 2013, respectively. APL’s NGL linefill held by other counterparties is adjusted on a monthly basis according to the volumes delivered to the counterparties each period and is valued on a first in first out (“FIFO”) basis. During the three months ended September 30, 2014, the contracts related to this linefill on the WestTX system were revised and the settlement and valuation was converted from a FIFO method to a fair value method.
The following table provides a summary of changes in fair value of APL’s NGL linefill for the sixnine months ended JuneSeptember 30, 2014 (in thousands):
|
| Linefill Valued at |
|
| Linefill Valued on |
|
| Total NGL Linefill |
|
| Linefill Valued at |
|
| Linefill Valued on |
|
| Total NGL Linefill |
| ||||||||||||||||||||||||||||||
|
| Gallons |
|
| Amount |
|
| Gallons |
|
| Amount |
|
| Gallons |
|
| Amount |
|
| Gallons |
|
| Amount |
|
| Gallons |
|
| Amount |
|
| Gallons |
|
| Amount |
| ||||||||||||
Balance – January 1, 2014 |
|
| 5,788 |
|
| $ | 4,738 |
|
|
| 11,538 |
|
| $ | 9,778 |
|
|
| 17,326 |
|
| $ | 14,516 |
|
|
| 5,788 |
|
| $ | 4,738 |
|
|
| 11,538 |
|
| $ | 9,778 |
|
|
| 17,326 |
|
| $ | 14,516 |
|
Deliveries into NGL linefill |
|
| 1,050 |
|
|
| 1,013 |
|
|
| 42,604 |
|
|
| 31,549 |
|
|
| 43,654 |
|
|
| 32,562 |
|
|
| 1,050 |
|
|
| 1,013 |
|
|
| 55,432 |
|
|
| 35,936 |
|
|
| 56,482 |
|
|
| 36,949 |
|
NGL linefill sales |
|
| — |
|
|
| — |
|
|
| (34,557 | ) |
|
| (23,725 | ) |
|
| (34,557 | ) |
|
| (23,725 | ) |
|
| — |
|
|
| — |
|
|
| (49,165 | ) |
|
| (30,256 | ) |
|
| (49,165 | ) |
|
| (30,256 | ) |
Adjustments for linefill contract revision |
|
| 10,791 |
|
|
| 9,134 |
|
|
| (10,791 | ) |
|
| (9,134 | ) |
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
Net change in NGL linefill valuation(1) |
|
| — |
|
|
| 94 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 94 |
|
|
| — |
|
|
| (717 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (717 | ) |
Balance – June 30, 2014 |
|
| 6,838 |
|
| $ | 5,845 |
|
|
| 19,585 |
|
| $ | 17,602 |
|
|
| 26,423 |
|
| $ | 23,447 |
| ||||||||||||||||||||||||
Balance – September 30, 2014 |
|
| 17,629 |
|
| $ | 14,168 |
|
|
| 7,014 |
|
| $ | 6,324 |
|
|
| 24,643 |
|
| $ | 20,492 |
|
(1) | Included within gathering and processing revenues on the Partnership’s consolidated statements of operations. |
Other Financial Instruments
The estimated fair value of the Partnership and its subsidiaries’ other financial instruments has been determined based upon its assessment of available market information and valuation methodologies. However, these estimates may not necessarily be indicative of the amounts that the Partnership and its subsidiaries could realize upon the sale or refinancing of such financial instruments.
45
The Partnership and its subsidiaries’ other current assets and liabilities on its consolidated balance sheets are considered to be financial instruments. The estimated fair values of these instruments approximate their carrying amounts due to their short-term nature and thus are categorized as Level 1. The estimated fair values of the Partnership and its subsidiaries’ debt at JuneSeptember 30, 2014 and December 31, 2013, which consist principally of ARP’s and APL’s senior notes and borrowings under the Partnership’s, ARP’s and APL’s revolving and term loan credit facilities, were $3,170.5$3,242.7 million and $2,841.7 million, respectively, compared with the carrying amounts of $3,096.8$3,275.0 million and $2,889.0 million, respectively. The carrying values of outstanding borrowings under the respective revolving and term loan credit facilities, which bear interest at variable interest rates, approximated their estimated fair values. The estimated fair values of the ARP and APL senior notes were based upon the market approach and calculated using the yields of the ARP and APL senior notes as provided by financial institutions and thus were categorized as Level 3 values.
45
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
The Partnership and ARP estimate the fair value of their respective asset retirement obligations based on discounted cash flow projections using numerous estimates, assumptions and judgments regarding such factors at the date of establishment of an asset retirement obligation such as: amounts and timing of settlements, the credit-adjusted risk-free rate of the Partnership and ARP and estimated inflation rates (see Note 7).
Information for assets and liabilities that were measured at fair value on a nonrecurring basis for the three and sixnine months ended JuneSeptember 30, 2014 and 2013 was as follows (in thousands):
|
| Three Months Ended June 30, |
|
| Three Months Ended September 30, |
| ||||||||||||||||||||||||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
|
| 2013 |
| ||||||||||||||||||||
|
| Level 3 |
|
| Total |
|
| Level 3 |
|
| Total |
|
| Level 3 |
|
| Total |
|
| Level 3 |
|
| Total |
| ||||||||
Asset retirement obligations |
| $ | 7,345 |
|
| $ | 7,345 |
|
| $ | 599 |
|
| $ | 599 |
|
| $ | 336 |
|
| $ | 336 |
|
| $ | 17,306 |
|
| $ | 17,306 |
|
Total |
| $ | 7,345 |
|
| $ | 7,345 |
|
| $ | 599 |
|
| $ | 599 |
|
| $ | 336 |
|
| $ | 336 |
|
| $ | 17,306 |
|
| $ | 17,306 |
|
|
| Six Months Ended June 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||||||||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
|
| 2013 |
| ||||||||||||||||||||
|
| Level 3 |
|
| Total |
|
| Level 3 |
|
| Total |
|
| Level 3 |
|
| Total |
|
| Level 3 |
|
| Total |
| ||||||||
Asset retirement obligations |
| $ | 7,947 |
|
| $ | 7,947 |
|
| $ | 1,244 |
|
| $ | 1,244 |
|
| $ | 8,283 |
|
| $ | 8,283 |
|
| $ | 18,550 |
|
| $ | 18,550 |
|
Total |
| $ | 7,947 |
|
| $ | 7,947 |
|
| $ | 1,244 |
|
| $ | 1,244 |
|
| $ | 8,283 |
|
| $ | 8,283 |
|
| $ | 18,550 |
|
| $ | 18,550 |
|
The Partnership and its subsidiaries estimate the fair value of its long-lived assets in connection with reviewing these assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, using estimates, assumptions and judgments regarding such events or circumstances. For the year ended December 31, 2013, ARP recognized $38.0 million of impairment of long-lived assets which were defined as a Level 3 fair value measurements (see Note 2 – Impairment of Long-Lived Assets). No impairments were recognized during the three and sixnine months ended JuneSeptember 30, 2014 and 2013.
During the three and sixnine months ended JuneSeptember 30, 2014, ARP completed the Rangely Acquisition and the GeoMet acquisition (see Note 3). During the year ended December 31, 2013, the Partnership completed the Arkoma Acquisition, ARP completed the EP Energy Acquisition and APL completed the TEAK Acquisition. The fair value measurements of assets acquired and liabilities assumed for each of these acquisitions are based on inputs that are not observable in the market and therefore represent Level 3 inputs. The estimated fair values of the assets acquired and liabilities assumed in the Rangely Acquisition and the GeoMet acquisition as of the acquisition dates, which are reflected in the Partnership’s consolidated balance sheet as of JuneSeptember 30, 2014, are subject to change as the final valuations for these transactions have not yet been completed, and such changes may be material. The fair values of natural gas and oil properties were measured using a discounted cash flow model, which considered the estimated remaining lives of the wells based on reserve estimates, future operating and development costs of the assets, as well as the respective natural gas, oil and natural gas liquids forward price curves. The fair values of the asset retirement obligations were measured under the Partnership’s and ARP’s existing methodology for recognizing an estimated liability for the plugging and abandonment of its gas and oil wells (see Note 7). These inputs require significant judgments and estimates by the Partnership’s and ARP’s management at the time of the valuations and are subject to change.
46
In February 2012, APL acquired a gas gathering system and related assets for an initial net purchase price of $19.0 million. APL agreed to pay up to an additional $12.0 million in contingent payments, payable in two equal amounts, if certain volumes are achieved on the acquired gathering system within a specified time period. Sufficient volumes were achieved in December 2012, and APL paid the first contingent payment of $6.0 million in January 2013. As of JuneSeptember 30, 2014, the fair value of the remaining contingent payment resulted in a $6.0 million long-term liability, which was recorded within other long-term liabilities on the Partnership’s consolidated balance sheets. The range of the undiscounted amounts APL could pay related to the remaining contingent payment is up to $6.0 million.
46
NOTE 11 – INCOME TAXES
APL owns a taxable subsidiary. The components of the federal and state income tax benefit for APL’s taxable subsidiary for the three and sixnine months ended JuneSeptember 30, 2014 and 2013 are as follows (in thousands):
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
| 2013 |
|
| 2014 |
|
| 2013 |
|
| 2014 |
| 2013 |
| ||||||||||
Income tax benefit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Federal |
| $ | (446 | ) |
| $ | (25 | ) |
| $ | (803 | ) |
| $ | (33 | ) |
| $ | (558 | ) |
| $ | (732 | ) |
| $ | (1,360 | ) |
| $ | (765 | ) |
State |
|
| (52 | ) |
|
| (3 | ) |
|
| (93 | ) |
|
| (4 | ) |
|
| (65 | ) |
|
| (85 | ) |
|
| (159 | ) |
|
| (89 | ) |
Total income tax benefit |
| $ | (498 | ) |
| $ | (28 | ) |
| $ | (896 | ) |
| $ | (37 | ) |
| $ | (623 | ) |
| $ | (817 | ) |
| $ | (1,519 | ) |
| $ | (854 | ) |
As of JuneSeptember 30, 2014 and December 31, 2013, APL had non-current net deferred income tax liabilities of $32.4$31.8 million and $33.3 million, respectively. The components of net deferred tax liabilities as of JuneSeptember 30, 2014 and December 31, 2013 consist of the following (in thousands):
|
| June 30, |
|
| December 31, |
|
| September 30, |
|
| December 31, |
| ||||
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss tax carryforwards and alternative minimum tax credits |
| $ | 16,198 |
|
| $ | 14,900 |
|
| $ | 16,211 |
|
| $ | 14,900 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess of asset carrying value over tax basis |
|
| (48,592 | ) |
|
| (48,190 | ) |
|
| (47,982 | ) |
|
| (48,190 | ) |
Net deferred tax liabilities |
| $ | (32,394 | ) |
| $ | (33,290 | ) |
| $ | (31,771 | ) |
| $ | (33,290 | ) |
As of JuneSeptember 30, 2014, APL had net operating loss carry forwards for federal income tax purposes of approximately $41.9 million, which expire at various dates from 2029 to 2034. APL believes it more likely than not that the deferred tax asset will be fully utilized. APL expects all goodwill recorded to be deductible for tax purposes.
NOTE 12 — CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Relationship with Drilling Partnerships. ARP conducts certain activities through, and a portion of its revenues are attributable to, the Drilling Partnerships. ARP serves as general partner and operator of the Drilling Partnerships and assumes customary rights and obligations for the Drilling Partnerships. As the general partner, ARP is liable for the Drilling Partnerships’ liabilities and can be liable to limited partners of the Drilling Partnerships if it breaches its responsibilities with respect to the operations of the Drilling Partnerships. ARP is entitled to receive management fees, reimbursement for administrative costs incurred, and to share in the Drilling Partnerships’ revenues and costs and expenses according to the respective partnership agreements.
Relationship between ARP and APL. In the Chattanooga Shale, a portion of the natural gas produced by ARP is gathered and processed by APL. For botheach of the three month periods ended JuneSeptember 30, 2014 and 2013, $0.1 million of gathering fees paid by ARP to APL were eliminated in consolidation. For botheach of the sixnine month periods ended JuneSeptember 30, 2014 and 2013, $0.2 million of gathering fees paid by ARP to APL were eliminated in consolidation.
Relationship with Resource America, Inc. In connection with the issuance of the Term Facility, CVC Credit Partners, LLC (“CVC”), which is a joint-venture between Resource America, Inc. and an unrelated third party private equity firm, was allocated an aggregate of $12.5 million of the Term Facility. The Partnership’s Chief Executive Officer and President is Chairman of the board of directors of Resource America, Inc., and the Partnership’s Executive Chairman of the General Partner’s board of directors is Chief Executive Officer and President and Resource America, Inc.
47
NOTE 13 — COMMITMENTS AND CONTINGENCIES
General Commitments
ARP is the managing general partner of the Drilling Partnerships and has agreed to indemnify each investor partner from any liability that exceeds such partner’s share of Drilling Partnership assets. Subject to certain conditions, investor partners in certain Drilling Partnerships have the right to present their interests for purchase by ARP, as managing general partner. ARP is not obligated to purchase more than 5% to 10% of the units in any calendar year. Based on its historical experience, as of JuneSeptember 30, 2014, the management of ARP believes that any such liability incurred would not be material. Also, ARP has agreed to subordinate a portion of its share of net partnership revenues from certain of the Drilling Partnerships to the benefit of the investor partners until they have received specified returns, typically 10% to 12% per year determined on a cumulative basis, over a specific period, typicallyfor the first five to eight years, in accordance with the terms of the partnership agreements. For the three months ended JuneSeptember 30, 2014 and 2013, $0.4$0.9 million and $2.1,$2.2 million, respectively, of ARP’s revenues, net of corresponding production costs, were subordinated, which reduced its cash distributions received from the Drilling Partnerships. For the sixnine months ended JuneSeptember 30, 2014 and 2013, $3.8$4.7 million and $4.3$6.5 million, respectively, of ARP’s revenues, net of corresponding production costs, were subordinated, which reduced its cash distributions received from the Drilling Partnerships.
The Partnership and its subsidiaries are party to employment agreements with certain executives that provide compensation and certain other benefits. The agreements also provide for severance payments under certain circumstances.
In connection with ARP’s EP Energy Acquisition (see Note 3), ARP acquired certain long-term annual firm transportation obligations. Estimated fixed and determinable portions of ARP’s firm transportation obligations as of JuneSeptember 30, 2014 were as follows: 2014—$4.42.1 million; 2015—$8.6 million; 2016—$2.1 million; and 2017 to 2018—none.
APL has certain long-term unconditional purchase obligations and commitments, primarily transportation contracts. These agreements provide for transportation services to be used in the ordinary course of APL’s operations. Transportation fees paid related to these contracts, including minimum shipment payments, were $7.9 million and $3.1$7.2 million for each of the three monthsmonth periods ended JuneSeptember 30, 2014 and 2013, respectively, and $15.2$22.4 million and $6.1$24.8 million for the sixnine months ended JuneSeptember 30, 2014 and 2013, respectively. The future fixed and determinable portions of APL’s obligations as of JuneSeptember 30, 2014 were as follows: remainder of 2014—$3.04.7 million; 2015—$3.421.3 million; 2016 to 2017—$3.523.9 million per year; and 2018—$2.721.8 million.
As of JuneSeptember 30, 2014, the Partnership and its subsidiaries are committed to expend approximately $218.8$231.2 million on drilling and completion expenditures, pipeline extensions, compressor station upgrades and processing facility upgrades.
Legal Proceedings
The Partnership is involved in class action lawsuits arising from events subsequent to September 30, 2014 (see Note 18 and Part II: Other Information – Legal Proceedings for more information regarding these lawsuits).
The Partnership and its subsidiaries are parties to various routine legal proceedings arising out of the ordinary course of its business. Management of the Partnership and its subsidiaries believe that nonethe ultimate resolution of these actions, individually or in the aggregate, will not have a material adverse effect on the Partnership’s financial condition or results of operations.
NOTE 14 —ISSUANCES OF UNITS
The Partnership
The Partnership recognizes gains on ARP’s and APL’sits subsidiaries’ equity transactions as credits to partners’ capital on its consolidated balance sheets rather than as income on its consolidated statements of operations. These gains represent the Partnership’s portion of the excess net offering price per unit of each of ARP’s and APL’sits subsidiaries’ common units over the book carrying amount per unit.
48
Purchase of ARP Preferred Units.
In July 2013, in connection with ARP’s EP Energy Acquisition (see Note 3), the Partnership purchased 3,746,986 of ARP’s newly created Class C convertible preferred units, at a negotiated price per unit of $23.10, for proceeds of $86.6 million. The Class C preferred units were offered and sold in a private transaction exempt from registration under Section 4(2) of the Securities Act. The Class C preferred units pay cash distributions in an amount equal to the greater of (i) $0.51 per unit and (ii) the distributions payable on each common unit at each declared quarterly distribution date. The initial Class C preferred distribution was paid for the quarter ended September 30, 2013. The Class C preferred units have no voting rights, except as set forth in the certificate of designation for the Class C preferred units, which provides, among other things, that the affirmative vote of 75% of the Class C Preferred Units is required to repeal such certificate of designation. Holders of the Class C preferred units have the right to convert the Class C preferred units on a one-for-one basis, in whole or in part, into common units at any time before July 31, 2016. Unless previously converted, all Class C preferred units will convert into common units on July 31, 2016. Upon issuance of the Class C preferred units, the Partnership, as purchaser of the Class C preferred units, also received 562,497 warrants to purchase ARP’s common units at an exercise price equal to the face value of the Class C preferred units. The warrants were exercisable beginning October 29, 2013 into an equal number of ARP common units at an exercise price of $23.10 per unit, subject to adjustments provided therein. The warrants will expire on July 31, 2016.
Atlas Resource Partners
Equity Offerings
In August 2014, ARP entered into an equity distribution agreement with Deutsche Bank Securities Inc., as representative of the several banks named therein (the “Agents”). Pursuant to the equity distribution agreement, ARP may sell from time to time through the Agents common units representing limited partner interests of ARP having an aggregate offering price of up to $100.0 million. Sales of common units, if any, may be made in negotiated transactions or transactions that are deemed to be “at-the-market” offerings as defined in Rule 415 of the Securities Act, including sales made directly on the New York Stock Exchange, the existing trading market for the common units, or sales made to or through a market maker other than on an exchange or through an electronic communications network. ARP will pay each of the Agents a commission, which in each case shall not be more than 2.0% of the gross sales price of common units sold through such Agent. Under the terms of the equity distribution agreement, ARP may also sell common units from time to time to any Agent as principal for its own account at a price to be agreed upon at the time of sale. Any sale of common units to an Agent as principal would be pursuant to the terms of a separate terms agreement between ARP and such Agent. As of September 30, 2014, no units have been sold under this program.
In May 2014, in connection with the closing of the Rangely Acquisition (see Note 3), ARP issued 15,525,000 of its common limited partner units (including 2,025,000 units pursuant to an over-allotment option) in a public offering at a price of $19.90 per unit, yielding net proceeds of approximately $297.5 million. The units were registered under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to a shelf registration statement on Form S-3, which was automatically effective on the filing date of February 3, 2014.
In March 2014, ARP issued 6,325,000 of its common limited partner units (including 825,000 units pursuant to an over-allotment option) in a public offering at a price of $21.18 per unit, yielding net proceeds of approximately $129.1 million. The units were registered under the Securities Act, pursuant to a shelf registration statement on Form S-3, which was automatically effective on the filing date of February 3, 2014.
In July 2013, in connection with the closing of the EP Energy Acquisition (see Note 3), ARP issued 3,749,986 newly created Class C convertible preferred units to the Partnership at a negotiated price per unit of $23.10, for proceeds of $86.6 million. The Class C preferred units were issued with 562,497 warrants to purchase ARP common units at an exercise price of $23.10 at the Partnership’s option beginning on October 29, 2013. The warrants will expire on July 31, 2016. The Class C preferred units were offered and sold in a private transaction exempt from registration under Section 4(2) of the Securities Act (see “Purchase of ARP Preferred Units”).
Upon issuance of the Class C preferred units and warrants on July 31, 2013, ARP entered into a registration rights agreement pursuant to which it agreed to file a registration statement with the SEC to register the resale of the common units issuable upon conversion of the Class C preferred units and upon exercise of the warrants. ARP agreed to use commercially reasonable efforts to file such registration statement within 90 days of the conversion of the Class C preferred units into common units or the exercise of the warrants.
49
In June 2013, in connection with the EP Energy Acquisition (see Note 3), ARP sold an aggregate of 14,950,000 of its common limited partner units (including 1,950,000 units pursuant to an over-allotment option) in a public offering at a price of $21.75 per unit, yielding net proceeds of approximately $313.1 million. ARP utilized the net proceeds from the sale to repay the outstanding balance under its revolving credit facility (see Note 8).
In May 2013, ARP entered into an equity distribution agreement with Deutsche Bank Securities Inc., as representative of several banks. Pursuant to the equity distribution agreement, ARP could sell, from time to time through the agents, common units having an aggregate offering price of up to $25.0 million. During the year ended December 31, 2013, ARP issued 309,174 common limited partner units under the equity distribution program for net proceeds of $6.9 million, net of $0.4 million in commissions paid. ARP utilized the net proceeds from the sale to repay borrowings outstanding under its revolving credit facility. ARP terminated the equity distribution agreement effective December 27, 2013.
49
For the sixnine months ended JuneSeptember 30, 2014, in connection with the issuance of ARP’s common units, the Partnership recorded gains of $41.6$40.7 million within partners’ capital and a corresponding decrease in non-controlling interests on its consolidated balance sheet and consolidated statement of partners’ capital. At December 31, 2013, in connection with the issuance of ARP’s common units, the Partnership recorded gains of $27.3 million within partners’ capital and a corresponding decrease in non-controlling interests on its consolidated balance sheet and consolidated statement of partners’ capital.
Atlas Pipeline Partners
Equity Offerings
On May 12, 2014, APL entered into an equity distribution agreement with Citigroup Global Markets Inc. (“Citigroup”), Wells Fargo Securities, LLC and MLV &Co. LLC, through whichas sales agents. Pursuant to the 2014 equity distribution agreement, APL may offer and sell from time to time through its sales agents, common units having an aggregate value up to $250.0 million. Sales are at market prices prevailing at the time of the sale. In November 2012, APL entered into a previous equity distribution program with Citigroup. Pursuant to this program, APL offered and sold through Citigroup, as its sales agent, common units for $150.0 million. APL has used the full capacity under the equity distribution program during the year ended 2013.
During the three months ended JuneSeptember 30, 2014 and 2013, APL issued 1,462,1872,095,818 and 642,4951,772,800 common units, respectively, under the equity distribution programs for net proceeds of $47.4$74.2 million and $24.5$63.7 million, respectively, net of $0.5$0.8 million and $0.5$1.3 million, respectively, in commissions paid to the sales agents. During the sixnine months ended JuneSeptember 30, 2014 and 2013, APL issued 1,462,1873,558,005 and 1,090,2802,863,080 common units, respectively, under the equity distribution programs for net proceeds of $47.4$121.6 million and $38.9$102.7 million, respectively, net of $0.5$1.2 million and $0.8$2.1 million, respectively, in commissions paid to the sales agents. APL also received capital contributions from the Partnership of $1.0$1.5 million and $0.5$1.3 million, respectively, during the three months ended JuneSeptember 30, 2014 and 2013, and $1.0$2.5 million and $0.8$2.1 million, respectively, during the sixnine months ended JuneSeptember 30, 2014 and 2013, to maintain its 2.0% general partner interest in APL. APL utilized the net proceeds from the common unit offerings for general partnership purposespurposes.
In March 2014, APL issued 5,060,000 of its Class E Preferred Units to the public at an offering price of $25.00 per Class E Preferred Unit. APL received $122.3 million in net proceeds. The proceeds were used to pay down APL’s revolving credit facility.
APL will makemakes cumulative cash distributions on the Class E Preferred Units, from the date of original issue. The cash distributions will bewhich are payable quarterly in arrears on January 15, April 15, July 15 and October 15 of each year, when, and if, declared by the board of directors. The initial distribution on the Class E Preferred Units was paid on July 15, 2014 in an amount equal to $0.67604 per unit, or approximately $3.4 million, representing the distribution for the period March 17, 2014 tothrough July 14, 2014. Subsequent to July 14, 2014, APL has paid and will continue to pay cumulative distributions in cash on the Class E Preferred Units on a quarterly basis at a rate of $0.515625 per unit, or 8.25% per year. On October 15, 2014, APL paid a cash distribution of $2.6 million on its outstanding Class E Preferred Units, representing the cash distribution for the period from July 15, 2014 through October 14, 2014. The $2.6 million distribution was paid on October 15, 2014. For the three and sixnine months ended JuneSeptember 30, 2014, APL allocated net income of $2.6 million and $3.0$5.6 million, respectively, to the Class E Preferred Units for the dividends earned during the period, which was recorded as preferred unit dividendswithin income (loss) from non-controlling interests on itsthe Partnership’s consolidated statements of operations.
At any time on or after March 17, 2019, or in the event of a liquidation or certain changes of control, APL may redeem the Class E Preferred Units, in whole or in part, at a redemption price of $25.00 per unit plus an amount equal to all
50
accumulated and unpaid distributions on the date of redemption, whether or not declared. If APL does not exercise this redemption right upon a change of control, then the holders of the Class E Preferred Units will have the option to convert their Class E Preferred Units into a number of APL’s common units, as set forth in the Certificate of Designation relating to the Class E Preferred Units.
In May 2013, APL issued Class D Preferred Units in a private placement transaction to third party investors which are presented combined with a net $38.8$27.4 million unaccreted beneficial conversion discount within non-controlling interests on the Partnership’s consolidated balance sheet at JuneSeptember 30, 2014. The discount will be accreted and recognized by APL as imputed dividends over the term of the Class D Preferred Units as a reduction to APL’s net income attributable to the common limited partners and the Partnership, as general partner. APL recorded $11.4 million and $6.7 million forin each of the three months ended JuneSeptember 30, 2014 and 2013, respectively, and $22.8$34.1 million and $6.7$18.1 million for the sixnine months ended JuneSeptember 30, 2014 and 2013, respectively, within income (loss) attributable to non-controlling interests for the preferred unit imputed dividend effect on the Partnership’s consolidated statements of operations to recognize the accretion of the beneficial conversion discount.
50
The Class D Preferred Units will receivereceived distributions of additional Class D Preferred Units for the first four full quarterly periods following their issuance in May 2013, and thereafter will receive distributions in Class D Preferred Units, or cash or a combination of Class D Preferred Units and cash, at the discretion of the Partnership, as general partner. APL recorded Class D Preferred Unit distributions in kind of $10.4$11.4 million and $5.3$9.1 million for the three months ended JuneSeptember 30, 2014 and 2013, respectively, and $20.1$31.5 million and $5.3$14.4 million for the sixnine months ended JuneSeptember 30, 2014 and 2013, respectively, within income (loss) attributable to non-controlling interests on the Partnership’s consolidated statements of operations. During the three and sixnine months ended JuneSeptember 30, 2014, APL distributed 305,983294,439 and 580,768,875,207, respectively, Class D Preferred Units to the holders of the Class D Preferred Units as a distribution in kind. During each of the three and nine months ended September 30, 2013, APL did not distribute anydistributed 138,598 Class D Preferred Units duringto the three and six months ended June 30, 2013.holders of the Class D Preferred Units as a distribution in kind. APL’s Class D Preferred Unit distributions paid in kind represented non-cash transactions during the three and sixnine months ended JuneSeptember 30, 2014.
In April 2013, APL sold 11,845,000 of its common units in a public offering at a price of $34.00 per unit, yielding net proceeds of $388.4 million after underwriting commissions and expenses. APL also received a capital contribution from the Partnership of $0.5 million and $0.5$8.3 million during the three monthsyear ended June 30, 2014 andDecember 31, 2013, respectively, and $0.8 million and $0.8 million during the six months ended June 30, 2014 and 2013, respectively, to maintain its 2.0% general partnership interest in APL. APL used the proceeds from this offering to fund a portion of the purchase price of the TEAK Acquisition (see Note 3).
For the sixnine months ended JuneSeptember 30, 2014, in connection with the issuance of APL’s common units, the Partnership recorded a $1.1$2.8 million gain within partner’spartners’ capital and a corresponding decrease in non-controlling interests on its consolidated balance sheet and consolidated statement of partner’s capital. At December 31, 2013, in connection with the issuance of APL’s common units, the Partnership recorded an $11.9 million gain within partner’spartners’ capital and a corresponding decrease in non-controlling interests on its consolidated balance sheet and consolidated statement of partners’ capital.
NOTE 15 — CASH DISTRIBUTIONS
The Partnership has a cash distribution policy under which it distributes, within 50 days after the end of each quarter, all of its available cash (as defined in the partnership agreement) for that quarter to tisits common unitholders. Distributions declared by the Partnership for the period from January 1, 2013 through JuneSeptember 30, 2014 were as follows (in thousands, except per unit amounts):
Date Cash Distribution Paid |
| For Quarter |
| Cash Distribution per |
|
| Total Cash Distributions |
|
| For Quarter |
| Cash Distribution per |
|
| Total Cash Distributions |
| ||||
May 20, 2013 |
| March 31, 2013 |
| $ | 0.31 |
|
| $ | 15,928 |
|
| March 31, 2013 |
| $ | 0.31 |
|
| $ | 15,928 |
|
August 19, 2013 |
| June 30, 2013 |
| $ | 0.44 |
|
| $ | 22,611 |
|
| June 30, 2013 |
| $ | 0.44 |
|
| $ | 22,611 |
|
November 19, 2013 |
| September 30, 2013 |
| $ | 0.46 |
|
| $ | 23,649 |
|
| September 30, 2013 |
| $ | 0.46 |
|
| $ | 23,649 |
|
February 19, 2014 |
| December 31, 2013 |
| $ | 0.46 |
|
| $ | 23,681 |
|
| December 31, 2013 |
| $ | 0.46 |
|
| $ | 23,681 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 20, 2014 |
| March 31, 2014 |
| $ | 0.46 |
|
| $ | 23,865 |
|
| March 31, 2014 |
| $ | 0.46 |
|
| $ | 23,865 |
|
August 19, 2014 |
| June 30, 2014 |
| $ | 0.49 |
|
|
| 25,435 |
|
51
On July 24,October 29, 2014, the Partnership declared a cash distribution of $0.49$0.52 per unit on its outstanding common limited partner units, representing the cash distribution for the quarter ended JuneSeptember 30, 2014. The $25.4$27.0 million distribution will be paid on August 19,November 20, 2014 to unitholders of record at the close of business on August 6,November 10, 2014.
ARP Cash Distributions. In January 2014, ARP’s board of directors approved the modification of its cash distribution payment practice to a monthly cash distribution program beginning for the month of January 2014, whereby it would distribute all of its available cash (as defined in the partnership agreement) for that month to its unitholders within 45 days from the month end. Prior to that, ARP paid quarterly cash distributions within 45 days from the end of each calendar quarter. If ARP’s common unit distributions in any quarter exceed specified target levels, the Partnership will receive between 13% and 48% of such distributions in excess of the specified target levels.
51
Distributions declared by ARP for the period from January 1, 2013 through JuneSeptember 30, 2014 were as follows (in thousands, except per unit amounts):
Date Cash Distribution Paid |
| For Quarter/ |
| Cash |
|
| Total Cash |
|
| Total Cash |
|
| Total Cash |
|
| For Quarter/ |
| Cash |
|
| Total Cash |
|
| Total Cash |
|
| Total Cash |
| ||||||||
May 15, 2013 |
| March 31, 2013 |
| $ | 0.5100 |
|
| $ | 22,428 |
|
| $ | 1,957 |
|
| $ | 946 |
|
| March 31, 2013 |
| $ | 0.5100 |
|
| $ | 22,428 |
|
| $ | 1,957 |
|
| $ | 946 |
|
August 14, 2013 |
| June 30, 2013 |
| $ | 0.5400 |
|
| $ | 32,097 |
|
| $ | 2,072 |
|
| $ | 1,884 |
|
| June 30, 2013 |
| $ | 0.5400 |
|
| $ | 32,097 |
|
| $ | 2,072 |
|
| $ | 1,884 |
|
November 14, 2013 |
| September 30, 2013 |
| $ | 0.5600 |
|
| $ | 33,291 |
|
| $ | 4,248 |
|
| $ | 2,443 |
|
| September 30, 2013 |
| $ | 0.5600 |
|
| $ | 33,291 |
|
| $ | 4,248 |
|
| $ | 2,443 |
|
February 14, 2014 |
| December 31, 2013 |
| $ | 0.5800 |
|
| $ | 34,489 |
|
| $ | 4,400 |
|
| $ | 2,891 |
|
| December 31, 2013 |
| $ | 0.5800 |
|
| $ | 34,489 |
|
| $ | 4,400 |
|
| $ | 2,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 17, 2014 |
| January 31, 2014 |
| $ | 0.1933 |
|
| $ | 12,718 |
|
| $ | 1,467 |
|
| $ | 1,055 |
|
| January 31, 2014 |
| $ | 0.1933 |
|
| $ | 12,718 |
|
| $ | 1,467 |
|
| $ | 1,055 |
|
April 14, 2014 |
| February 28, 2014 |
| $ | 0.1933 |
|
| $ | 12,719 |
|
| $ | 1,466 |
|
| $ | 1,055 |
|
| February 28, 2014 |
| $ | 0.1933 |
|
| $ | 12,719 |
|
| $ | 1,466 |
|
| $ | 1,055 |
|
May 15, 2014 |
| March 31, 2014 |
| $ | 0.1933 |
|
| $ | 12,719 |
|
| $ | 1,466 |
|
| $ | 1,054 |
|
| March 31, 2014 |
| $ | 0.1933 |
|
| $ | 12,719 |
|
| $ | 1,466 |
|
| $ | 1,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 13, 2014 |
| April 30, 2014 |
| $ | 0.1933 |
|
| $ | 15,752 |
|
| $ | 1,466 |
|
| $ | 1,279 |
|
| April 30, 2014 |
| $ | 0.1933 |
|
| $ | 15,752 |
|
| $ | 1,466 |
|
| $ | 1,279 |
|
July 15, 2014 |
| May 31, 2014 |
| $ | 0.1933 |
|
| $ | 15,752 |
|
| $ | 1,466 |
|
| $ | 1,279 |
|
| May 31, 2014 |
| $ | 0.1933 |
|
| $ | 15,752 |
|
| $ | 1,466 |
|
| $ | 1,279 |
|
August 14, 2014 |
| June 30, 2014 |
| $ | 0.1966 |
|
| $ | 16,029 |
|
| $ | 1,492 |
|
| $ | 1,377 |
| ||||||||||||||||||
September 12, 2014 |
| July 31, 2014 |
| $ | 0.1966 |
|
| $ | 16,028 |
|
| $ | 1,493 |
|
| $ | 1,378 |
| ||||||||||||||||||
October 15, 2014 |
| August 31, 2014 |
| $ | 0.1966 |
|
| $ | 16,032 |
|
| $ | 1,491 |
|
| $ | 1,378 |
|
On July 24,October 29, 2014, the ARP declared itsa monthly distribution of $0.1966 per common unit for the month of JuneSeptember 2014. The $18.9 million distribution, including $1.4 million and $1.5 million to the general partner and preferred limited partners, respectively, will be paid on AugustNovember 14, 2014 to holders of record as of August 6,November 10, 2014.
APL Cash Distributions. APL is required to distribute, within 45 days after the end of each quarter, all of its available cash (as defined in its partnership agreement) for that quarter to its common unitholders and the Partnership, as general partner. If APL’s common unit distributions in any quarter exceed specified target levels, the Partnership will receive between 13% and 48% of such distributions in excess of the specified target levels.
Common unit and general partner distributions declared by APL for the period from January 1, 2013 through JuneSeptember 30, 2014 were as follows (in thousands, except per unit amounts):
Date Cash Distribution Paid |
| For Quarter |
| APL Cash |
|
| Total APL Cash |
|
| Total APL Cash |
|
| For Quarter |
| APL Cash |
|
| Total APL Cash |
|
| Total APL Cash |
| ||||||
May 15, 2013 |
| March 31, 2013 |
| $ | 0.59 |
|
| $ | 45,382 |
|
| $ | 3,980 |
|
| March 31, 2013 |
| $ | 0.59 |
|
| $ | 45,382 |
|
| $ | 3,980 |
|
August 14, 2013 |
| June 30, 2013 |
| $ | 0.62 |
|
| $ | 48,165 |
|
| $ | 5,875 |
|
| June 30, 2013 |
| $ | 0.62 |
|
| $ | 48,165 |
|
| $ | 5,875 |
|
November 14, 2013 |
| September 30, 2013 |
| $ | 0.62 |
|
| $ | 49,298 |
|
| $ | 6,013 |
|
| September 30, 2013 |
| $ | 0.62 |
|
| $ | 49,298 |
|
| $ | 6,013 |
|
February 14, 2014 |
| December 31, 2013 |
| $ | 0.62 |
|
| $ | 49,969 |
|
| $ | 6,095 |
|
| December 31, 2013 |
| $ | 0.62 |
|
| $ | 49,969 |
|
| $ | 6,095 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 15, 2014 |
| March 31, 2014 |
| $ | 0.62 |
|
| $ | 49,998 |
|
| $ | 6,099 |
|
| March 31, 2014 |
| $ | 0.62 |
|
| $ | 49,998 |
|
| $ | 6,099 |
|
August 14, 2014 |
| June 30, 2014 |
| $ | 0.63 |
|
| $ | 51,781 |
|
| $ | 7,055 |
|
On July 23,October 28, 2014, APL declared a cash distribution of $0.63$0.64 per unit on its outstanding common limited partner units, representing the cash distribution for the quarter ended JuneSeptember 30, 2014. The $58.8$62.2 million distribution, including $7.1$8.1 million to the Partnership as general partner, will be paid on AugustNovember 14, 2014 to unitholders of record at the close of business on August 7,November 10, 2014. Based on this declaration, on August 14, 2014,In addition, distributions for the Class D Preferred Units will be paid in kind for the quarter ended September 30, 2014. Accordingly, APL will issue approximately 305,000321,000 Class D Preferred Units to the holders of the Class D Preferred Units as a preferred unit distribution in kind for the quarter ended JuneSeptember 30, 2014 to the preferred unitholders of record at the close of business on August 7, 2014 (see Note 18).
52
NOTE 16 — BENEFIT PLANS
Rabbi Trust
In 2011, the Partnership established an excess 401(k) plan relating to certain executives. In connection with the plan, the Partnership established a “rabbi” trust for the contributed amounts. At September 30, 2014 and December 31, 2013, the Partnership reflected $5.6 million and $3.7 million, respectively, related to the value of the rabbi trust within other assets, net on its combined consolidated balance sheets (see Note 6), and recorded corresponding liabilities of $5.6 million and $3.7 million, as of the same dates within asset retirement obligations and other on its combined consolidated balance sheets.
2010 Long-Term Incentive Plan
The Board of Directors of the General PartnerPartnership’s general partner (the “General Partner”) approved and adopted the Partnership’s 2010 Long-Term Incentive Plan (“2010 LTIP”) effective February 2011. The 2010 LTIP provides equity incentive awards to officers, employees and board members and employees of its affiliates, consultants and joint-venture partners (collectively, the “Participants”) who perform services for the Partnership. The 2010 LTIP is administered by a committee consisting of the Board or committee of the Board or board of an affiliate appointed by the Board (the “LTIP Committee”), which is the Compensation Committee of the General Partner’s board of directors. Under the 2010 LTIP, the LTIP Committee may grant awards of phantom units, restricted units or unit options for an aggregate of 5,763,781 common limited partner units. At JuneSeptember 30, 2014, the Partnership had 5,052,0614,965,759 phantom units and unit options outstanding under the 2010 LTIP, with 278,763281,243 phantom units and unit options available for grant.
In the case of awards held by eligible employees, following a “change in control”, as defined in the 2010 LTIP, upon the eligible employee’s termination of employment without “cause”, as defined in the 2010 LTIP, or upon any other type of termination specified in the eligible employee’s applicable award agreement(s), any unvested award will immediately vest in full and, in the case of options, become exercisable for the one-year period following the date of termination of employment, but in any case not later than the end of the original term of the option. Upon a change in control, all unvested awards held by directors will immediately vest in full.
In connection with a change in control, the committee, in its sole and absolute discretion and without obtaining the approval or consent of the unitholders or any participant, but subject to the terms of any award agreements and employment agreements to which the Partnership’s general partner (or any affiliate) and any participant are party, may take one or more of the following actions (with discretion to differentiate between individual participants and awards for any reason):
· | cause awards to be assumed or substituted by the surviving entity (or affiliate of such surviving entity); |
· | accelerate the vesting of awards as of immediately prior to the consummation of the transaction that constitutes the change in control so that awards will vest (and, with respect to options, become exercisable) as to the Partnership’s common units that otherwise would have been unvested so that participants (as holders of awards granted under the new equity plan) may participate in the transaction; |
· | provide for the payment of cash or other consideration to participants in exchange for the cancellation of outstanding awards (in an amount equal to the fair market value of such cancelled awards); |
· | terminate all or some awards upon the consummation of the change-in-control transaction, but only if the committee provides for full vesting of awards immediately prior to the consummation of such transaction; and |
· | make such other modifications, adjustments or amendments to outstanding awards or the new equity plan as the committee deems necessary or appropriate. |
53
2010 Phantom Units. A phantom unit entitles a Participant to receive a Partnership common unit upon vesting of the phantom unit. In tandem with phantom unit grants, the LTIP Committee may grant Participant Distribution Equivalent Rights (“DERs”), which are the right to receive cash per phantom unit in an amount equal to, and at the same time as, the cash distributions the Partnership makes on a common unit during the period such phantom unit is outstanding. Generally, phantom units granted to employees under the 2010 LTIP will vest over a three or four year period from the date of grant and phantom units granted to non-employee directors generally vest over a four year period, 25% per year. Of the phantom units outstanding under the 2010 LTIP at JuneSeptember 30, 2014, there are 1,565,6461,610,701 units that will vest within the following twelve months. All phantom units outstanding under the 2010 LTIP at JuneSeptember 30, 2014 include DERs. During the three months ended JuneSeptember 30, 2014 and 2013, the Partnership paid $0.8$1.2 million and $0.6$0.9 million, respectively, with respect to the 2010 LTIP DERs. During the sixnine months ended JuneSeptember 30, 2014 and 2013, the Partnership paid $1.7$3.0 million and $1.2$2.2 million, respectively, with respect to the 2010 LTIP DERs.
53
The following table sets forth the 2010 LTIP phantom unit activity for the periods indicated:
|
| Three Months Ended June 30, |
|
| Three Months Ended September 30, |
| ||||||||||||||||||||||||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
|
| 2013 |
| ||||||||||||||||||||
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
| ||||||||
Outstanding, beginning of period |
|
| 2,004,431 |
|
| $ | 22.57 |
|
|
| 2,041,291 |
|
| $ | 20.91 |
|
|
| 2,618,944 |
|
| $ | 31.04 |
|
|
| 2,009,868 |
|
| $ | 21.10 |
|
Granted |
|
| 961,000 |
|
|
| 44.93 |
|
|
| 10,000 |
|
|
| 48.99 |
|
|
| — |
|
|
| — |
|
|
| 102,000 |
|
|
| 50.38 |
|
Vested and issued(1) |
|
| (340,561 | ) |
|
| 20.51 |
|
|
| — |
|
|
| — |
|
|
| (61,531 | ) |
|
| 20.51 |
|
|
| (14,048 |
|
|
| 19.86 |
|
Forfeited |
|
| (5,926 | ) |
|
| 21.04 |
|
|
| (41,423 | ) |
|
| 20.88 |
|
|
| (13,468 | ) |
|
| 43.76 |
|
|
| — |
|
|
| — |
|
Outstanding, end of period(2) |
|
| 2,618,944 |
|
| $ | 31.04 |
|
|
| 2,009,868 |
|
| $ | 21.10 |
|
|
| 2,543,945 |
|
| $ | 31.26 |
|
|
| 2,097,820 |
|
| $ | 22.54 |
|
Vested and not yet issued(3) |
|
| 294,825 |
|
| $ | 20.40 |
|
|
| — |
|
| $ | — |
|
|
| 39,506 |
|
| $ | 19.70 |
|
|
| — |
|
| $ | — |
|
Non-cash compensation expense recognized (in thousands) |
|
|
|
| $ | 4,389 |
|
|
|
|
| $ | 2,615 |
|
|
|
|
| $ | 7,710 |
|
|
|
|
| $ | 3,467 |
|
|
| Six Months Ended June 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||||||||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
|
| 2013 |
| ||||||||||||||||||||
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
| ||||||||
Outstanding, beginning of year |
|
| 2,054,534 |
|
| $ | 22.55 |
|
|
| 2,044,227 |
|
| $ | 20.90 |
|
|
| 2,054,534 |
|
| $ | 22.58 |
|
|
| 2,044,227 |
|
| $ | 20.90 |
|
Granted |
|
| 961,000 |
|
|
| 44.93 |
|
|
| 10,000 |
|
|
| 48.99 |
|
|
| 961,000 |
|
|
| 44.93 |
|
|
| 112,000 |
|
|
| 50.26 |
|
Vested and issued(1) |
|
| (378,896 | ) |
|
| 20.07 |
|
|
| (2,936 | ) |
|
| 17.47 |
|
|
| (440,427 | ) |
|
| 20.48 |
|
|
| (16,984 | ) |
|
| 19.45 |
|
Forfeited |
|
| (17,694 | ) |
|
| 25.17 |
|
|
| (41,423 | ) |
|
| 20.88 |
|
|
| (31,162 | ) |
|
| 33.20 |
|
|
| (41,423 | ) |
|
| 20.88 |
|
Outstanding, end of period(2) |
|
| 2,618,944 |
|
| $ | 31.10 |
|
|
| 2,009,868 |
|
| $ | 21.10 |
|
|
| 2,543,945 |
|
| $ | 31.26 |
|
|
| 2,097,820 |
|
| $ | 22.54 |
|
Vested and not yet issued(3) |
|
| 49,728 |
|
| $ | 21.74 |
|
|
| — |
|
| $ | — |
|
|
| 39,506 |
|
| $ | 19.70 |
|
|
| — |
|
| $ | — |
|
Non-cash compensation expense recognized (in thousands) |
|
|
|
| $ | 7,318 |
|
|
|
|
| $ | 5,723 |
|
|
|
|
| $ | 15,028 |
|
|
|
|
| $ | 9,190 |
|
(1) | The aggregate intrinsic values of phantom unit awards vested and issued were |
(2) | The aggregate intrinsic value of phantom unit awards outstanding at |
(3) | The intrinsic value of phantom unit awards vested, but not yet issued at |
At JuneSeptember 30, 2014, the Partnership had approximately $52.0$43.7 million of unrecognized compensation expense related to unvested phantom units outstanding under the 2010 LTIP based upon the fair value of the awards.
54
2010 Unit Options. A unit option entitles a Participant to receive a common unit of the Partnership upon payment of the exercise price for the option after completion of vesting of the unit option. The exercise price of the unit option is equal to the fair market value of the Partnership’s common unit on the date of grant of the option. The LTIP Committee also determines how the exercise price may be paid by the Participant. The LTIP Committee will determine the vesting and exercise period for unit options. Unit option awards expire 10 years from the date of grant. Generally, unit options granted under the 2010 LTIP generally will vest over a three or four year period from the date of grant. There are 1,727,0301,772,837 unit options outstanding under the 2010 LTIP at JuneSeptember 30, 2014 that will vest within the following twelve months. For both the three and sixnine months ended JuneSeptember 30, 2014, the Partnership received cash of $0.3$0.2 million and $0.5 million, respectively, from the exercise of options. No cash was received from the exercise of options for the three and sixnine months ended JuneSeptember 30, 2013.
54
The following table sets forth the 2010 LTIP unit option activity for the periods indicated:
|
| Three Months Ended June 30, |
|
| Three Months Ended September 30, |
| ||||||||||||||||||||||||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
|
| 2013 |
| ||||||||||||||||||||
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
| ||||||||
Outstanding, beginning of period |
|
| 2,449,699 |
|
| $ | 20.52 |
|
|
| 2,502,099 |
|
| $ | 20.52 |
|
|
| 2,433,117 |
|
| $ | 20.52 |
|
|
| 2,462,784 |
|
| $ | 20.51 |
|
Granted |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Exercised(1) |
|
| (13,050 | ) |
|
| 21.31 |
|
|
| — |
|
|
| — |
|
|
| (9,241 | ) |
|
| 21.50 |
|
|
| — |
|
|
| — |
|
Forfeited |
|
| (3,532 | ) |
|
| 20.98 |
|
|
| (39,315 | ) |
|
| 20.92 |
|
|
| (2,062 | ) |
|
| 17.47 |
|
|
| (6,568 | ) |
|
| 17.39 |
|
Outstanding, end of period(2)(3) |
|
| 2,433,117 |
|
| $ | 20.52 |
|
|
| 2,462,784 |
|
| $ | 20.51 |
|
|
| 2,421,814 |
|
| $ | 20.51 |
|
|
| 2,456,216 |
|
| $ | 20.52 |
|
Options exercisable, end of period(4) |
|
| 559,444 |
|
| $ | 20.69 |
|
|
| 3,398 |
|
| $ | 20.85 |
|
|
| 590,207 |
|
| $ | 20.32 |
|
|
| 7,068 |
|
| $ | 21.62 |
|
Non-cash compensation expense recognized (in thousands) |
|
|
|
| $ | 1,046 |
|
|
|
|
| $ | 1,296 |
|
|
|
|
| $ | 1,028 |
|
|
|
|
| $ | 1,466 |
|
|
| Six Months Ended June 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||||||||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
|
| 2013 |
| ||||||||||||||||||||
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
| ||||||||
Outstanding, beginning of year |
|
| 2,452,412 |
|
| $ | 20.52 |
|
|
| 2,504,703 |
|
| $ | 20.51 |
|
|
| 2,452,412 |
|
| $ | 20.52 |
|
|
| 2,504,703 |
|
| $ | 20.51 |
|
Granted |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Exercised(1) |
|
| (13,050 | ) |
|
| 21.31 |
|
|
| — |
|
|
| — |
|
|
| (22,291 | ) |
|
| 21.39 |
|
|
| — |
|
|
| — |
|
Forfeited |
|
| (6,245 | ) |
|
| 19.46 |
|
|
| (41,919 | ) |
|
| 20.88 |
|
|
| (8,307 | ) |
|
| 18.96 |
|
|
| (48,487 | ) |
|
| 20.32 |
|
Outstanding, end of period(2)(3) |
|
| 2,433,117 |
|
| $ | 20.52 |
|
|
| 2,462,784 |
|
| $ | 20.51 |
|
|
| 2,421,814 |
|
| $ | 20.51 |
|
|
| 2,456,216 |
|
| $ | 20.52 |
|
Options exercisable, end of period(4) |
|
| 559,444 |
|
| $ | 20.69 |
|
|
| 3,398 |
|
| $ | 20.85 |
|
|
| 590,207 |
|
| $ | 20.32 |
|
|
| 7,068 |
|
| $ | 21.62 |
|
Non-cash compensation expense recognized (in thousands) |
|
|
|
| $ | 2,484 |
|
|
|
|
| $ | 2,811 |
|
|
|
|
| $ | 3,512 |
|
|
|
|
| $ | 4,278 |
|
(1) | The intrinsic value of options exercised during the three and |
(2) | The weighted average remaining contractual life for outstanding options at |
(3) | The options outstanding at |
(4) | The weighted average remaining contractual lives for exercisable options at |
At JuneSeptember 30, 2014, the Partnership had approximately $3.2$2.1 million in unrecognized compensation expense related to unvested unit options outstanding under the 2010 LTIP based upon the fair value of the awards. The Partnership used the Black-Scholes option pricing model, which is based on Level 3 inputs, to estimate the weighted average fair value of options granted.
55
2006 Long-Term Incentive Plan
The Board of Directors approved and adopted the Partnership’s 2006 Long-Term Incentive Plan (“2006 LTIP”), which provides equity incentive awards to Participants who perform services for the Partnership. The 2006 LTIP is administered by the LTIP Committee. The LTIP Committee may grant such awards of either phantom units or unit options for an aggregate of 2,261,516 common limited partner units. At JuneSeptember 30, 2014, the Partnership had 1,718,579 phantom units and unit options outstanding under the 2006 LTIP, with 137,139 phantom units and unit options available for grant. Share based payments to non-employees, which have a cash settlement option, are recognized within liabilities in the financial statements based upon their current fair market value.
55
In the case of awards held by eligible employees, following a “change in control”, as defined in the 2006 LTIP, upon the eligible employee’s termination of employment without “cause”, as defined in the 2006 LTIP, or upon any other type of termination specified in the eligible employee’s applicable award agreement(s), any unvested award will immediately vest in full and, in the case of options, become exercisable for the one-year period following the date of termination of employment, but in any case not later than the end of the original term of the option. Upon a change in control, all unvested awards held by directors will immediately vest in full.
2006 Phantom Units. Generally, phantom units granted to employees under the 2006 LTIP will vest over a three or four year period from the date of grant and phantom units granted to non-employee directors generally vest over a four year period, 25% per year. Of the phantom units outstanding at JuneSeptember 30, 2014, 310,590 units will vest within the following twelve months. All phantom units outstanding under the 2006 LTIP at JuneSeptember 30, 2014 include DERs. During the three months ended JuneSeptember 30, 2014 and 2013, the Partnership paid $0.3$0.4 million and $0.1 million, respectively, with respect to 2006 LTIP’s DERs. During the sixnine months ended JuneSeptember 30, 2014 and 2013, the Partnership paid $0.3$0.7 million and $0.1$0.3 million, respectively, with respect to 2006 LTIP’s DERs. These amounts were recorded as reductions of partners’ capital on the Partnership’s consolidated balance sheets.
The following table sets forth the 2006 LTIP phantom unit activity for the periods indicated:
|
| Three Months Ended June 30, |
|
| Three Months Ended September 30, |
| ||||||||||||||||||||||||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
|
| 2013 |
| ||||||||||||||||||||
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
| ||||||||
Outstanding, beginning of period |
|
| 595,027 |
|
| $ | 35.82 |
|
|
| 250,036 |
|
| $ | 34.92 |
|
|
| 778,640 |
|
| $ | 42.45 |
|
|
| 237,092 |
|
| $ | 35.52 |
|
Granted |
|
| 202,500 |
|
|
| 44.93 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Vested and issued(1) (2) |
|
| (18,887 | ) |
|
| 28.39 |
|
|
| (11,944 | ) |
|
| 22.90 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Forfeited |
|
| — |
|
|
| — |
|
|
| (1,000 | ) |
|
| 36.45 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Outstanding, end of period(3)(4) |
|
| 778,640 |
|
| $ | 42.45 |
|
|
| 237,092 |
|
| $ | 35.52 |
|
|
| 778,640 |
|
| $ | 42.45 |
|
|
| 237,092 |
|
| $ | 35.52 |
|
Vested and not yet issued(5) |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
Non-cash compensation expense recognized (in thousands) |
|
|
|
| $ | 4,208 |
|
|
|
|
| $ | 1,659 |
|
|
|
|
| $ | 4,950 |
|
|
|
|
| $ | 1,424 |
|
|
| Six Months Ended June 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||||||||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
|
| 2013 |
| ||||||||||||||||||||
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
| ||||||||
Outstanding, beginning of year |
|
| 234,940 |
|
| $ | 35.82 |
|
|
| 50,759 |
|
| $ | 21.02 |
|
|
| 234,940 |
|
| $ | 35.82 |
|
|
| 50,759 |
|
| $ | 21.02 |
|
Granted |
|
| 626,337 |
|
|
| 43.78 |
|
|
| 204,777 |
|
|
| 37.92 |
|
|
| 626,337 |
|
|
| 43.78 |
|
|
| 204,777 |
|
|
| 37.92 |
|
Vested and issued(1) (2) |
|
| (82,637 | ) |
|
| 33.75 |
|
|
| (17,444 | ) |
|
| 21.40 |
|
|
| (82,637 | ) |
|
| 33.75 |
|
|
| (17,444 | ) |
|
| 21.40 |
|
Forfeited |
|
| — |
|
|
| — |
|
|
| (1,000 | ) |
|
| 36.45 |
|
|
| — |
|
|
| — |
|
|
| (1,000 | ) |
|
| 36.45 |
|
Outstanding, end of period(3)(4) |
|
| 778,640 |
|
| $ | 42.45 |
|
|
| 237,092 |
|
| $ | 35.52 |
|
|
| 778,640 |
|
| $ | 42.45 |
|
|
| 237,092 |
|
| $ | 35.52 |
|
Vested and not yet issued(5) |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
Non-cash compensation expense recognized (in thousands) |
|
|
|
| $ | 7,196 |
|
|
|
|
| $ | 2,806 |
|
|
|
|
| $ | 12,146 |
|
|
|
|
| $ | 4,230 |
|
(1) | No phantom unit awards vested during the three months ended September 30, 2014 and 2013. The intrinsic value for phantom unit awards vested and issued during the |
(2) |
|
(3) | The aggregate intrinsic value for phantom unit awards outstanding at |
(4) | There was |
(5) | No phantom units were vested, but not yet issued at |
56
At JuneSeptember 30, 2014, the Partnership had approximately $24.3$19.2 million of unrecognized compensation expense related to unvested phantom units outstanding under the 2006 LTIP based upon the fair value of the awards.
2006 Unit Options. The exercise price of the unit option may be equal to or more than the fair market value of the Partnership’s common unit on the date of grant of the option. Unit option awards expire 10 years from the date of grant. Generally, unit options granted under the 2006 LTIP will vest over a three or four year period from the date of grant. There are 2,500 unit options outstanding under the 2006 LTIP at JuneSeptember 30, 2014 that will vest within the following twelve months. No cash was received from the exercise of options for the three and sixnine months ended JuneSeptember 30, 2014 and 2013.
57
The following table sets forth the 2006 LTIP unit option activity for the periods indicated:
|
| Three Months Ended June 30, |
|
| Three Months Ended September 30, |
| ||||||||||||||||||||||||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
|
| 2013 |
| ||||||||||||||||||||
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
| ||||||||
Outstanding, beginning of period |
|
| 939,939 |
|
| $ | 20.94 |
|
|
| 939,939 |
|
| $ | 20.94 |
|
|
| 939,939 |
|
| $ | 20.94 |
|
|
| 939,939 |
|
| $ | 20.94 |
|
Granted |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Exercised(1) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Forfeited |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Outstanding, end of year(2)(3) |
|
| 939,939 |
|
| $ | 20.94 |
|
|
| 939,939 |
|
| $ | 20.94 |
|
|
| 939,939 |
|
| $ | 20.94 |
|
|
| 939,939 |
|
| $ | 20.94 |
|
Options exercisable, end of period(4)(5) |
|
| 932,439 |
|
| $ | 20.80 |
|
|
| 929,939 |
|
| $ | 20.75 |
|
|
| 932,439 |
|
| $ | 20.80 |
|
|
| 929,939 |
|
| $ | 20.75 |
|
Non-cash compensation expense recognized (in thousands) |
|
|
|
| $ | 5 |
|
|
|
|
|
| $ | 9 |
|
|
|
|
| $ | 5 |
|
|
|
|
|
| $ | 10 |
|
|
| Three Months Ended June 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||||||||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
|
| 2013 |
| ||||||||||||||||||||
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
| ||||||||
Outstanding, beginning of year |
|
| 939,939 |
|
| $ | 20.94 |
|
|
| 929,939 |
|
| $ | 20.75 |
|
|
| 939,939 |
|
| $ | 20.94 |
|
|
| 929,939 |
|
| $ | 20.75 |
|
Granted |
|
| — |
|
|
| — |
|
|
| 10,000 |
|
|
| 38.51 |
|
|
| — |
|
|
| — |
|
|
| 10,000 |
|
|
| 38.51 |
|
Exercised(1) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Forfeited |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Outstanding, end of year(2)(3) |
|
| 939,939 |
|
| $ | 20.94 |
|
|
| 939,939 |
|
| $ | 20.94 |
|
|
| 939,939 |
|
| $ | 20.94 |
|
|
| 939,939 |
|
| $ | 20.94 |
|
Options exercisable, end of period(4)(5) |
|
| 932,439 |
|
| $ | 20.80 |
|
|
| 929,939 |
|
| $ | 20.75 |
|
|
| 932,439 |
|
| $ | 20.80 |
|
|
| 929,939 |
|
| $ | 20.75 |
|
Non-cash compensation expense recognized (in thousands) |
|
|
|
| $ | 12 |
|
|
|
|
|
| $ | 16 |
|
|
|
|
| $ | 17 |
|
|
|
|
|
| $ | 26 |
|
(1) | No options were exercised during the three and |
(2) | The weighted average remaining contractual life for outstanding options at |
(3) | The aggregate intrinsic value of options outstanding at |
(4) | The weighted average remaining contractual lives for exercisable options at |
(5) | The aggregate intrinsic values of options exercisable at |
At JuneSeptember 30, 2014, the Partnership had approximately $28,000$23,000 of unrecognized compensation expense related to unvested unit options outstanding under the 2006 LTIP based upon the fair value of the awards. The Partnership uses the Black-Scholes option pricing model, which is based on Level 3 inputs, to estimate the weighted average fair value of options granted.
57
The following weighted average assumptions were used for the periods indicated:
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
| 2013 |
|
| 2014 |
|
| 2013 |
|
| 2014 |
| 2013 |
| ||||||||||
Expected dividend yield |
|
| — | % |
|
| — | % |
|
| — | % |
|
| 3.2 | % |
|
| — | % |
|
| — | % |
|
| — | % |
|
| 3.2 | % |
Expected unit price volatility |
|
| — | % |
|
| — | % |
|
| — | % |
|
| 30.0 | % |
|
| — | % |
|
| — | % |
|
| — | % |
|
| 30.0 | % |
Risk-free interest rate |
|
| — | % |
|
| — | % |
|
| — | % |
|
| 0.7 | % |
|
| — | % |
|
| — | % |
|
| — | % |
|
| 0.7 | % |
Expected term (in years) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6.25 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6.25 |
|
Fair value of unit options granted |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 7.54 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 7.54 |
|
58
ARP Long-Term Incentive Plan
ARP’s 2012 Long-Term Incentive Plan (the “ARP LTIP”), effective March 2012, provides incentive awards to officers, employees and directors as well as employees of the general partner and its affiliates, consultants and joint venture partners who perform services for ARP. The ARP LTIP is administered by the board of the general partner, a committee of the board or the board (or committee of the board) of an affiliate (the “ARP LTIP Committee”). Under ARP’s 2012 LTIP, the ARP LTIP Committee may grant awards of phantom units, restricted units, or unit options for an aggregate of 2,900,00002,900,000 common limited partner units of ARP. At JuneSeptember 30, 2014, ARP had 2,368,2572,258,110 phantom units, restricted units and restricted options outstanding under the ARP LTIP, with 158,063148,663 phantom units, restricted units and unit options available for grant. Share based payments to non-employee directors, which have a cash settlement option, are recognized within liabilities in the financial statements based upon their current fair market value.
In the case of awards held by eligible employees, following a “change in control”, as defined in the ARP LTIP, upon the eligible employee’s termination of employment without “cause”, as defined in the ARP LTIP, or upon any other type of termination specified in the eligible employee’s applicable award agreement(s), any unvested award will immediately vest in full and, in the case of options, become exercisable for the one-year period following the date of termination of employment, but in any case not later than the end of the original term of the option. Upon a change in control, all unvested awards held by directors will immediately vest in full.
In connection with a change in control, the ARP LTIP Committee, in its sole and absolute discretion and without obtaining the approval or consent of the unitholders or any participant, but subject to the terms of any award agreements and employment agreements to which the Partnership, as general partner, (or any affiliate) and any participant are party, may take one or more of the following actions (with discretion to differentiate between individual participants and awards for any reason):
· | cause awards to be assumed or substituted by the surviving entity (or affiliate of such surviving entity); |
· | accelerate the vesting of awards as of immediately prior to the consummation of the transaction that constitutes the change in control so that awards will vest (and, with respect to options, become exercisable) as to ARP’s common units that otherwise would have been unvested so that participants (as holders of awards granted under the new equity plan) may participate in the transaction; |
· | provide for the payment of cash or other consideration to participants in exchange for the cancellation of outstanding awards (in an amount equal to the fair market value of such cancelled awards); |
· | terminate all or some awards upon the consummation of the change-in-control transaction, but only if the ARP LTIP Committee provides for full vesting of awards immediately prior to the consummation of such transaction; and |
· | make such other modifications, adjustments or amendments to outstanding awards or the new equity plan as the ARP LTIP Committee deems necessary or appropriate. |
58
ARP Phantom Units. Phantom units granted under the ARP LTIP generally will vest 25% of the original granted amount on each of the four anniversaries of the date of grant. Of the phantom units outstanding under the ARP LTIP at JuneSeptember 30, 2014, 329,925314,775 units will vest within the following twelve months. All phantom units outstanding under the ARP LTIP at JuneSeptember 30, 2014 include DERs. During the three months ended June,September 30, 2014 and 2013, ARP paid $0.4 million and $0.5 million respectively, with respect to the ARP LTIP’s DERs. During the sixnine months ended June,September 30, 2014 and 2013, ARP paid $1.1$1.5 million and $1.0 million, respectively, with respect to the ARP LTIP’s DERs. These amounts were recorded as reductions of non-controlling interestpartners’ capital on the Partnership’s consolidated balance sheets.
59
The following table sets forth the ARP LTIP phantom unit activity for the periods indicated:
|
| Three Months Ended June 30, |
|
| Three Months Ended September 30, |
| ||||||||||||||||||||||||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
|
| 2013 |
| ||||||||||||||||||||
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
| ||||||||
Outstanding, beginning of period |
|
| 812,308 |
|
| $ | 24.35 |
|
|
| 1,025,261 |
|
| $ | 24.53 |
|
|
| 901,207 |
|
| $ | 23.29 |
|
|
| 845,932 |
|
| $ | 24.51 |
|
Granted |
|
| 223,523 |
|
|
| 20.29 |
|
|
| 8,540 |
|
|
| 24.09 |
|
|
| 9,400 |
|
|
| 19.85 |
|
|
| 37,191 |
|
|
| 21.86 |
|
Vested and issued(1) |
|
| (131,374 | ) |
|
| 24.69 |
|
|
| (168,994 | ) |
|
| 24.69 |
|
|
| (115,797 | ) |
|
| 24.54 |
|
|
| (33,123 | ) |
|
| 24.72 |
|
Forfeited |
|
| (3,250 | ) |
|
| 24.80 |
|
|
| (18,875 | ) |
|
| 24.03 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Outstanding, end of period(2)(3) |
|
| 901,207 |
|
| $ | 23.29 |
|
|
| 845,932 |
|
| $ | 24.51 |
|
|
| 794,810 |
|
| $ | 23.07 |
|
|
| 850,000 |
|
| $ | 24.38 |
|
Vested and not yet issued(4) |
|
| 67,975 |
|
| $ | 24.66 |
|
|
| 32,750 |
|
| $ | 24.67 |
|
|
| 5,412 |
|
| $ | 25.25 |
|
|
| 7,749 |
|
| $ | 25.51 |
|
Non-cash compensation expense recognized (in thousands) |
|
|
|
| $ | 1,590 |
|
|
|
|
| $ | 2,231 |
|
|
|
|
| $ | 1,647 |
|
|
|
|
| $ | 2,045 |
|
|
| Six Months Ended June 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||||||||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
|
| 2013 |
| ||||||||||||||||||||
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
| ||||||||
Outstanding, beginning of year |
|
| 839,808 |
|
| $ | 24.31 |
|
|
| 948,476 |
|
| $ | 24.76 |
|
|
| 839,808 |
|
| $ | 24.31 |
|
|
| 948,476 |
|
| $ | 24.76 |
|
Granted |
|
| 227,023 |
|
|
| 20.30 |
|
|
| 91,790 |
|
|
| 22.15 |
|
|
| 236,423 |
|
|
| 20.28 |
|
|
| 128,981 |
|
|
| 22.07 |
|
Vested and issued(1) |
|
| (146,874 | ) |
|
| 24.48 |
|
|
| (171,459 | ) |
|
| 24.69 |
|
|
| (262,671 | ) |
|
| 24.51 |
|
|
| (204,582 | ) |
|
| 24.70 |
|
Forfeited |
|
| (18,750 | ) |
|
| 23.00 |
|
|
| (22,875 | ) |
|
| 24.23 |
|
|
| (18,750 | ) |
|
| 23.00 |
|
|
| (22,875 | ) |
|
| 24.23 |
|
Outstanding, end of period(2)(3) |
|
| 901,207 |
|
| $ | 23.29 |
|
|
| 845,932 |
|
| $ | 24.51 |
|
|
| 794,810 |
|
| $ | 23.07 |
|
|
| 850,000 |
|
| $ | 24.38 |
|
Vested and not yet issued(4) |
|
| 74,850 |
|
| $ | 24.49 |
|
|
| 32,750 |
|
| $ | 24.67 |
|
|
| 5,412 |
|
| $ | 25.25 |
|
|
| 7,749 |
|
| $ | 25.51 |
|
Non-cash compensation expense recognized (in thousands) |
|
|
|
| $ | 3,321 |
|
|
|
|
| $ | 5,284 |
|
|
|
|
| $ | 4,968 |
|
|
|
|
| $ | 7,329 |
|
(1) | The intrinsic value of phantom unit awards vested and issued during the three months ended |
(2) | The aggregate intrinsic value for phantom unit awards outstanding at |
(3) | There was $0.2 million and $0.1 million recognized as liabilities on the Partnership’s consolidated balance sheets |
(4) | The intrinsic |
At JuneSeptember 30, 2014, ARP had approximately $9.8$8.3 million in unrecognized compensation expense related to unvested phantom units outstanding under the ARP LTIP based upon the fair value of the awards.
59
ARP Unit Options. The exercise price of each ARP unit option is determined by the ARP LTIP Committee and may be equal to or greater than the fair market value of ARP’s common unit on the date of grant of the option. The ARP LTIP Committee will determine the vesting and exercise restrictions applicable to an ARP award of options, if any, and the method by which the exercise price may be paid by the participant. Unit option awards expire 10 years from the date of grant. Unit options granted under the ARP LTIP generally will vest 25% on each of the next four anniversaries of the date of grant. There were 364,763362,888 unit options outstanding under the ARP LTIP at JuneSeptember 30, 2014 that will vest within the following twelve months. No cash was received from the exercise of options for the three and sixnine months ended JuneSeptember 30, 2014 and 2013.
The following table sets forth the ARP LTIP unit option activity for the periods indicated:
|
| Three Months Ended June 30, |
|
| Three Months Ended September 30, |
| ||||||||||||||||||||||||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
|
| 2013 |
| ||||||||||||||||||||
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
| ||||||||
Outstanding, beginning of period |
|
| 1,472,675 |
|
| $ | 24.66 |
|
|
| 1,513,500 |
|
| $ | 24.67 |
|
|
| 1,467,050 |
|
| $ | 24.66 |
|
|
| 1,494,750 |
|
| $ | 24.67 |
|
Granted |
|
| — |
|
|
| — |
|
|
| 500 |
|
|
| 25.35 |
|
|
| — |
| — |
|
|
| — |
|
|
| — |
| ||
Exercised (1) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| — |
|
|
| — |
|
|
| — |
| ||
Forfeited |
|
| (5,625 | ) |
|
| 24.67 |
|
|
| (19,250 | ) |
|
| 24.68 |
|
|
| (3,750 | ) |
|
| 24.67 |
|
|
| (6,250 | ) |
|
| 24.67 |
|
Outstanding, end of period(2)(3) |
|
| 1,467,050 |
|
| $ | 24.66 |
|
|
| 1,494,750 |
|
| $ | 24.67 |
|
|
| 1,463,300 |
|
| $ | 24.66 |
|
|
| 1,488,500 |
|
| $ | 24.67 |
|
Options exercisable, end of period(4) |
|
| 734,400 |
|
| $ | 24.67 |
|
|
| 374,375 |
|
| $ | 24.67 |
|
|
| 732,025 |
|
| $ | 24.67 |
|
|
| 371,375 |
|
| $ | 24.67 |
|
Non-cash compensation expense recognized (in thousands) |
|
|
|
|
| $ | 420 |
|
|
|
|
| $ | 771 |
|
|
|
|
|
| $ | 342 |
|
|
|
|
| $ | 915 |
|
|
| Six Months Ended June 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||||||||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
|
| 2013 |
| ||||||||||||||||||||
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
| ||||||||
Outstanding, beginning of year |
|
| 1,482,675 |
|
| $ | 24.66 |
|
|
| 1,515,500 |
|
| $ | 24.68 |
|
|
| 1,482,675 |
|
| $ | 24.66 |
|
|
| 1,515,500 |
|
| $ | 24.68 |
|
Granted |
|
| — |
|
|
| — |
|
|
| 2,500 |
|
|
| 22.88 |
|
|
| — |
| — |
|
|
| 2,500 |
|
|
| 22.88 |
| ||
Exercised (1) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| — |
|
|
| — |
|
|
| — |
| ||
Forfeited |
|
| (15,625 | ) |
|
| 24.43 |
|
|
| (23,250 | ) |
|
| 24.76 |
|
|
| (19,375 | ) |
|
| 24.48 |
|
|
| (29,500 | ) |
|
| 24.74 |
|
Outstanding, end of period(2)(3) |
|
| 1,467,050 |
|
| $ | 24.66 |
|
|
| 1,494,750 |
|
| $ | 24.67 |
|
|
| 1,463,300 |
|
| $ | 24.66 |
|
|
| 1,488,500 |
|
| $ | 24.67 |
|
Options exercisable, end of period(4) |
|
| 734,400 |
|
| $ | 24.67 |
|
|
| 374,375 |
|
| $ | 24.67 |
|
|
| 732,025 |
|
| $ | 24.67 |
|
|
| 371,375 |
|
| $ | 24.67 |
|
Non-cash compensation expense recognized (in thousands) |
|
|
|
|
| $ | 1,033 |
|
|
|
|
| $ | 1,965 |
|
|
|
|
|
| $ | 1,374 |
|
|
|
|
| $ | 2,880 |
|
(1) | No options were exercised during the three and |
(2) | The weighted average remaining contractual life for outstanding options at |
(3) |
|
(4) | The weighted average remaining contractual |
At JuneSeptember 30, 2014, ARP had approximately $1.7$1.4 million in unrecognized compensation expense related to unvested unit options outstanding under the ARP LTIP based upon the fair value of the awards. ARP used the Black-Scholes option pricing model, which is based on Level 3 inputs, to estimate the weighted average fair value of options granted.
60
The following weighted average assumptions were used for the periods indicated:
|
| Three Months Ended |
|
| Six Months Ended June 30, |
|
| Three Months Ended |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
|
| 2013 |
|
| 2014 |
|
| 2013 |
|
| 2014 |
| 2013 |
| |||||||||
Expected dividend yield |
|
| — | % |
|
| 7.3 | % |
|
| — | % |
|
| 6.7 | % |
|
| — | % |
|
| — | % |
|
| — | % |
|
| 6.7 | % |
Expected unit price volatility |
|
| — | % |
|
| 44.0 | % |
|
| — | % |
|
| 44.0 | % |
|
| — | % |
|
| — | % |
|
| — | % |
| 35.8 | % | |
Risk-free interest rate |
|
| — | % |
|
| 1.1 | % |
|
| — | % |
|
| 1.1 | % |
|
| — | % |
|
| — | % |
|
| — | % |
| 1.1 | % | |
Expected term (in years) |
|
| — |
|
|
| 6.88 |
|
|
| — |
|
|
| 6.35 |
|
|
| — |
|
|
| — |
|
|
| — |
|
| 6.35 |
| |
Fair value of unit options granted |
| $ | — |
|
| $ | 4.91 |
|
| $ | — |
|
| $ | 4.86 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 3.63 |
|
61
APL Long-Term Incentive Plans
APL has a 2004 Long-Term Incentive Plan (“APL 2004 LTIP”), and a 2010 Long-Term Incentive Plan, which was modified on April 26, 2011 (“APL 2010 LTIP” and collectively with the APL 2004 LTIP, the “APL LTIPs”), in which officers, employees and non-employee managing board members of APL’s general partner and employees of APL’s general partner’s affiliates and consultants are eligible to participate. The APL LTIPs are administered by APL’s compensation committee (the “APL LTIP Committee”). Under the APL LTIPs, the APL LTIP Committee may make awards of either phantom units or unit options for an aggregate of 3,435,000 common units. At JuneSeptember 30, 2014, APL had 2,046,8191,755,028 phantom units outstanding under the APL LTIPs, with 121,946122,968 phantom units and unit options available for grant. APL generally issues new common units for phantom units and unit options that have vested and have been exercised. Share based payments to non-employees that have a cash settlement option are recognized within liabilities in the consolidated financial statements based upon their current fair market value. There were no unit options outstanding as of JuneSeptember 30, 2014.
APL Phantom Units. Phantom units granted under the APL LTIPs generally have vesting periods of four years. However, in February 2014, APL granted 227,000 phantom units with a vesting period of three years. Phantom units awarded to non-employee managing board members will vest over a four year period. Awards to non-employee members of APL’s board automatically vest upon a change of control, as defined in the APL LTIPs. Of the units outstanding under the APL LTIPs at JuneSeptember 30, 2014, 621,295619,378 phantom units will vest within twelve months. APL is authorized to purchasewithhold common units from employees to cover employee-relatedemployee tax obligations taxes when certain phantom units have vested.
All phantom units outstanding under the APL LTIPs at JuneSeptember 30, 2014 include DERs. The amounts paid with respect to APL LTIP DERs were $1.0$1.2 million and $0.6$1.0 million, respectively, for the three months ended JuneSeptember 30, 2014 and 2013, respectively. The amounts paid with respect to APL LTIP DERs were $1.9$3.1 million and $1.2$2.2 million for the sixnine months ended JuneSeptember 30, 2014 and 2013, respectively. These amounts were recorded as reductions of non-controlling interest on the Partnership’s consolidated balance sheet.
The following table sets forth the APL LTIP phantom unit activity for the periods indicated:
|
| Three Months Ended June 30, |
|
| Three Months Ended September 30, |
| ||||||||||||||||||||||||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
|
| 2013 |
| ||||||||||||||||||||
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
| ||||||||
Outstanding, beginning of period |
|
| 1,664,642 |
|
| $ | 35.59 |
|
|
| 1,057,083 |
|
| $ | 33.22 |
|
|
| 2,046,819 |
|
| $ | 35.45 |
|
|
| 909,012 |
|
| $ | 33.54 |
|
Granted |
|
| 487,873 |
|
|
| 33.92 |
|
|
| 36,971 |
|
|
| 38.10 |
|
|
| 16,153 |
|
|
| 35.27 |
|
|
| 697,122 |
|
|
| 39.07 |
|
Vested and issued(1) |
|
| (104,246 | ) |
|
| 30.49 |
|
|
| (182,942 | ) |
|
| 32.65 |
|
|
| (290,769 | ) |
|
| 36.21 |
|
|
| (59,112 | ) |
|
| 27.81 |
|
Forfeited |
|
| (1,450 | ) |
|
| 36.34 |
|
|
| (2,100 | ) |
|
| 32.95 |
|
|
| (17,175 | ) |
|
| 36.81 |
|
|
| (24,200 | ) |
|
| 36.74 |
|
Outstanding, end of period(2)(3) |
|
| 2,046,819 |
|
| $ | 35.45 |
|
|
| 909,012 |
|
| $ | 33.54 |
|
|
| 1,755,028 |
|
| $ | 35.31 |
|
|
| 1,522,822 |
|
| $ | 36.24 |
|
Vested and not issued(4) |
|
| 112,423 |
|
|
| 32.19 |
|
|
| 39,347 |
|
|
| 24.91 |
|
|
| 12,774 |
|
| $ | 34.22 |
|
|
| 2,450 |
|
| $ | 32.95 |
|
Non-cash compensation expense recognized (in thousands) |
|
|
|
| $ | 6,443 |
|
|
|
|
| $ | 3,436 |
|
|
|
|
| $ | 6,376 |
|
|
|
|
| $ | 5,998 |
|
6162
|
| Six Months Ended June 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||||||||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
|
| 2013 |
| ||||||||||||||||||||
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
| ||||||||
Outstanding, beginning of year |
|
| 1,446,553 |
|
| $ | 36.32 |
|
|
| 1,053,242 |
|
| $ | 33.21 |
|
|
| 1,446,553 |
|
| $ | 36.32 |
|
|
| 1,053,242 |
|
| $ | 33.21 |
|
Granted |
|
| 722,574 |
|
|
| 32.98 |
|
|
| 43,775 |
|
|
| 37.32 |
|
|
| 738,727 |
|
|
| 33.03 |
|
|
| 740,897 |
|
|
| 38.97 |
|
Vested and issued(1) |
|
| (118,658 | ) |
|
| 30.92 |
|
|
| (185,905 | ) |
|
| 32.59 |
|
|
| (409,427 | ) |
|
| 34.68 |
|
|
| (245,017 | ) |
|
| 31.44 |
|
Forfeited |
|
| (3,650 | ) |
|
| 38.25 |
|
|
| (2,100 | ) |
|
| 32.95 |
|
|
| (20,825 | ) |
|
| 37.06 |
|
|
| (26,300 | ) |
|
| 36.44 |
|
Outstanding, end of period(2)(3) |
|
| 2,046,819 |
|
| $ | 35.45 |
|
|
| 909,012 |
|
| $ | 33.54 |
|
|
| 1,755,028 |
|
| $ | 35.31 |
|
|
| 1,522,822 |
|
| $ | 36.24 |
|
Vested and not issued(4) |
|
| 112,423 |
|
|
| 32.19 |
|
|
| 39,347 |
|
|
| 24.91 |
|
|
| 12,774 |
|
| $ | 34.22 |
|
|
| 2,450 |
|
| $ | 32.95 |
|
Non-cash compensation expense recognized (in thousands) |
|
|
|
| $ | 12,882 |
|
|
|
|
| $ | 7,820 |
|
|
|
|
| $ | 19,258 |
|
|
|
|
| $ | 13,818 |
|
(1) | The intrinsic values for phantom unit awards vested and issued were |
| There were |
| The aggregate intrinsic values for phantom unit awards outstanding at ended |
| The aggregate intrinsic values for phantom unit awards vested but not issued at |
At JuneSeptember 30, 2014, APL had approximately $41.6$35.0 million of unrecognized compensation expense related to unvested phantom units outstanding under the APL LTIPs based upon the fair value of the awards, which is expected to be recognized over a weighted average period of 2.12.0 years.
6263
NOTE 17 — OPERATING SEGMENT INFORMATION
The Partnership’s operations include three reportable operating segments. These operating segments reflect the way the Partnership manages its operations and makes business decisions. Operating segment data for the periods indicated were as follows (in thousands):
|
| Three Months Ended |
|
| Six Months Ended |
|
|
| Three Months Ended |
|
| Nine Months Ended |
| |||||||||||||||||||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
| 2013 |
|
|
| 2014 |
|
| 2013 |
|
| 2014 |
| 2013 |
| |||||||||||
Atlas Resource: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Revenues |
| $ | 134,717 |
|
| $ | 83,326 |
|
| $ | 292,062 |
| $ | 195,374 |
|
|
| $ | 202,694 |
|
| $ | 91,085 |
|
| $ | 494,756 |
| $ | 286,459 |
|
| ||
Operating costs and expenses |
|
| (83,983 | ) |
|
| (62,125 | ) |
|
| (187,061 | ) |
| (150,751 | ) |
|
|
| (122,098 | ) |
|
| (77,717 | ) |
|
| (309,159 | ) |
| (228,468 | ) |
| ||
Depreciation, depletion and amortization expense |
|
| (58,001 | ) |
|
| (22,197 | ) |
|
| (108,238 | ) |
| (43,405 | ) |
|
|
| (62,852 | ) |
|
| (41,656 | ) |
|
| (171,090 | ) |
| (85,061 | ) |
| ||
Gain (loss) on asset sales and disposal |
|
| 9 |
|
|
| (672 | ) |
|
| (1,594 | ) |
| (1,374 | ) |
| ||||||||||||||||||
Loss on asset sales and disposal |
|
| (92 | ) |
|
| (661 | ) |
|
| (1,686 | ) |
| (2,035 | ) |
| ||||||||||||||||||
Interest expense |
|
| (13,263 | ) |
|
| (4,508 | ) |
|
| (26,451 | ) |
|
| (11,397 | ) |
|
|
| (16,577 | ) |
|
| (10,748 | ) |
|
| (43,028 | ) |
|
| (22,145 | ) |
|
Segment loss |
| $ | (20,521 | ) |
| $ | (6,176 | ) |
| $ | (31,282 | ) |
| $ | (11,553 | ) |
| |||||||||||||||||
Segment income (loss) |
| $ | 1,075 |
|
| $ | (39,697 | ) |
| $ | (30,207 | ) |
| $ | (51,250 | ) |
| |||||||||||||||||
Atlas Pipeline: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Revenues |
| $ | 710,101 |
|
| $ | 560,467 |
|
| $ | 1,408,190 |
| $ | 970,419 |
|
|
| $ | 756,472 |
|
| $ | 555,988 |
|
| $ | 2,164,662 |
| $ | 1,526,407 |
| |||
Operating costs and expenses |
|
| (625,786 | ) |
|
| (479,874 | ) |
|
| (1,243,924 | ) |
| (841,592 | ) |
|
|
| (633,736 | ) |
|
| (506,125 | ) |
|
| (1,877,660 | ) |
| (1,347,717 | ) |
| ||
Depreciation, depletion and amortization expense |
|
| (49,220 | ) |
|
| (46,383 | ) |
|
| (98,459 | ) |
| (76,841 | ) |
|
|
| (50,173 | ) |
|
| (51,080 | ) |
|
| (148,632 | ) |
| (127,921 | ) |
| ||
Gain (loss) on asset sales and disposal |
|
| 48,465 |
|
|
| (1,519 | ) |
|
| 48,465 |
| (1,519) |
|
|
|
| (636 | ) |
|
| — |
|
|
| 47,829 |
| (1,519 | ) |
| ||||
Interest expense |
|
| (23,059 | ) |
|
| (22,581 | ) |
|
| (46,722 | ) |
| (41,267 | ) |
|
|
| (22,553 | ) |
|
| (24,347 | ) |
|
| (69,275 | ) |
| (65,614 | ) |
| ||
Loss on early extinguishment of debt |
|
| — |
|
|
| (19 | ) |
|
| — |
|
| (26,601 | ) |
|
|
| — |
|
|
| — |
|
|
| — |
|
| (26,601 | ) |
| ||
Segment income (loss) |
| $ | 60,501 |
|
| $ | 10,091 |
|
| $ | 67,550 |
| $ | (17,401 | ) |
|
| $ | 49,374 |
|
| $ | (25,564 | ) |
| $ | 116,924 |
| $ | (42,965 | ) |
| ||
Corporate and other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Revenues |
| $ | 7,071 |
|
| $ | 2 |
|
| $ | 11,937 |
| $ | 104 |
|
|
| $ | 4,814 |
|
| $ | 2,916 |
|
| $ | 16,751 |
| $ | 3,020 |
|
| ||
Operating costs and expenses |
|
| (18,219 | ) |
|
| (8,664 | ) |
|
| (34,175 | ) |
| (17,356 | ) |
|
|
| (16,981 | ) |
|
| (12,452 | ) |
|
| (51,156 | ) |
| (29,808 | ) |
| ||
Depreciation, depletion and amortization expense |
|
| (2,405 | ) |
|
| — |
|
|
| (4,207 | ) |
| — |
|
|
|
| (2,216 | ) |
|
| (1,331 | ) |
|
| (6,423 | ) |
| (1,331 | ) |
| ||
Gain (loss) on asset sales and disposal |
|
| 3 |
|
|
| — |
|
|
| 3 |
| — |
|
| |||||||||||||||||||
Gain on asset sales and disposal |
|
| — |
|
|
| — |
|
|
| 3 |
| — |
|
| |||||||||||||||||||
Interest expense |
|
| (4,497 | ) |
|
| (442 | ) |
|
| (8,960 | ) |
|
| (677 | ) |
|
|
| (4,553 | ) |
|
| (3,418 | ) |
|
| (13,513 | ) |
|
| (4,095 | ) |
|
Segment loss |
| $ | (18,047 | ) |
| $ | (9,104 | ) |
| $ | (35,402 | ) |
| $ | (17,929 | ) |
|
| $ | (18,936 | ) |
| $ | (14,285 | ) |
| $ | (54,338 | ) |
| $ | (32,214 | ) |
|
Reconciliation of segment income (loss) to net income (loss): |
|
| �� |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Segment income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Atlas Resource |
| $ | (20,521 | ) |
| $ | (6,176 | ) |
| $ | (31,282 | ) |
| $ | (11,553 | ) |
|
| $ | 1,075 |
|
| $ | (39,697 | ) |
| $ | (30,207 | ) |
| $ | (51,250 | ) |
|
Atlas Pipeline |
|
| 60,501 |
|
|
| 10,091 |
|
|
| 67,550 |
| (17,401 | ) |
|
|
| 49,374 |
|
|
| (25,564 | ) |
|
| 116,924 |
| (42,965 | ) |
| ||||
Corporate and other |
|
| (18,047 | ) |
|
| (9,104 | ) |
|
| (35,402 | ) |
|
| (17,929 | ) |
|
|
| (18,936 | ) |
|
| (14,285 | ) |
|
| (54,338 | ) |
|
| (32,214 | ) |
|
Net income (loss) |
| $ | (21,933 | ) |
| $ | (5,189 | ) |
| $ | 866 |
| $ | (46,883 | ) |
|
| $ | 31,513 |
|
| $ | (79,546 | ) |
| $ | 32,379 |
| $ | (126,429 | ) |
| ||
Reconciliation of segment revenues to total revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Segment revenues: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Atlas Resource |
| $ | 202,694 |
| $ | 91,085 |
|
| $ | 494,756 |
| $ | 286,459 |
|
| |||||||||||||||||||
Atlas Pipeline |
|
| 756,472 |
| 555,988 |
| 2,164,662 |
| 1,526,407 |
|
| |||||||||||||||||||||||
Corporate and other |
|
| 4,814 |
|
| 2,916 |
|
|
| 16,751 |
|
| 3,020 |
|
| |||||||||||||||||||
Total revenues |
| $ | 963,980 |
| $ | 649,989 |
|
| $ | 2,676,169 |
| $ | 1,815,886 |
|
| |||||||||||||||||||
Capital expenditures: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Atlas Resource |
| $ | 54,658 |
|
| $ | 71,565 |
|
| $ | 94,555 |
| $ | 130,052 |
|
|
| $ | 55,930 |
|
| $ | 73,944 |
|
| $ | 150,485 |
| $ | 203,996 |
|
| ||
Atlas Pipeline |
|
| 152,248 |
|
|
| 107,193 |
|
|
| 280,579 |
|
|
| 215,709 |
|
|
|
| 192,568 |
|
|
| 112,152 |
|
|
| 473,147 |
|
|
| 327,861 |
|
|
Corporate and other |
|
| 1,148 |
|
|
| — |
|
|
| 11,674 |
|
| — |
|
|
|
| 567 |
|
|
| 1,831 |
|
|
| 12,241 |
|
| 1,831 |
|
| ||
Total capital expenditures |
| $ | 208,054 |
|
| $ | 178,758 |
|
| $ | 386,808 |
| $ | 345,761 |
|
|
| $ | 249,065 |
|
| $ | 187,927 |
|
| $ | 635,873 |
| $ | 533,688 |
|
|
6364
|
| June 30, |
|
| December 31, |
|
| September 30, |
|
| December 31, |
| ||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
|
| 2013 |
| ||||
Balance sheet: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Goodwill: |
|
|
|
|
|
|
|
|
|
| ||||||
Atlas Resource |
| $ | 31,784 |
|
| $ | 31,784 |
|
| $ | 31,784 |
|
| $ | 31,784 |
|
Atlas Pipeline |
|
| 365,763 |
|
|
| 368,572 |
|
|
| 365,763 |
|
|
| 368,572 |
|
Corporate and other |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| $ | 397,547 |
|
| $ | 400,356 |
|
| $ | 397,547 |
|
| $ | 400,356 |
|
Total assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Atlas Resource |
| $ | 2,881,286 |
|
| $ | 2,343,800 |
|
| $ | 2,986,402 |
|
| $ | 2,343,800 |
|
Atlas Pipeline |
|
| 4,493,029 |
|
|
| 4,327,845 |
|
|
| 4,638,412 |
|
|
| 4,327,845 |
|
Corporate and other |
|
| 131,303 |
|
|
| 120,996 |
|
|
| 168,811 |
|
|
| 120,996 |
|
|
| $ | 7,505,618 |
|
| $ | 6,792,641 |
|
| $ | 7,793,625 |
|
| $ | 6,792,641 |
|
NOTE 18 — SUBSEQUENT EVENTS
Eagle Ford Shale Asset Acquisition. On November 5, 2014, ARP and the Development Subsidiary completed an acquisition of oil and natural gas liquid interests in the Eagle Ford Shale in Atascosa County, Texas (the “Eagle Ford Acquisition”). Approximately $199.0 million was paid in cash by ARP and the Development Subsidiary at closing, and approximately $140.0 million will be paid over the four quarters following closing. ARP will pay approximately $24.0 million of the deferred portion of the purchase price in three quarterly installments beginning March 31, 2015. The Development Subsidiary will pay approximately $116.0 million of the deferred portion purchase price in four quarterly installments following closing. ARP may pay up to $20.0 million of its deferred portion of the purchase price by issuing ARP’s Class D cumulative redeemable perpetual preferred units at a price of $25.00 per unit.
In connection with the closing of the Eagle Ford Acquisition, the borrowing base under ARP’s revolving credit facility was increased to $900.0 million.
Merger with Targa Resources Corp. On October 13, 2014, the Partnership entered into a definitive merger agreement with Targa Resources Corp. (“TRC”; NYSE: TRGP) (the “Merger Agreement”), pursuant to which TRC agreed to acquire the Partnership through a newly formed, wholly-owned subsidiary of TRC (the “Merger”). Upon completion of the Merger, holders of the Partnership’s common units will have the right to receive, for each Partnership common unit, (i) 0.1809 TRC shares, and (ii) $9.12 in cash.
Concurrently with the execution of the Merger Agreement, APL entered into a definitive merger agreement (the “APL Merger Agreement”) with the Partnership, TRC, Targa Resources Partners LP (“TRP”; NYSE: NGLS), pursuant to which TRP agreed to acquire APL through a newly formed, wholly-owned subsidiary of TRP (the “APL Merger”). Upon completion of the APL Merger, holders of APL’s common units will have the right to receive (i) 0.5846 TRP common units and (ii) $1.26 in cash for each APL common unit.
Concurrent with the execution of the Merger Agreement and the APL Merger Agreement, the Partnership agreed to (i) transfer its assets and liabilities, other than those related to APL, to Atlas Energy Group, which is currently a wholly-owned subsidiary of the Partnership and (ii) immediately prior to the Merger, effect a pro rata distribution to the Partnership’s unitholders of common units of Atlas Energy Group representing a 100% interest in Atlas Energy Group (the “Spin-Off”). Atlas Energy Group’s assets, assuming the Spin-Off had been completed as of September 30, 2014, consist of:
· | 100% of the general partner Class A units, all of the incentive distribution rights, as well as an approximate 27.7% limited partner interest (20,962,485 common and 3,749,986 preferred limited partner units) in ARP; |
· | 80% of the general partner Class A units, all of the incentive distribution rights, as well as a 3.1% limited partner interest, in the Development Subsidiary; |
· | 15.9% of the general partner interest and a 12% limited partner interest in Lightfoot, which has a 40% limited partner interest in ARCX; and, |
· | the Partnership’s direct natural gas development and production assets in the Arkoma Basin, which it acquired in July 2013. |
The closing of the Merger is subject to approval by holders of a majority of the Partnership’s common units, approval by a majority of the holders of TRC common stock voting at a special meeting held to approve the issuance of TRC shares in the Merger and other closing conditions, including the closing of the APL Merger and the Spin-Off. Completion of each of the APL Merger and the Spin-Off are also conditioned on the parties standing ready to complete the Merger.
Following the announcement on October 13, 2014 of the Merger, the Partnership, the General Partner, TRC, Trident GP Merger Sub LLC and the members of the General Partner’s board have been named as defendants in two putative unitholder class action lawsuits challenging the Merger. In addition, the Partnership, APL, Atlas Pipeline Partners GP LLC (“APL GP”), TRC, TRP, Targa Resources GP LLC, Trident MLP Merger Sub LLC and the members of the managing board of APL GP have been named as defendants in three putative unitholder class action lawsuits challenging the APL Merger.
The lawsuits filed generally allege that the individual defendants breached their fiduciary duties and/or contractual obligations by, among other things, failing to obtain sufficient value for the Partnership’s unitholders in the Merger. The plaintiffs seek, among other things, injunctive relief, unspecified compensatory and/or rescissory damages, attorney’s fees, other expenses and costs. At this time, the Partnership cannot reasonably estimate the range of possible loss as a result of the lawsuit. See “Part II. Other Information ‒ Item 1. Legal Proceedings” for more information regarding the class action lawsuit filed against the Partnership and the General Partner.
Distribution. On July 24,October 29, 2014, the Partnership declared a cash distribution of $0.49$0.52 per unit on its outstanding common limited partner units, representing the cash distribution for the quarter ended JuneSeptember 30, 2014. The $25.4$27.0 million distribution will be paid on August 19,November 20, 2014 to unitholders of record at the close of business on August 6,November 10, 2014.
Atlas Resource
Distribution. On July 24,October 29, 2014, ARP declared a cashmonthly distribution of $0.1966 per common unit for the month of JuneSeptember 2014. The $18.9 million distribution, including $1.4 million and $1.5 million to the general partner and preferred limited partners, respectively, will be paid on AugustNovember 14, 2014 to holders of record as of August 6,November 10, 2014.
Issuance of Preferred Units. In connection with the Eagle Ford Acquisition, on October 2, 2014, ARP issued 3,200,000 8.625% ARP Class D cumulative redeemable perpetual preferred units at a public offering price of $25.00 per Class D Unit. ARP will pay cumulative distributions in cash on the units on a quarterly basis at a rate of $2.15625 per unit, or 8.625% of the liquidation preference, per year.
9.25% ARP Senior Notes. Also in connection with the Eagle Ford Acquisition, on October 14, 2014, ARP issued an additional $75.0 million of its 9.25% ARP Senior Notes in a private transaction under Rule 144A and Regulation S of the Securities Act at an offering price of 100.5%, yielding net proceeds of approximately $73.6 million. In connection with the issuance, ARP also entered into a registration rights agreement. Under the registration rights agreement, ARP agreed to (i) file an exchange offer registration statement with the SEC to exchange the privately issued notes for registered notes, and (ii) cause the exchange offer to be consummated no later than 270 days after the issuance of the 9.25% ARP Senior Notes. Under certain circumstances, in lieu of, or in addition to, a registered exchange offer, ARP agreed to file a shelf registration statement with respect to the issuance. If ARP fails to comply with its obligations to register the notes within the specified time periods, ARP will be subject to additional interest, up to 1% per annum, until such time that the exchange offer is consummated or the shelf registration is declared effective, as applicable.
Atlas Pipeline
Distribution.Distributions. On July 23,October 28, 2014, APL declared a cash distribution of $0.63$0.64 per unit on its outstanding common limited partner units, representing the cash distribution for the quarter ended JuneSeptember 30, 2014. The $58.8$62.2 million distribution, including $7.1$8.1 million to the Partnership as general partner, will be paid on AugustNovember 14, 2014 to unitholders of record at the close of business on August 7,November 10, 2014. Based on this declaration,APL also determined that distributions for the Class D Preferred Units would be paid in-kind for the quarter ended September 30, 2014. Accordingly, APL will also issue approximately 305,000 additional321,000 Class D Preferred Units to the holders of the Class D Preferred Units as a preferred unit distribution in kind for the quarter ended JuneSeptember 30, 2014.
On JulyOctober 15, 2014, APL paid a cash distribution of $0.67604$0.515625 per unit, or approximately $3.4$2.6 million, on its Class E Preferred Units, representing the cash distribution for the period March 17,July 15, 2014 to Julythrough October 14, 2014.2014 (see Note 14).
6466
Forward-Looking Statements
When used in this Form 10-Q, the words “believes,” “anticipates,” “expects” and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties more particularly described in “Item 1A. Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2013.2013, as supplemented by this Form 10-Q. These risks and uncertainties could cause actual results to differ materially from the results stated or implied in this document. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly release the results of any revisions to forward-looking statements which we may make to reflect events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events.
BUSINESS OVERVIEW
We are a publicly-traded Delaware master limited partnership, whose common units are listed on the New York Stock Exchange (“NYSE”) under the symbol “ATLS”.
At JuneSeptember 30, 2014, our operations primarily consisted of our ownership interests in the following:
· | Atlas Resource Partners, L.P. (“Atlas Resources” or “ARP”), a publicly-traded Delaware master limited partnership (NYSE: ARP) and an independent developer and producer of natural gas, crude oil and natural gas liquids (“NGL”), with operations in basins across the United States. ARP sponsors and manages tax-advantaged investment partnerships (“Drilling Partnerships”), in which it coinvests, to finance a portion of its natural gas and oil production activities. At |
· | Atlas Pipeline Partners, L.P. (“APL”), a publicly traded Delaware master limited partnership (NYSE: APL) and midstream energy service provider engaged in the natural gas gathering, processing and treating services primarily in the Anadarko, Arkoma and Permian Basins located in the southwestern and mid-continent regions of the United States and in the Eagle Ford Shale play in south Texas; and natural gas gathering services in the Appalachian Basin in the northeastern region of the United States. At |
· | Lightfoot Capital Partners, L.P. (“Lightfoot L.P.”) and Lightfoot Capital Partners GP, LLC (“Lightfoot GP”), the general partner of Lightfoot L.P. (collectively, “Lightfoot”), entities which incubate new master limited partnerships (“MLPs”) and invest in existing MLPs. At |
· | Development Subsidiary, a subsidiary partnership that conducts natural gas and oil operations initially in the mid-continent region of the United States, currently in the Marble Falls formation in the Fort Worth Basin and Mississippi Lime area of the Anadarko basin in Oklahoma. At |
· | Certain natural gas and oil producing assets. |
6567
FINANCIAL PRESENTATION
Our consolidated financial statements contain our accounts and those of our consolidated subsidiaries, all of which are wholly-owned at JuneSeptember 30, 2014, except for ARP, APL and our Development Subsidiary, which we control. Due to the structure of our ownership interests in ARP, APL and our Development Subsidiary, in accordance with generally accepted accounting principles, we consolidate the financial statements of ARP, APL and our Development Subsidiary into our consolidated financial statements rather than present our ownership interests as equity investments. As such, the non-controlling interests in ARP, APL and our Development Subsidiary are reflected as income attributable to non-controlling interests in our consolidated statements of operations and as a component of partners’ capital on our consolidated balance sheets. Throughout this section, when we refer to “our” consolidated financial statements, we are referring to the consolidated results for us, our wholly-owned subsidiaries and the consolidated results of ARP, APL and our Development Subsidiary, adjusted for non-controlling interests in ARP, APL and our Development Subsidiary. All significant intercompany transactions and balances have been eliminated in the consolidation of our financial statements. Certain amounts in the prior year’s consolidated financial statements have been reclassified to conform to the current year presentation.
SUBSEQUENT EVENTS
Eagle Ford Shale Asset Acquisition. On November 5, 2014, ARP and the Development Subsidiary completed an acquisition of oil and natural gas liquid interests in the Eagle Ford Shale in Atascosa County, Texas (the “Eagle Ford Acquisition”). Approximately $199.0 million was paid in cash by ARP and the Development Subsidiary at closing, and approximately $140.0 million will be paid over the four quarters following closing. ARP will pay approximately $24.0 million of the deferred portion of the purchase price in three quarterly installments beginning March 31, 2015. The Development Subsidiary will pay approximately $116.0 million of the deferred portion purchase price in four quarterly installments following closing. ARP may pay up to $20.0 million of its deferred portion of the purchase price by issuing ARP’s Class D cumulative redeemable perpetual preferred units at a price of $25.00 per unit.
In connection with the closing of the Eagle Ford Acquisition, the borrowing base under ARP’s revolving credit facility was increased to $900.0 million.
Merger with Targa Resources Corp. On October 13, 2014, we entered into a definitive merger agreement with Targa Resources Corp. (“TRC”; NYSE: TRGP) (the “Merger Agreement”), pursuant to which TRC agreed to acquire us through the merger of a newly formed, wholly-owned subsidiary of TRC with and into us (the “Merger”). Upon completion of the Merger, holders of our common units will have the right to receive, for each of our common units, (i) 0.1809 TRC shares and, (ii) $9.12 in cash.
Concurrently with the execution of the Merger Agreement, APL entered into a definitive merger agreement (the “APL Merger Agreement”) with us, TRC, Targa Resources Partners LP (“TRP”; NYSE: NGLS), pursuant to which TRP agreed to acquire APL through the merger of a newly formed, wholly-owned subsidiary of TRP with and into us (the “APL Merger”). Upon completion of the APL Merger, holders of APL’s common units will have the right to receive (i) 0.5846 TRP common units and (ii) $1.26 in cash for each APL common unit.
Concurrent with the execution of the Merger Agreement and the APL Merger Agreement, we agreed to (i) transfer our assets and liabilities, other than those related to APL, to Atlas Energy Group, which is currently our wholly-owned subsidiary and (ii) immediately prior to the Merger, effect a pro rata distribution to our unitholders of common units of Atlas Energy Group representing a 100% interest in Atlas Energy Group (the “Spin-Off”). Atlas Energy Group’s assets, assuming the Spin-Off had been completed as of September 30, 2014, consist of:
· | 100% of the general partner Class A units, all of the incentive distribution rights, as well as an approximate 27.7% limited partner interest (20,962,485 common and 3,749,986 preferred limited partner units) in ARP; |
· | 80% of the general partner Class A units, all of the incentive distribution rights, as well as a 3.1% limited partner interest, in the Development Subsidiary; |
· | 15.9% of the general partner interest and a 12% limited partner interest in Lightfoot, which has a 40% limited partner interest in ARCX; and, |
· | our direct natural gas development and production assets in the Arkoma Basin, which we acquired in July 2013. |
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The closing of the Merger is subject to approval by holders of a majority of our common units, approval by a majority of the holders of TRC common stock voting at a special meeting held to approve the issuance of TRC shares in the Merger and other closing conditions, including the closing of the APL Merger and the Spin-Off. Completion of each of the APL Merger and the Spin-Off are also conditioned on the parties standing ready to complete the Merger.
Following the announcement on October 13, 2014 of the Merger, we, our general partner, TRC, Trident GP Merger Sub LLC and the members of our general partner’s board of directors have been named as defendants in two putative unitholder class action lawsuits challenging the Merger. In addition, we, APL, Atlas Pipeline Partners GP LLC (“APL GP”), TRC, TRP, Targa Resources GP LLC, Trident MLP Merger Sub LLC and the members of the managing board of APL GP have been named as defendants in three putative unitholder class action lawsuits challenging the APL Merger.
The lawsuits filed generally allege that the individual defendants breached their fiduciary duties and/or contractual obligations by, among other things, failing to obtain sufficient value for our unitholders in the Merger. The plaintiffs seek, among other things, injunctive relief, unspecified compensatory and/or rescissory damages, attorney’s fees, other expenses and costs. At this time, we cannot reasonably estimate the range of possible loss as a result of the lawsuit. See “Part II. Other Information ‒ Item 1. Legal Proceedings” for more information regarding the class action lawsuit filed against us and our general partner.
Distribution. On July 24,October 29, 2014, we declared a cash distribution of $0.49$0.52 per unit on ourits outstanding common limited partner units, representing the cash distribution for the quarter ended JuneSeptember 30, 2014. The $25.4$27.0 million distribution will be paid on August 19,November 20, 2014 to unitholders of record at the close of business on August 6,November 10, 2014.
Atlas Resource
Distribution. On July 24,October 29, 2014, ARP declared a cashmonthly distribution of $0.1966 per common unit for the month of June 30September 2014. The $18.9 million distribution, including $1.4 million and $1.5 million to the general partner and preferred limited partners, respectively, will be paid on AugustNovember 14, 2014 to holders of record as of August 6,November 10, 2014.
Issuance of Preferred Units. In connection with the Eagle Ford Acquisition, on October 2, 2014, ARP issued 3,200,000 8.625% ARP Class D cumulative redeemable perpetual preferred units at a public offering price of $25.00 per Class D Unit. ARP will pay cumulative distributions in cash on the units on a quarterly basis at a rate of $2.15625 per unit, or 8.625% of the liquidation preference, per year.
9.25% ARP Senior Notes. Also in connection with the Eagle Ford Acquisition, on October 14, 2014, ARP issued an additional $75.0 million of its 9.25% ARP Senior Notes in a private transaction under Rule 144A and Regulation S of the Securities Act of 1933, as amended (the “Securities Act”) at an offering price of 100.5%, yielding net proceeds of approximately $73.6 million. In connection with the issuance, ARP also entered into a registration rights agreement. Under the registration rights agreement, ARP agreed to (a) file an exchange offer registration statement with the SEC to exchange the privately issued notes for registered notes, and (b) cause the exchange offer to be consummated no later than 270 days after the issuance of the 9.25% ARP Senior Notes. Under certain circumstances, in lieu of, or in addition to, a registered exchange offer, ARP agreed to file a shelf registration statement with respect to the issuance. If ARP fails to comply with its obligations to register the notes within the specified time periods, ARP will be subject to additional interest, up to 1% per annum, until such time that the exchange offer is consummated or the shelf registration is declared effective, as applicable.
Atlas Pipeline
Distribution.Distributions. On July 23,October 28, 2014, APL declared a cash distribution of $0.63$0.64 per unit on its outstanding common limited partner units, representing the cash distribution for the quarter ended JuneSeptember 30, 2014. The $58.8$62.2 million distribution, including $7.1$8.1 million to us as general partner, will be paid on AugustNovember 14, 2014 to unitholders of record at the close of business on August 7,November 10, 2014. Based on this declaration, APL will also issue approximately 305,000 additionaldetermined that distributions for the Class D convertible preferred units (“Class D Preferred Units”) would be paid in-kind for the quarter ended September 30, 2014. Accordingly, on November 14, 2014, APL will distribute approximately 321,000 additional Class D Preferred Units to the holders of the Class D Preferred Units as a preferred unit distribution in kind for the quarter ended JuneSeptember 30, 2014.
On JulyOctober 15, 2015,2014, APL paid a cash distribution of $0.67604$0.515625 per unit, or approximately $3.4$2.6 million, on its Class E cumulative redeemable perpetual preferred units (“Class E Preferred Units,Units”), representing the cash distribution for the period March 17,July 15, 2014 to Julythrough October 14, 2014.2014 (see “Issuance of Units”).
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RECENT DEVELOPMENTS
Atlas Resource
Equity Distribution Program. On August 29, 2014, ARP entered into an equity distribution agreement with Deutsche Bank Securities Inc., as representative of the several banks named therein (the “Agents”). Pursuant to the equity distribution agreement, ARP may sell from time to time through the Agents common units representing limited partner interests of ARP having an aggregate offering price of up to $100.0 million. Sales of common units, if any, may be made in negotiated transactions or transactions that are deemed to be “at-the-market” offerings as defined in Rule 415 of the Securities Act, including sales made directly on the New York Stock Exchange, the existing trading market for the common units, or sales made to or through a market maker other than on an exchange or through an electronic communications network. ARP will pay each of the Agents a commission, which in each case shall not be more than 2.0% of the gross sales price of common units sold through such Agent. Under the terms of the equity distribution agreement, ARP may also sell common units from time to time to any Agent as principal for its own account at a price to be agreed upon at the time of sale. Any sale of common units to an Agent as principal would be pursuant to the terms of a separate terms agreement between ARP and such Agent (see “Issuances of Units”). As of September 30, 2014, no units have been sold under this program.
Rangely Acquisition. On June 30, 2014, ARP completed an acquisition of a 25% non-operated net working interest in oil and natural gas liquids producing assets in the Rangely field in northwest Colorado for approximately $420.0$407.8 million in cash, net of purchase price adjustments (the “Rangely Acquisition”). The purchase price was funded through borrowings under ARP’s revolving credit facility, the issuance of an additional $100.0 million of its 7.75% senior notes due 2021 (“7.75 ARP Senior Notes”) (see “Senior Notes”) and the issuance of 15,525,000 of ARP’s common limited partner units (see “Issuance of Units”). The Rangely Acquisition had an effective date of April 1, 2014. Our consolidated financial statements reflect the operating results of the acquired business commencing June 30, 2014 with the transaction closing.2014.
GeoMet Acquisition. On May 12, 2014, ARP completed the acquisition of assets from GeoMet, Inc. (“GeoMet”) (OTCQB: GMET) for approximately $107.0$99.3 million in cash with an effective date of January 1, 2014. The assets include coal-bed methane producing natural gas assets in West Virginia and Virginia.
Issuance of Common Units. In May 2014, in connection with the closing of the Rangely Acquisition, ARP issued 15,525,000 of its common limited partner units (including 2,025,000 units pursuant to an over-allotment option) in a public offering at a price of $19.90 per unit, yielding net proceeds of approximately $297.5 million. The units were registered under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to a shelf registration statement on Form S-3, which was automatically effective on the filing date of February 3, 2014.
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In March 2014, ARP issued 6,325,000 of its common limited partner units (including 825,000 units pursuant to an over-allotment option) in a public offering at a price of $21.18 per unit, yielding net proceeds of approximately $129.1 million. The units were registered under the Securities Act, pursuant to a shelf registration statement on Form S-3, which was automatically effective on the filing date of February 3, 2014.
Cash Distribution Practice. On January 29, 2014, ARP’s board of directors approved the modification of its cash distribution payment practice to a monthly cash distribution program beginning for the month of January 2014, whereby thea monthly cash distribution will be paid within 45 days from the month end.
Atlas Pipeline
Cryogenic Processing Plant. On September 15, 2014, APL placed in service a new 200 MMCFD cryogenic processing plant, known as the Edward plant, in its WestTX system in the Permian Basin of West Texas, increasing the WestTX system capacity to 655 MMCFD. On June 25, 2014, APL placed in service a new 200 MMCFD cryogenic processing plant, known as the Silver Oak II plant, in its SouthTX system in the EaglefordEagle Ford Shale play of South Texas, increasing the SouthTX system capacity to 400 MMCFD. On May 1, 2014, APL placed in service a new 120 MMCFD cryogenic processing plant, known as the Stonewall plant, in its SouthOK system in the Arkoma Basin of Oklahoma, increasing the SouthOK system capacity to 500 MMCFD.
Amendment to Credit Agreement. On August 28, 2014, APL entered into a Second Amended and Restated Credit Agreement (the “Revised APL Credit Agreement”) which, among other changes:
· | extended the maturity date to August 28, 2019; |
· | increased the revolving credit commitment from $600 million to $800 million and the incremental revolving |
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credit amount from $200 million to $250 million; |
· | reduced by 0.25% the applicable margin used to determine interest rates for LIBOR Rate Loans, as defined in the Revised APL Credit Agreement, and for Base Rate Loans, as defined in the Revised APL Credit Agreement, depending on the Consolidated Funded Debt Ratio, as defined in the Revised APL Credit Agreement; |
· | allows APL to request incremental term loans, provided the sum of any revolving credit commitments and incremental term loans may not exceed $1.05 billion; and |
· | changed the per annum interest rate on borrowings to (i) the higher of (a) the prime rate, (b) the federal funds rate plus 0.50% and (c) three-month LIBOR plus 1.0%, or (ii) the LIBOR rate for the applicable period (each plus the applicable margin). Previously, part (c) was stated as: to one-month LIBOR plus 1.0%. |
On March 11, 2014, APL entered into an amendment to its credit agreement governing its revolving credit facility which, among other changes:
· | adjusted the duration of, and maximum ratios allowed during, the Acquisition Period, as defined in APL’s credit agreement, for the Consolidated Funded Debt Ratio, as defined in APL’s credit agreement; and |
· | permitted the payment of cash distributions, if any, on the 8.25% APL Class E cumulative redeemable perpetual preferred units (“Class E Preferred Units”) so long as APL has a pro forma Minimum Liquidity, as defined in APL’s credit agreement, of greater than or equal to $50 million. |
Sale of WTLPG. On May 14, 2014, APL completed the sale of its 20% interest in West Texas LPG Pipeline Limited Partnership (“WTLPG”) to a subsidiary of Martin Midstream Partners L.P. (NYSE: MMLP). APL received $132.7 million in proceeds, which were used to pay down its revolving credit facility. As a result of the sale, APL recognized a $48.5$0.6 million loss and $47.8 million gain on asset sales and disposal on our consolidated statements of operations for the three and sixnine months ended JuneSeptember 30, 2014.2014, respectively.
Equity Distribution Agreement. On May 12, 2014, APL entered into an equity distribution agreement with Citigroup Global Markets Inc., Wells Fargo Securities, LLC and MLV & Co. LLC, through which APL may offer and sell from time to time common units having an aggregate value up to $250.0 million. Sales are at market prices prevailing at the time of the sale.
Issuance of Preferred Units. On March 17, 2014, APL issued 5,060,000 of its Class E cumulative redeemable perpetual preferred units (“Class E Preferred Units”)Units to the public at an offering price of $25.00 per Class E Preferred Unit. APL received $122.3 million in net proceeds. The proceeds were used to pay down APL’s revolving credit facility (see “Issuance of Units”).
Amendment to Credit Facility. On March 11, 2014, APL entered into an amendment to its credit agreement governing its revolving credit facility which, among other changes:
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CONTRACTUAL REVENUE ARRANGEMENTS
Natural Gas and Oil Production
Natural Gas. We and ARP market the majority of our natural gas production to gas marketers directly or to third party plant operators who process and market our and ARP’s gas. The sales price of natural gas produced is a function of the market in the area and typically tied to a regional index. The production area and pricing indices for the majority of our and ARP’s production areas are as follows:
· | Appalachian Basin - Dominion South Point, Tennessee Gas Pipeline, Transco Leidy |
· | Mississippi Lime - Southern Star; |
· | Barnett Shale and Marble Falls- primarily Waha; |
· | Raton – ANR, Panhandle, and NGPL; |
· | Black Warrior Basin – Southern Natural; |
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· | Arkoma – Enable Gas; and |
· | Other regions - primarily the Texas Gas Zone SL spot market (New Albany Shale) and the Cheyenne Hub spot market (Niobrara). |
We and ARP attempt to sell the majority of natural gas produced at monthly, fixed index prices and a smaller portion at index daily prices.
ARP holds firm transportation obligations on Colorado Interstate Gas for the benefit of production from the Raton Basin in the New Mexico/Colorado Area. The total of firm transportation held is approximately 82,500 dth/d at a weighted average rate of $0.2575/MMBtu under contracts expiring in 2014 and 2016.
Crude Oil. Crude oil produced from our and ARP’s wells flows directly into leasehold storage tanks where it is picked up by an oil company or a common carrier acting for an oil company. The crude oil is typically sold at the prevailing spot market price for each region, less appropriate trucking charges. The oil and natural gas liquids production of ARP’s Rangely assets flows into a common carrier pipeline and is sold at prevailing market prices, less applicable transportation and oil quality differentials. We and ARP do not have delivery commitments for fixed and determinable quantities of crude oil in any future periods under existing contracts or agreements.
Natural Gas Liquids. NGLs are extracted from the natural gas stream by processing and fractionation plants enabling the remaining “dry” gas to meet pipeline specifications for transport or sale to end users or marketers operating on the receiving pipeline. The resulting plant residue natural gas is sold as indicated above and our and ARP’s NGLs are generally priced and sold using the Mont Belvieu (TX) or Conway (KS) regional processing indices. The cost to process and fractionate the NGLs from the gas stream is typically either a volumetric fee for the gas and liquids processed or a percentage retention by the processing and fractionation facility. We and ARP do not have delivery commitments for fixed and determinable quantities of NGLs in any future periods under existing contracts or agreements.
Atlas Resources’ Drilling Partnerships
ARP generally funds a portion of its drilling activities through sponsorship of tax-advantaged Drilling Partnerships. In addition to providing capital for its drilling activities, ARP’s Drilling Partnerships are a source of fee-based revenues, which are not directly dependent on commodity prices. As managing general partner of the Drilling Partnerships, ARP receives the following fees:
· | Well construction and completion. For each well that is drilled by a Drilling Partnership, ARP receives a 15% mark-up on those costs incurred to drill and complete the well; |
· | Administration and oversight. For each well drilled by a Drilling Partnership, ARP receives a fixed fee between $100,000 and |
· | Well services. Each Drilling Partnership pays ARP a monthly per well operating fee, currently $1,000 to $2,000, for the life of the well. Because ARP coinvests in the Drilling Partnerships, the net fee that it receives is reduced by its proportionate interest in the wells; and |
· | Gathering. Each royalty owner, Drilling Partnership and certain other working interest owners pay ARP a gathering fee, which in general is equivalent to the fees ARP remits. In Appalachia, a majority of ARP’s Drilling Partnership wells are subject to a gathering agreement, whereby ARP remits a gathering fee of 16%. However, based on the respective Drilling Partnership agreements, ARP charges its Drilling Partnership wells a 13% gathering fee. As a result, some of ARP’s gathering expenses within its partnership management segment, specifically those in the Appalachian Basin, will generally exceed the revenues collected from in Drilling Partnerships by approximately 3%. |
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Gathering and Processing
APL’s principal revenue is generated from the gathering, processing and treating of natural gas and the sale of natural gas, NGLs and condensate, the transportation of NGLs and the leasing of gas treating facilities.condensate. Variables that affect its revenue are:
— | the volumes of natural gas APL gathers, processes and treats, which in turn, depend upon the number of wells connected to its gathering systems, the amount of natural gas they produce, and the demand for natural gas, NGLs and condensate; |
· | the price of the natural gas APL gathers, processes and treats, and the NGLs and condensate it recovers and sells, which is a function of the relevant supply and demand in the mid-continent and northeastern areas of the United States; |
· | the NGL and Btu content of the gas that is gathered and processed; |
· | the contract terms with each producer; and |
· | the efficiency of APL’s gathering systems and processing and treating plants. |
GENERAL TRENDS AND OUTLOOK
We expect our and our subsidiaries’ businesses to be affected by the following key trends. Our expectations are based on assumptions made by us and our subsidiaries and information currently available to us. To the extent our underlying assumptions about or interpretations of available information prove to be incorrect, our and our subsidiaries’ actual results may vary materially from our expected results.
Natural Gas and Oil Production
The areas in which we and ARP operate are experiencing a significant increase in natural gas, oil and NGL production related to new and increased drilling for deeper natural gas formations and the implementation of new exploration and production techniques, including the continued development of advanced horizontal and multiple fracturing techniques. While we and ARP anticipate continued high levels of exploration and production activities over the long-term in the areas in which we operate, fluctuations in energy prices can greatly affect production rates and investments in the development of new natural gas, oil and NGL reserves.
Our and ARP’s future gas and oil reserves, production, cash flow, the ability to make payments on debt and the ability to make distributions to unitholders, including ARP’s ability to make distributions to us, depend on our and ARP’s success in producing current reserves efficiently, developing existing acreage and acquiring additional proved reserves economically. We and ARP face the challenge of natural production declines and volatile natural gas, oil and NGL prices. As initial reservoir pressures are depleted, natural gas production from particular wells decrease. We and ARP attempt to overcome this natural decline by drilling to find additional reserves and acquiring more reserves than produced.
Gathering and Processing
The midstream natural gas industry links the exploration and production of natural gas and the delivery of its components to end-use markets and provides natural gas gathering, compression, dehydration, treating, conditioning, processing, fractionation and transportation services. This industry segment is generally characterized by regional competition based on the proximity of gathering systems and processing plants to natural gas producing wells.
APL faces competition in obtaining natural gas supplies for its processing and related services operations. Competition for natural gas supplies is based primarily on the location of gas gathering facilities and gas processing plants, operating efficiency and reliability, and the ability to obtain a satisfactory price for products recovered. Competition for customers is based primarily on price, delivery capabilities, quality of assets, flexibility, service history and maintenance of high-quality customer relationships. Many of APL’s competitors operate as master limited partnerships and enjoy a cost of capital comparable to, and in some cases lower than, its own. Other competitors, such as major oil and gas and pipeline companies, have capital resources and control supplies of natural gas substantially greater than APL’s. Smaller local distributors may enjoy a marketing advantage in their immediate service areas. APL management believes the primary difference between APL and some of its competitors is that APL provides an integrated and responsive package of midstream services, while some of its competitors provide only certain services. APL management believes offering an integrated package of services, while remaining flexible in the types of contractual arrangements that APL offers producers, allows it to compete more effectively for new natural gas supplies in its regions of operations.
As a result of APL’s Percentage of Proceeds (“POP”) and Keep-Whole contracts, its results of operations and financial condition substantially depend upon the price of natural gas, NGL and crude oil. APL management believes future natural gas prices will be influenced by supply deliverability, the severity of winter and summer weather and the level of United States economic growth. Based on historical trends, APL management generally expects NGL prices to follow changes in crude oil prices over the long term, which management believes will in large part be determined by the level of production from major crude oil exporting countries and the demand generated by growth in the world economy. However, energy market uncertainty has negatively impacted North American drilling activity in the past. Lower drilling levels and shut-in wells over a sustained period would have a negative effect on natural gas volumes gathered, processed and treated.
RESULTS OF OPERATIONS
Gas and Oil Production
Production Profile. At JuneSeptember 30, 2014, our consolidated gas and oil production revenues and expenses consistsconsist of our and ARP’s gas and oil production activities. Currently, our gas and oil production entails the production generated by our assets acquired in the Arkoma Acquisition and our wells drilled in the Marble Falls play. ARP has focused its natural gas, crude oil and NGL production operations in various shale plays throughout the United States. ARP previously had certain agreements which restricted its ability to drill additional wells in certain areas of Pennsylvania, New York and West Virginia, including portions of the Marcellus Shale, which expired on February 17, 2014. Through JuneSeptember 30, 2014, we and ARP have established production positions in the following operating areas:
— | our coal-bed methane producing natural gas assets in the Arkoma Basin in eastern Oklahoma, where we established a position following our acquisition of certain assets from EP Energy E&P Company, L.P. in July 2013 (the “Arkoma Acquisition”); |
— | our Development Subsidiary’s Marble Falls play in the Fort Worth Basin in northern Texas, which contains liquids rich gas and oil; |
— | ARP’s Barnett Shale and Marble Falls play, both in the Fort Worth Basin in northern Texas; the Barnett Shale contains mostly dry gas and the Marble Falls contains liquids rich gas and oil; |
— | ARP’s coal-bed methane producing natural gas assets in the Raton Basin in northern New Mexico, the Black Warrior Basin in central Alabama and the County Line area of Wyoming, where ARP established a position following its EP Energy acquisition during July 2013, as well as the Cedar Bluff area of West Virginia and Virginia, where ARP established a position following its GeoMet acquisition; |
— | ARP’s Rangely field in northwest Colorado, a mature tertiary CO2 flood with low-decline oil production, where ARP has a 25% non-operated net working interest position following its acquisition on June 30, 2014 (see “Recent Developments”); |
— | ARP’s Appalachia Basin, including the Marcellus Shale, a rich, organic shale that generally contains dry, pipeline-quality natural gas, and the Utica Shale, which lies several thousand feet below the Marcellus Shale, is much thicker than the Marcellus Shale and trends primarily towards wet natural gas in the central region and dry gas in the eastern region; |
— | ARP’s Mississippi Lime and Hunton plays in northwestern Oklahoma, an oil and NGL-rich area; and |
— | ARP’s other operating areas, including the Chattanooga Shale in northeastern Tennessee, which enables ARP to access other formations in that region such as the Monteagle and Ft. Payne Limestone; the New Albany Shale in southwestern Indiana, a biogenic shale play with a long-lived and shallow decline profile; and the Niobrara Shale in northeastern Colorado, a predominantly biogenic shale play that produces dry gas. |
The following table presents the number of wells we and ARP drilled and the number of wells we and ARP turned in line, both gross and for our and ARP’s interest, during the three and sixnine months ended JuneSeptember 30, 2014 and 2013:
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| Three Months Ended |
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| Six Months Ended |
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| Three Months Ended |
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| Nine Months Ended |
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| 2014 |
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| 2013 |
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| 2014 |
| 2013 |
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| 2014 |
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| 2013 |
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| 2014 |
| 2013 |
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Atlas Energy: |
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Gross wells drilled: |
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| 2 |
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| — |
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| 10 |
| — |
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| 1 |
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| — |
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| 11 |
| — |
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Our share of gross wells drilled(1): |
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| 2 |
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| — |
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| 10 |
| — |
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| 1 |
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| — |
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| 11 |
| — |
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Gross wells turned in line: |
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| 5 |
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| — |
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| 10 |
| — |
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| — |
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| — |
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| 10 |
| — |
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Net wells turned in line(1): |
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| 5 |
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| — |
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| 10 |
| — |
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| — |
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| — |
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| 10 |
| — |
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| Three Months Ended |
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| Six Months Ended |
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| Three Months Ended |
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| Nine Months Ended |
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| 2014 |
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| 2013 |
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| 2014 |
| 2013 |
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| 2014 |
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| 2013 |
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| 2014 |
| 2013 |
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Atlas Resource: |
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ARP gross wells drilled: |
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| 38 |
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| 25 |
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| 68 |
| 44 |
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| 30 |
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| 31 |
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| 98 |
| 75 |
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ARP’s share of gross wells drilled(2): |
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| 24 |
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| 15 |
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| 43 |
| 32 |
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| 9 |
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| 17 |
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| 52 |
| 49 |
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ARP gross wells turned in line: |
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| 29 |
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| 19 |
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| 60 |
| 48 |
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| 30 |
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| 35 |
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| 90 |
| 83 |
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ARP net wells turned in line(2): |
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| 22 |
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| 16 |
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| 41 |
| 41 |
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| 12 |
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| 19 |
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| 53 |
| 59 |
|
(1) | Includes our Development Subsidiary’s percentage interest in the wells in which it has a direct ownership interest. |
(2) | Includes (i) ARP’s percentage interest in the wells in which it has a direct ownership interest and (ii) ARP’s percentage interest in the wells based on its percentage ownership in its Drilling Partnerships. |
7175
Production Volumes. The following table presents total net natural gas, crude oil, and NGL production volumes and production per day for the three and sixnine months ended JuneSeptember 30, 2014 and 2013:
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
| 2013 |
|
| 2014 |
|
| 2013 |
|
| 2014 |
| 2013 |
| ||||||||||
Production:(1)(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Atlas Energy: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Natural gas (MMcf) |
|
| 1,149 |
|
|
| — |
|
| 2,185 |
| — |
|
|
| 1,150 |
|
|
| 759 |
|
| 3,335 |
| 759 |
| ||||||
Oil (000’s Bbls) |
|
| 18 |
|
|
| — |
|
| 23 |
| — |
|
|
| 10 |
|
|
| — |
|
| 33 |
| — |
| ||||||
Natural gas liquids (000’s Bbls) |
|
| 11 |
|
|
| — |
|
|
| 14 |
|
| — |
|
|
| 10 |
|
|
| — |
|
|
| 23 |
|
| — |
| ||
Total (MMcfe) |
|
| 1,323 |
|
|
| — |
|
|
| 2,402 |
|
| — |
|
|
| 1,269 |
|
|
| 759 |
|
|
| 3,671 |
|
| 759 |
| ||
Atlas Resource: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Natural gas (MMcf) |
|
| 20,628 |
|
|
| 9,613 |
|
| 40,130 |
| 19,266 |
|
|
| 21,552 |
|
|
| 17,574 |
|
| 61,682 |
| 36,840 |
| ||||||
Oil (000’s Bbls) |
|
| 190 |
|
|
| 117 |
|
| 331 |
| 216 |
|
|
| 423 |
|
|
| 140 |
|
| 754 |
| 355 |
| ||||||
Natural gas liquids (000’s Bbls) |
|
| 336 |
|
|
| 308 |
|
|
| 644 |
|
| 596 |
|
|
| 372 |
|
|
| 344 |
|
|
| 1,016 |
|
| 939 |
| ||
Total (MMcfe) |
|
| 23,780 |
|
|
| 12,161 |
|
|
| 45,977 |
|
| 24,135 |
|
|
| 26,325 |
|
|
| 20,473 |
|
|
| 72,302 |
|
| 44,607 |
| ||
Total production: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Natural gas (MMcf) |
|
| 21,778 |
|
|
| 9,613 |
|
| 42,315 |
| 19,266 |
|
|
| 22,702 |
|
|
| 18,333 |
|
| 65,017 |
| 37,599 |
| ||||||
Oil (000’s Bbls) |
|
| 208 |
|
|
| 117 |
|
| 353 |
| 216 |
|
|
| 433 |
|
|
| 140 |
|
| 787 |
| 355 |
| ||||||
Natural gas liquids (000’s Bbls) |
|
| 346 |
|
|
| 308 |
|
|
| 657 |
|
| 596 |
|
|
| 382 |
|
|
| 344 |
|
|
| 1,039 |
|
| 939 |
| ||
Total (MMcfe) |
|
| 25,103 |
|
|
| 12,161 |
|
|
| 48,379 |
|
| 24,135 |
|
|
| 27,594 |
|
|
| 21,232 |
|
|
| 75,973 |
|
| 45,366 |
| ||
Production per day:(1)(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Atlas Energy: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Natural gas (Mcfd) |
|
| 12,630 |
|
|
| — |
|
| 12,069 |
| — |
|
|
| 12,503 |
|
|
| 8,250 |
|
| 12,216 |
| 2,780 |
| ||||||
Oil (Bpd) |
|
| 200 |
|
|
| — |
|
| 125 |
| — |
|
|
| 111 |
|
|
| — |
|
| 121 |
| — |
| ||||||
Natural gas liquids (Bpd) |
|
| 118 |
|
|
| — |
|
|
| 75 |
|
| — |
|
|
| 104 |
|
|
| — |
|
|
| 85 |
|
| — |
| ||
Total (Mcfed) |
|
| 14,538 |
|
|
| — |
|
|
| 13,272 |
|
| — |
|
|
| 13,792 |
|
|
| 8,250 |
|
|
| 13,447 |
|
| 2,780 |
| ||
Atlas Resource: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Natural gas (Mcfd) |
|
| 226,684 |
|
|
| 105,638 |
|
| 221,714 |
| 106,442 |
|
|
| 234,263 |
|
|
| 191,020 |
|
| 225,943 |
| 134,945 |
| ||||||
Oil (Bpd) |
|
| 2,084 |
|
|
| 1,281 |
|
| 1,827 |
| 1,191 |
|
|
| 4,598 |
|
|
| 1,517 |
|
| 2,761 |
| 1,301 |
| ||||||
Natural gas liquids (Bpd) |
|
| 3,689 |
|
|
| 3,386 |
|
|
| 3,556 |
|
| 3,292 |
|
|
| 4,048 |
|
|
| 3,734 |
|
|
| 3,722 |
|
| 3,441 |
| ||
Total (Mcfed) |
|
| 261,323 |
|
|
| 133,641 |
|
|
| 254,016 |
|
| 133,341 |
|
|
| 286,143 |
|
|
| 222,529 |
|
|
| 264,843 |
|
| 163,397 |
| ||
Total production per day: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Natural gas (Mcfd) |
|
| 239,314 |
|
|
| 105,638 |
|
| 233,783 |
| 106,442 |
|
|
| 246,766 |
|
|
| 199,270 |
|
| 238,158 |
| 137,725 |
| ||||||
Oil (Bpd) |
|
| 2,284 |
|
|
| 1,281 |
|
| 1,953 |
| 1,191 |
|
|
| 4,710 |
|
|
| 1,517 |
|
| 2,882 |
| 1,301 |
| ||||||
Natural gas liquids (Bpd) |
|
| 3,808 |
|
|
| 3,386 |
|
|
| 3,631 |
|
| 3,292 |
|
|
| 4,152 |
|
|
| 3,734 |
|
|
| 3,807 |
|
| 3,441 |
| ||
Total (Mcfed) |
|
| 275,861 |
|
|
| 133,641 |
|
|
| 267,288 |
|
|
| 133,341 |
|
|
| 299,934 |
|
|
| 230,779 |
|
|
| 278,290 |
|
|
| 166,178 |
|
(1) | Production quantities consist of the sum of (i) the proportionate share of production from wells in which we 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 Drilling Partnerships in which it has an interest, based on ARP’s equity interest in each such Drilling Partnership and based on each Drilling Partnership’s proportionate net revenue interest in these wells. |
(2) | “MMcf” represents million cubic feet; “MMcfe” represent million cubic feet equivalents; “Mcfd” represents thousand cubic feet per day; “Mcfed” represents thousand cubic feet equivalents per day; and “Bbls” and “Bpd” represent barrels and barrels per day. Barrels are converted to Mcfe using the ratio of approximately 6 Mcf to one barrel. |
7276
Production Revenues, Prices and Costs. Production revenues and estimated gas and oil reserves are substantially dependent on prevailing market prices for natural gas, which comprised all of our proved reserves and 83% of ARP’s proved reserves on an energy equivalent basis at December 31, 2013. The following table presents production revenues and average sales prices for our and ARP’s natural gas, oil, and natural gas liquids production for the three and sixnine months ended JuneSeptember 30, 2014 and 2013, along with average production costs, which include lease operating expenses, taxes, and transportation and compression costs, in each of the reported periods:
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
| 2013 |
|
| 2014 |
|
| 2013 |
|
| 2014 |
| 2013 |
| ||||||||||
Production revenues (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Atlas Energy: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Natural gas revenue |
| $ | 4,547 |
|
| $ | — |
|
| $ | 8,670 |
| $ | — |
|
| $ | 4,283 |
|
| $ | 2,700 |
|
| $ | 12,953 |
| $ | 2,700 |
| ||
Oil revenue |
|
| 1,755 |
|
|
| — |
|
|
| 2,130 |
|
| — |
|
|
| 951 |
|
|
| — |
|
|
| 3,081 |
|
| — |
| ||
Natural gas liquids revenue |
|
| 335 |
|
|
| — |
|
|
| 417 |
|
| — |
|
|
| 309 |
|
|
| — |
|
|
| 726 |
|
| — |
| ||
Total revenues |
| $ | 6,637 |
|
| $ | — |
|
| $ | 11,217 |
| $ | — |
|
| $ | 5,543 |
|
| $ | 2,700 |
|
| $ | 16,760 |
| $ | 2,700 |
| ||
Atlas Resource: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas revenue |
| $ | 77,600 |
|
| $ | 28,383 |
|
| $ | 151,790 |
| $ | 57,439 |
|
| $ | 75,246 |
|
| $ | 57,350 |
|
| $ | 227,036 |
| $ | 114,789 |
| ||
Oil revenue |
|
| 17,192 |
|
|
| 10,595 |
|
|
| 29,475 |
|
| 19,401 |
|
|
| 38,151 |
|
|
| 12,993 |
|
|
| 67,626 |
|
| 32,394 |
| ||
Natural gas liquids revenue |
|
| 9,265 |
|
|
| 8,116 |
|
|
| 19,037 |
|
| 16,318 |
|
|
| 11,997 |
|
|
| 9,989 |
|
|
| 31,034 |
|
| 26,307 |
| ||
Total revenues |
| $ | 104,057 |
|
| $ | 47,094 |
|
| $ | 200,302 |
| $ | 93,158 |
|
| $ | 125,394 |
|
| $ | 80,332 |
|
| $ | 325,696 |
| $ | 173,490 |
| ||
Total production revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas revenue |
| $ | 82,147 |
|
| $ | 28,383 |
|
| $ | 160,460 |
| $ | 57,439 |
|
| $ | 79,529 |
|
| $ | 60,050 |
|
| $ | 239,989 |
| $ | 117,489 |
| ||
Oil revenue |
|
| 18,947 |
|
|
| 10,595 |
|
|
| 31,605 |
|
| 19,401 |
|
|
| 39,102 |
|
|
| 12,993 |
|
|
| 70,707 |
|
| 32,394 |
| ||
Natural gas liquids revenue |
|
| 9,600 |
|
|
| 8,116 |
|
|
| 19,454 |
|
| 16,318 |
|
|
| 12,306 |
|
|
| 9,989 |
|
|
| 31,760 |
|
| 26,307 |
| ||
Total revenues |
| $ | 110,694 |
|
| $ | 47,094 |
|
| $ | 211,519 |
| $ | 93,158 |
|
| $ | 130,937 |
|
| $ | 83,032 |
|
| $ | 342,456 |
| $ | 176,190 |
| ||
Average sales price: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Atlas Energy: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Natural gas (per Mcf):(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Total realized price, after hedge |
| $ | 3.96 |
| $ | — |
|
| $ | 3.97 |
| $ | — |
|
| $ | 3.72 |
| $ | 3.56 |
|
| $ | 3.88 |
| $ | 3.56 |
| ||||
Total realized price, before hedge |
| $ | 4.25 |
| $ | — |
|
| $ | 4.36 |
| $ | — |
|
| $ | 3.65 |
| $ | 3.35 |
|
| $ | 4.12 |
| $ | 3.35 |
| ||||
Oil (per Bbl):(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Total realized price, after hedge |
| $ | 96.53 |
| $ | — |
|
| $ | 93.77 |
| $ | — |
|
| $ | 92.96 |
| $ | — |
|
| $ | 93.52 |
| $ | — |
| ||||
Total realized price, before hedge |
| $ | 96.53 |
| $ | — |
|
| $ | 93.77 |
| $ | — |
|
| $ | 92.96 |
| $ | — |
|
| $ | 93.52 |
| $ | — |
| ||||
Natural gas liquids (per Bbl):(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Total realized price, after hedge |
| $ | 31.13 |
| $ | — |
|
| $ | 30.75 |
| $ | — |
|
| $ | 32.44 |
| $ | — |
|
| $ | 31.45 |
| $ | — |
| ||||
Total realized price, before hedge |
| $ | 31.13 |
| $ | — |
|
| $ | 30.75 |
| $ | — |
|
| $ | 32.44 |
| $ | — |
|
| $ | 31.45 |
| $ | — |
| ||||
Atlas Resource: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Natural gas (per Mcf):(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Total realized price, after hedge(2) |
| $ | 3.78 |
| $ | 3.31 |
|
| $ | 3.92 |
| $ | 3.32 |
|
| $ | 3.55 |
| $ | 3.46 |
|
| $ | 3.79 |
| $ | 3.39 |
| ||||
Total realized price, before hedge(2) |
| $ | 4.13 |
| $ | 3.47 |
|
| $ | 4.40 |
| $ | 3.18 |
|
| $ | 3.47 |
| $ | 3.20 |
|
| $ | 4.07 |
| $ | 3.19 |
| ||||
Oil (per Bbl):(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total realized price, after hedge |
| $ | 90.66 |
|
| $ | 90.90 |
|
| $ | 89.12 |
| $ | 89.97 |
|
| $ | 90.18 |
|
| $ | 93.07 |
|
| $ | 89.71 |
| $ | 91.19 |
| ||
Total realized price, before hedge |
| $ | 98.95 |
| $ | 92.33 |
|
| $ | 96.49 |
| $ | 91.63 |
|
| $ | 91.08 |
| $ | 104.03 |
|
| $ | 93.45 |
| $ | 96.50 |
| ||||
Natural gas liquids (per Bbl):(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total realized price, after hedge |
| $ | 27.60 |
|
| $ | 26.34 |
|
| $ | 29.57 |
| $ | 27.39 |
|
| $ | 32.21 |
|
| $ | 29.08 |
|
| $ | 30.54 |
| $ | 28.01 |
| ||
Total realized price, before hedge |
| $ | 28.93 |
|
| $ | 26.54 |
|
| $ | 32.15 |
| $ | 27.60 |
|
| $ | 32.18 |
|
| $ | 30.10 |
|
| $ | 32.16 |
| $ | 28.52 |
| ||
Total: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Natural gas (per Mcf):(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total realized price, after hedge(2) |
| $ | 3.79 |
|
| $ | 3.31 |
|
| $ | 3.92 |
| $ | 3.32 |
|
| $ | 3.56 |
|
| $ | 3.46 |
|
| $ | 3.79 |
| $ | 3.39 |
| ||
Total realized price, before hedge(2) |
| $ | 4.13 |
|
| $ | 3.47 |
|
| $ | 4.39 |
| $ | 3.18 |
|
| $ | 3.48 |
|
| $ | 3.21 |
|
| $ | 4.08 |
| $ | 3.20 |
| ||
Oil (per Bbl):(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total realized price, after hedge |
| $ | 91.18 |
|
| $ | 90.90 |
|
| $ | 89.42 |
| $ | 89.97 |
|
| $ | 90.25 |
|
| $ | 93.07 |
|
| $ | 89.87 |
| $ | 91.19 |
| ||
Total realized price, before hedge |
| $ | 98.74 |
|
| $ | 92.33 |
|
| $ | 96.32 |
| $ | 91.63 |
|
| $ | 91.12 |
|
| $ | 104.03 |
|
| $ | 93.46 |
| $ | 96.50 |
| ||
Natural gas liquids (per Bbl):(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Total realized price, after hedge |
| $ | 27.71 |
|
| $ | 26.34 |
|
| $ | 29.60 |
| $ | 27.39 |
|
| $ | 32.22 |
|
| $ | 29.08 |
|
| $ | 30.56 |
| $ | 28.01 |
|
7377
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
| 2013 |
|
| 2014 |
|
| 2013 |
|
| 2014 |
| 2013 |
| ||||||||||
Total realized price, before hedge |
| $ | 29.00 |
|
| $ | 26.54 |
|
| $ | 32.12 |
| $ | 27.60 |
|
| $ | 32.19 |
|
| $ | 30.10 |
|
| $ | 32.14 |
| $ | 28.52 |
| ||
Production costs (per Mcfe):(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Atlas Energy: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses |
| $ | 1.12 |
|
| $ | — |
|
| $ | 1.08 |
| $ | — |
|
| $ | 1.11 |
|
| $ | 0.77 |
|
| $ | 1.09 |
| $ | 0.77 |
| ||
Production taxes |
|
| 0.32 |
|
|
| — |
|
|
| 0.30 |
|
| — |
|
|
| 0.27 |
|
|
| 0.21 |
|
|
| 0.29 |
|
| 0.21 |
| ||
Transportation and compression |
|
| 0.13 |
|
|
| — |
|
|
| 0.30 |
|
| — |
|
|
| 0.26 |
|
|
| 0.56 |
|
|
| 0.28 |
|
| 0.56 |
| ||
|
| $ | 1.56 |
|
| $ | — |
|
| $ | 1.68 |
| $ | — |
|
| $ | 1.64 |
|
| $ | 1.54 |
|
| $ | 1.67 |
| $ | 1.54 |
| ||
Atlas Resource: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses(3) |
| $ | 1.24 |
|
| $ | 1.21 |
|
| $ | 1.21 |
| $ | 1.09 |
|
| $ | 1.39 |
|
| $ | 1.15 |
|
| $ | 1.27 |
| $ | 1.12 |
| ||
Production taxes |
|
| 0.24 |
|
|
| 0.23 |
|
|
| 0.26 |
|
| 0.23 |
|
|
| 0.30 |
|
|
| 0.11 |
|
|
| 0.27 |
|
| 0.17 |
| ||
Transportation and compression |
|
| 0.27 |
|
|
| 0.24 |
|
|
| 0.28 |
|
| 0.20 |
|
|
| 0.22 |
|
|
| 0.24 |
|
|
| 0.26 |
|
| 0.22 |
| ||
|
| $ | 1.76 |
|
| $ | 1.68 |
|
| $ | 1.74 |
| $ | 1.51 |
|
| $ | 1.91 |
|
| $ | 1.50 |
|
| $ | 1.80 |
| $ | 1.51 |
| ||
Total production costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses(3) |
| $ | 1.23 |
|
| $ | 1.21 |
|
| $ | 1.20 |
| $ | 1.09 |
|
| $ | 1.37 |
|
| $ | 1.13 |
|
| $ | 1.26 |
| $ | 1.11 |
| ||
Production taxes |
|
| 0.25 |
|
|
| 0.23 |
|
|
| 0.26 |
|
| 0.23 |
|
|
| 0.30 |
|
|
| 0.11 |
|
|
| 0.27 |
|
| 0.17 |
| ||
Transportation and compression |
|
| 0.26 |
|
|
| 0.24 |
|
|
| 0.28 |
|
| 0.20 |
|
|
| 0.23 |
|
|
| 0.25 |
|
|
| 0.26 |
|
| 0.22 |
| ||
|
| $ | 1.74 |
|
| $ | 1.68 |
|
| $ | 1.74 |
| $ | 1.51 |
|
| $ | 1.90 |
|
| $ | 1.50 |
|
| $ | 1.80 |
| $ | 1.51 |
|
(1) | “Mcf” represents thousand cubic feet; “Mcfe” represents thousand cubic feet equivalents; and “Bbl” represents barrels. |
(2) | Excludes the impact of subordination of ARP’s production revenue to investor partners within its Drilling Partnerships for the three and |
(3) | Excludes the effects of ARP’s proportionate share of lease operating expenses associated with subordination of its production revenue to investor partners within its Drilling Partnerships for the three and |
74
Three Months Ended JuneSeptember 30, 2014 Compared with the Three Months Ended JuneSeptember 30, 2013. Total production revenues were $110.7$130.9 million for the three months ended JuneSeptember 30, 2014, an increase of $63.6$47.9 million from $47.1$83.0 million for the three months ended JuneSeptember 30, 2013. This increase principally consisted of a $48.8$22.9 million increase attributable to our and ARP’s newly acquired coal-bed methane assets, a $5.7$22.2 million increase attributable to ARP’s Appalachianewly acquired Rangely assets, due primarily to the Marcellus and Utica Shale wells drilled, and a $4.8 million increase attributable to the ARP’s Mississippi Lime/Hunton, and a $4.7$3.3 million increase attributable to our and ARP’s Barnett Shale/Marble Falls operations.operations, and a $1.3 million increase attributable to our and ARP’s Mississippi Lime/Hunton assets, partially offset by a $1.8 million decrease attributable to ARP’s Appalachia and other operating areas assets.
Total production costs were $43.8$52.0 million, an increase of $24.8$21.4 million from $19.0$30.6 million for the three months ended JuneSeptember 30, 2013. This increase primarily consisted of a $20.6an $11.1 million increase attributable to production costs associated with our and ARP’s newly acquired coal-bed methane assets, a $1.3$7.1 million increase attributable to ARP’s newly acquired Rangely assets, a $2.5 million increase primarily attributable to new well connections, consisting of $1.9 million attributable to our and ARP’s Barnett Shale/Marble Falls assets, and $0.6 million attributable to our and ARP’s Mississippi Lime/Hunton assets, and a $0.8 million decrease in the credit received against ARP’s lease operating expenses pertaining to the subordination of its revenue within its Drilling Partnerships, a $1.2 million increase attributable to our and ARP’s new well connections, consisting of $0.9 million attributable our and ARP’s Mississippi Lime/Hunton assets, and a $0.8 million increase attributable to Appalachia operations.Partnerships. Total production costs per Mcfe increased to $1.74$1.90 per Mcfe for the three months ended JuneSeptember 30, 2014 from $1.68$1.50 per Mcfe for the comparable prior year period primarily as a result of the increases in our oil and natural gas liquids production. In general, production costs per Mcfe related to oil and natural gas liquids production are higher than production costs per Mcfe for dry natural gas production. However, due to the relative higher price per barrel of oil and natural gas liquids, gross margin per Mcfe is also higher than dry natural gas production.
SixNine Months Ended JuneSeptember 30, 2014 Compared with the SixNine Months Ended JuneSeptember 30, 2013. Total production revenues were $211.5$342.5 million for the sixnine months ended JuneSeptember 30, 2014, an increase of $118.3$166.3 million from $93.2$176.2 million for the sixnine months ended JuneSeptember 30, 2013. This increase principally consisted of a $95.4$118.3 million increase attributable to our and ARP’s newly acquired coal-bed methane assets, and a $23.5$22.2 million increase primarily attributable to new wells drilled an $8.8ARP’s newly acquired Rangely assets, a $10.1 million increase attributable to our and ARP’s Mississippi Lime/Hunton assets, an $8.8 million increase attributable to ARP’s Appalachia assets, and a $5.9$9.2 million increase attributable to our and ARP’s Barnett Shale/Marble Falls operations.operations, and a $7.6 million increase attributable to ARP’s Appalachia assets due primarily to the Marcellus and Utica Shale wells drilled.
Total production costs were $82.6$134.6 million, an increase of $48.3$69.8 million from $34.3$64.8 million for the sixnine months ended JuneSeptember 30, 2013. This increase primarily consisted of a $38.6$49.8 million increase attributable to production costs associated with our and ARP’s newly acquired coal-bed methane assets, and a $10.3an $11.4 million increase primarily attributable to new well connections, consisting of $4.9$6.8 million attributable to our and ARP’sAGP’s Barnett Shale/Marble Falls assets, $2.2$1.9 million attributable to ARP’s Appalachia operations, and $2.0$2.7 million attributable to our and ARP’s Mississippi Lime/Hunton assets.assets, a $7.1 million increase attributable to ARP’s newly acquired Rangely assets, and a $1.5 million decrease in the credit received against ARP’s lease operating expenses pertaining to the subordination of its revenue within its Drilling Partnerships. Total production costs per Mcfe increased to $1.74$1.80 per Mcfe for the sixnine months ended JuneSeptember 30, 2014 from $1.51 per Mcfe for the comparable prior year period primarily as a result of the increases in our oil and natural gas liquids production.
Well Construction and Completion
Drilling Program Results. At JuneSeptember 30, 2014, our consolidated well construction and completion revenues and expenses consist solely of ARP’s activities. The number of wells ARP drills will vary within ARP’s partnership management segment depending on the amount of capital it raises through its Drilling Partnerships, the cost of each well, the depth or type of each well, the estimated recoverable reserves attributable to each well and accessibility to the well site. The following table presents the amounts of Drilling Partnership investor capital raised and deployed (in thousands), as well as the number of gross and net development wells ARP drilled for its Drilling Partnerships during the three and sixnine months ended JuneSeptember 30, 2014 and 2013. There were no exploratory wells drilled during the three and sixnine months ended JuneSeptember 30, 2014 and 2013:
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
| 2013 |
|
| 2014 |
|
| 2013 |
|
| 2014 |
| 2013 |
| ||||||||||
Drilling partnership investor capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Raised |
| $ | 1,555 |
|
| $ | 3,000 |
|
| $ | 1,555 |
| $ | 3,000 |
|
| $ | 18,055 |
|
| $ | 10,964 |
|
| $ | 19,610 |
| $ | 13,964 |
| ||
Deployed |
| $ | 16,336 |
|
| $ | 24,851 |
|
| $ | 65,713 |
| $ | 81,329 |
|
| $ | 61,204 |
|
| $ | 10,964 |
|
| $ | 126,917 |
| $ | 92,293 |
| ||
Gross partnership wells drilled: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utica |
|
| 4 |
|
|
| 3 |
|
|
| 4 |
|
|
| 3 |
| ||||||||||||||||
Marble Falls |
|
| 9 |
|
|
| 7 |
|
|
| 32 |
|
| 7 |
|
|
| 20 |
|
|
| 22 |
|
|
| 52 |
|
| 29 |
| ||
Mississippi Lime |
|
| 8 |
|
|
| 8 |
|
|
| 11 |
|
| 9 |
|
|
| 6 |
|
|
| 6 |
|
|
| 17 |
|
| 15 |
| ||
Total |
|
| 17 |
|
|
| 15 |
|
|
| 43 |
|
| 16 |
|
|
| 30 |
|
|
| 31 |
|
|
| 73 |
|
| 47 |
| ||
Net partnership wells drilled: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utica |
|
| 4 |
|
|
| 3 |
|
|
| 4 |
|
|
| 3 |
| ||||||||||||||||
Marble Falls |
|
| 9 |
|
|
| 3 |
|
|
| 20 |
|
| 3 |
|
|
| 20 |
|
|
| 11 |
|
|
| 40 |
|
| 14 |
| ||
Mississippi Lime |
|
| 8 |
|
|
| 8 |
|
|
| 11 |
|
| 9 |
|
|
| 6 |
|
|
| 6 |
|
|
| 17 |
|
| 15 |
| ||
Total |
|
| 17 |
|
|
| 11 |
|
|
| 31 |
|
| 12 |
|
|
| 30 |
|
|
| 20 |
|
|
| 61 |
|
| 32 |
|
7579
Well construction and completion revenues and costs and expenses incurred represent the billings and costs associated with the completion of wells for Drilling Partnerships which ARP sponsors. The following table sets forth information relating to these revenues and the related costs and number of net wells associated with these revenues during the periods indicated (dollars in thousands):
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
| 2013 |
|
| 2014 |
|
| 2013 |
|
| 2014 |
| 2013 |
| ||||||||||
Average construction and completion: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Revenue per well |
| $ | 2,364 |
|
| $ | 2,681 |
|
| $ | 2,934 |
| $ | 4,595 |
|
| $ | 2,121 |
|
| $ | 1,786 |
|
| $ | 2,476 |
| $ | 3,871 |
| ||
Cost per well |
|
| 2,056 |
|
|
| 2,331 |
|
|
| 2,551 |
|
| 3,996 |
|
|
| 1,845 |
|
|
| 1,553 |
|
|
| 2,153 |
|
| 3,366 |
| ||
Gross profit per well |
| $ | 308 |
|
| $ | 350 |
|
| $ | 383 |
| $ | 599 |
|
| $ | 276 |
|
| $ | 233 |
|
| $ | 323 |
| $ | 505 |
| ||
Gross profit margin |
| $ | 2,130 |
|
| $ | 3,242 |
|
| $ | 8,571 |
| $ | 10,608 |
|
| $ | 7,983 |
|
| $ | 1,430 |
|
| $ | 16,554 |
| $ | 12,038 |
| ||
Partnership net wells associated with revenue recognized(1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Appalachia: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Marcellus Shale |
|
| — |
|
|
| 1 |
|
|
| — |
|
| 6 |
|
|
| — |
|
|
| — |
|
|
| — |
|
| 6 |
| ||
Utica |
|
| — |
|
|
| 2 |
|
|
| 1 |
|
| 2 |
|
|
| 2 |
|
|
| — |
|
|
| 3 |
|
| 2 |
| ||
Marble Falls |
|
| 4 |
|
|
| 2 |
|
|
| 15 |
|
| 2 |
|
|
| 22 |
|
|
| 5 |
|
|
| 37 |
|
| 7 |
| ||
Mississippi Lime |
|
| 3 |
|
|
| 5 |
|
|
| 6 |
|
| 8 |
|
|
| 5 |
|
|
| 1 |
|
|
| 11 |
|
| 9 |
| ||
Total |
|
| 7 |
|
|
| 10 |
|
|
| 22 |
|
| 18 |
|
|
| 29 |
|
|
| 6 |
|
|
| 51 |
|
| 24 |
|
(1) | Consists of ARP’s Drilling Partnership net wells for which well construction and completion revenue was recognized on a percentage of completion basis. |
Three Months Ended JuneSeptember 30, 2014 Compared with the Three Months Ended JuneSeptember 30, 2013. Well construction and completion segment margin was $2.1$8.0 million for the three months ended JuneSeptember 30, 2014, a decreasean increase of $1.1$6.6 million from $3.2$1.4 million for the three months ended JuneSeptember 30, 2013. This decreaseincrease consisted of a $0.8$6.3 million decreaseincrease related to a lowergreater number of wells recognized for revenue within ARP’s Drilling Partnerships, and a $0.3 million decreaseincrease associated with ARP’s lowerhigher gross profit margin per well. Average revenue and cost per well decreasedincreased between periods due primarily to capital deployed for lowerhigher cost Marble FallsUtica Shale wells within ARP’s Drilling Partnerships during the three months ended JuneSeptember 30, 2014 compared with capital deployed for higherlower cost Marcellus ShaleMississippi Lime wells during the prior year period. As ARP’s drilling contracts with the Drilling Partnerships are on a “cost-plus” basis, an increase or decrease in ARP’s average cost per well also results in a proportionate increase or decrease in its average revenue per well, which directly affects the number of wells ARP drills.
SixNine Months Ended JuneSeptember 30, 2014 Compared with the SixNine Months Ended JuneSeptember 30, 2013. Well construction and completion segment margin was $8.6$16.6 million for the sixnine months ended JuneSeptember 30, 2014, a decreasean increase of $2.0$4.6 million from $10.6$12.0 million for the sixnine months ended JuneSeptember 30, 2013. This decreaseincrease consisted of an $8.9 million increase related to a $3.8greater number of wells recognized for revenue within ARP’s Drilling Partnerships, partially offset by a $4.3 million decrease associated with ARP’s lower gross profit margin per well, partially offset by a $1.8 million increase related to a higher number of wells recognized for revenue within ARP’s Drilling Partnerships.well. Average revenue and cost per well decreased between periods due primarily to capital deployed for lower cost Marble Falls wells within ARP’s Drilling Partnerships during the sixnine months ended JuneSeptember 30, 2014 compared with capital deployed for higher cost Marcellus Shale wells during the prior year period.
Administration and Oversight
At JuneSeptember 30, 2014, our consolidated administration and oversight revenues and expenses consist solely of ARP’s activities. Administration and oversight fee revenues represent supervision and administrative fees earned for the drilling and subsequent ongoing management of wells for ARP’s Drilling Partnerships. Typically, ARP receives a lower administration and oversight fee related to shallow, vertical wells it drills within the Drilling Partnerships, such as those in the Marble Falls and Niobrara Shale, as compared to deep, horizontal wells, such as those drilled in the Marcellus and Utica Shales.
Three Months Ended JuneSeptember 30, 2014 Compared with the Three Months Ended JuneSeptember 30, 2013. Administration and oversight fee revenues were $4.2$6.2 million for the three months ended JuneSeptember 30, 2014, an increase of $0.8$1.8 million from $3.4$4.4 million for the three months ended JuneSeptember 30, 2013. This increase was due to increases in the number of wells spud within the current year period compared with the prior year period, particularly within the Marble Falls Shale.play.
7680
SixNine Months Ended JuneSeptember 30, 2014 Compared with the SixNine Months Ended JuneSeptember 30, 2013. Administration and oversight fee revenues were $5.9$12.1 million for the sixnine months ended JuneSeptember 30, 2014, an increase of $1.4$3.2 million from $4.5$8.9 million for the sixnine months ended JuneSeptember 30, 2013. This increase was due to increases in the number of wells spud within the current year period compared with the prior year period, particularly within the Marble Falls and Mississippi Lime Shales.plays.
Well Services
At JuneSeptember 30, 2014, our consolidated well services revenues and expenses consist solely of ARP’s activities. Well services revenue and expenses represent the monthly operating fees ARP charges and the work ARP’s service company performs, including work performed for ARP’s Drilling Partnership wells during the drilling and completing phase as well as ongoing maintenance of these wells and other wells for which ARP serves as operator.
Three Months Ended JuneSeptember 30, 2014 Compared with the Three Months Ended JuneSeptember 30, 2013. Well services revenues were $6.4$6.6 million for the three months ended JuneSeptember 30, 2014, an increase of $1.5$1.6 million from $4.9$5.0 million for the three months ended JuneSeptember 30, 2013. Well services expenses were $2.6 million for the three months ended September 30, 2014, an increase of $0.2 million from $2.4 million for the three months ended June 30, 2014, an increase of $0.1 million from $2.3 million for the three months ended JuneSeptember 30, 2013. The increase in well services revenue is primarily related to the increased utilization of ARP’s salt water gathering and disposal systems within the Mississippi Lime and Marble Falls plays by ARP’s Drilling Partnership wells. The increase in well services expense is primarily related to higher labor costs.
SixNine Months Ended JuneSeptember 30, 2014 Compared with the SixNine Months Ended JuneSeptember 30, 2013. Well services revenues were $11.8$18.4 million for the sixnine months ended JuneSeptember 30, 2014, an increase of $2.1$3.7 million from $9.7$14.7 million for the sixnine months ended JuneSeptember 30, 2013. Well services expenses were $4.9$7.5 million for the sixnine months ended JuneSeptember 30, 2014, an increase of $0.3$0.5 million from $4.6$7.0 million for the sixnine months ended JuneSeptember 30, 2013. The increase in well services revenue is primarily related to the increased utilization of ARP’s salt water gathering and disposal systems within the Mississippi Lime and Marble Falls plays by ARP’s Drilling Partnership wells. The increase in well services expense is primarily related to higher labor costs.
Gathering and Processing
Gathering and processing margin includes the gathering and processing fees and related expenses for APL and ARP. The following table presents ARP’s and APL’s gathering and processing revenues and expenses for each of the respective periods:
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
| 2013 |
|
| 2014 |
|
| 2013 |
|
| 2014 |
| 2013 |
| ||||||||||
Gathering and Processing: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Atlas Resource: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Revenue |
| $ | 3,758 |
|
| $ | 4,463 |
|
| $ | 8,226 |
| $ | 8,048 |
|
| $ | 3,061 |
|
| $ | 3,591 |
|
| $ | 11,287 |
|
| $ | 11,639 |
| |
Expense(1) |
|
| (4,182 | ) |
|
| (4,882 | ) |
|
| (8,540 | ) |
|
| (9,224 | ) |
|
| (3,149 | ) |
|
| (4,321 | ) |
|
| (11,689 | ) |
|
| (13,545 | ) |
Gross Margin |
| $ | (424) |
|
| $ | (419 | ) |
| $ | (314) |
| $ | (1,176 | ) |
| $ | (88) |
|
| $ | (730 | ) |
| $ | (402) |
|
| $ | (1,906 | ) | |
Atlas Pipeline: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue(1) |
| $ | 717,501 |
|
| $ | 531,459 |
|
| $ | 1,424,013 |
| $ | 947,961 |
|
| $ | 723,401 |
|
| $ | 579,370 |
|
| $ | 2,147,414 |
|
| $ | 1,527,331 |
| |
Expense |
|
| (607,868 | ) |
|
| (448,986 | ) |
|
| (1,208,464 | ) |
|
| (796,385 | ) |
|
| (616,285 | ) |
|
| (488,370 | ) |
|
| (1,824,749 | ) |
|
| (1,284,755 | ) |
Gross Margin |
| $ | 109,633 |
|
| $ | 82,473 |
|
| $ | 215,549 |
| $ | 151,576 |
|
| $ | 107,116 |
|
| $ | 91,000 |
|
| $ | 322,665 |
|
| $ | 242,576 |
| |
Total: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
| $ | 721,259 |
|
| $ | 535,922 |
|
| $ | 1,432,239 |
| $ | 956,009 |
|
| $ | 726,462 |
|
| $ | 582,961 |
|
| $ | 2,158,701 |
|
| $ | 1,538,970 |
| |
Expense |
|
| (612,050 | ) |
|
| (453,868 | ) |
|
| (1,217,004 | ) |
|
| (805,609 | ) |
|
| (619,434 | ) |
|
| (492,691 | ) |
|
| (1,836,438 | ) |
|
| (1,298,300 | ) |
Gross Margin |
| $ | 109,209 |
|
| $ | 82,054 |
|
| $ | 215,235 |
| $ | 150,400 |
|
| $ | 107,028 |
|
| $ | 90,270 |
|
| $ | 322,263 |
|
| $ | 240,670 |
|
(1) | Revenues and expenses of ARP and APL are shown after intercompany eliminations of $0.1 million |
81
Generally, ARP charges a gathering fee to its Drilling Partnership wells equivalent to the fees it remits. In Appalachia, a majority of ARP’s Drilling Partnership wells are subject to a gathering agreement, whereby ARP remits a gathering fee of 16%. However, based on the respective Drilling Partnership agreements, ARP charges its Drilling Partnership wells a 13% gathering fee. As a result, some of ARP’s gathering expenses within its partnership management segment, specifically those in the Appalachian Basin, will generally exceed the revenues collected from the Drilling Partnerships by approximately 3%.
77
Three Months Ended JuneSeptember 30, 2014 Compared with the Three Months Ended JuneSeptember 30, 2013. ARP’s net gathering and processing expense for the three months ended JuneSeptember 30, 2014 and 2013 was consistent at $0.4 million.$0.1 million, a favorable movement of $0.6 million compared with net processing expense of $0.7 million for the three months ended September 30, 2013. This favorable movement was principally due to an increase in gathering fees from ARP’s new Marcellus Shale Drilling Partnership wells in Northeastern Pennsylvania, which are utilizing ARP’s gathering pipeline.
SixNine Months Ended JuneSeptember 30, 2014 Compared with the SixNine Months Ended JuneSeptember 30, 2013. ARP’s net gathering and processing expense for the sixnine months ended JuneSeptember 30, 2014 was $0.3$0.4 million, a favorable movement of $0.8$1.5 million compared with net processing expense of $1.2$1.9 million for the sixnine months ended JuneSeptember 30, 2013. This favorable movement was principally due to an increase in gathering fees from ARP’s new Marcellus Shale Drilling Partnership wells in Northeastern Pennsylvania, which are utilizing ARP’s gathering pipeline.
APL’s Gathering and Processing Profile. At JuneSeptember 30, 2014, APL’s gathering and processing volumes are generated through its operations in the following areas:
— | APL’s SouthOk system, which includes its Velma and Arkoma systems. APL’s Velma system includes two processing plants and approximately 1,200 miles of active gathering pipelines. APL’s Arkoma system, which was acquired from Cardinal Midstream, LLC (“Cardinal”) in December 2012 (the “Cardinal Acquisition”), includes three processing plants and approximately 100 miles of active gathering pipelines. |
— | APL’s SouthTX system, which includes the assets acquired from TEAK Midstream, LLC in May 2013 (the “TEAK Acquisition”). APL’s SouthTX system includes one processing plant and interests in approximately 670 miles of active gathering pipelines. |
— | APL’s WestOK system, which includes four processing plants and approximately 5,700 miles of active gathering pipelines. |
— | APL’s WestTX system, which includes four processing plants and approximately 3,600 miles of active gathering pipelines. |
The following table presents APL’s production volumes per day and average sales prices for its natural gas, oil, and natural gas liquids production for the three and sixnine months ended JuneSeptember 30, 2014 and 2013:
|
| Three Months Ended |
|
|
| Six Months Ended |
|
| Three Months Ended |
|
|
| Nine Months Ended |
| ||||||||||||||||||
|
| 2014 |
|
| 2013 |
|
|
| 2014 |
|
| 2013 |
|
| 2014 |
|
| 2013 |
|
|
| 2014 |
|
| 2013 |
| ||||||
Pricing:(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Average sales price: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Natural gas sales ($/Mcf) |
| $ | 4.19 |
|
| $ | 3.82 |
|
| $ | 4.45 |
| $ | 3.59 |
|
| $ | 3.75 |
|
| $ | 3.34 |
|
| $ | 4.19 |
| $ | 3.46 |
| ||
NGL sales ($/gallon) |
| $ | 0.98 |
|
| $ | 0.84 |
|
| $ | 1.02 |
| $ | 0.84 |
|
| $ | 0.98 |
|
| $ | 0.92 |
|
| $ | 1.01 |
| $ | 0.87 |
| ||
Condensate sales ($/barrel) |
| $ | 95.78 |
|
| $ | 89.15 |
|
| $ | 92.74 |
| $ | 88.09 |
|
| $ | 90.09 |
|
| $ | 101.48 |
|
| $ | 91.78 |
| $ | 92.82 |
| ||
Volumes:(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Gathered gas volume (Mcfd) |
|
| 1,604,351 |
|
|
| 1,432,818 |
|
|
| 1,545,769 |
|
| 1,371,537 |
|
|
| 1,671,376 |
|
|
| 1,476,019 |
|
|
| 1,572,193 |
|
| 1,404,051 |
| ||
Processed gas volume (Mcfd) |
|
| 1,502,985 |
|
|
| 1,253,158 |
|
|
| 1,445,844 |
|
| 1,203,953 |
|
|
| 1,562,116 |
|
|
| 1,372,388 |
|
|
| 1,474,664 |
|
| 1,296,546 |
| ||
Residue gas volume (Mcfd) |
|
| 1,289,080 |
|
|
| 1,090,703 |
|
|
| 1,227,679 |
|
| 1,052,202 |
|
|
| 1,330,054 |
|
|
| 1,160,608 |
|
|
| 1,262,179 |
|
| 1,091,665 |
| ||
NGL volume (Bpd) |
|
| 122,992 |
|
|
| 118,966 |
|
|
| 118,230 |
|
| 108,731 |
|
|
| 132,943 |
|
|
| 120,126 |
|
|
| 123,188 |
|
| 113,292 |
| ||
Condensate volume (Bpd) |
|
| 5,395 |
|
|
| 4,543 |
|
|
| 4,852 |
|
| 4,090 |
|
|
| 5,744 |
|
|
| 4,906 |
|
|
| 5,155 |
|
| 4,371 |
|
(1) | “Mcf” represents thousand cubic feet; “Mcfd” represents thousand cubic feet per day; “Bpd” represents barrels per day. |
82
Three Months Ended JuneSeptember 30, 2014 Compared with the Three Months Ended JuneSeptember 30, 2013. Gathering and processing margin for APL was $109.6$107.1 million for the three months ended JuneSeptember 30, 2014 compared with $82.4$91.0 million for the three months ended JuneSeptember 30, 2013. This increase was due principally to higher production volumes during the period.
Nine Months Ended September 30, 2014 Compared with the Nine Months Ended September 30, 2013. Gathering and processing margin for APL was $322.7 million for the nine months ended September 30, 2014 compared with $242.6 million for the nine months ended September 30, 2013. This increase was due principally to an increase in commodity prices between the periods and higher production volumes, including the new volumes from the WestTX and SouthTX systemsystems due to the TEAK Acquisition.
Six Months Ended June 30, 2014 Compared with the Six Months Ended June 30, 2013. Gathering and processing margin for APL was $215.5 million for the six months ended June 30, 2014 compared with $151.6 million for the six months ended June 30, 2013. This increase was due principally to an increase in commodity prices between the periods and higher production volumes, including the new volumes from the SouthTX system due to the TEAK Acquisition.
78
Loss on Mark-to-Market Derivatives
LossGain (loss) on mark-to-market derivatives principally reflects the change in fair value of APL’s commodity derivatives that will settle in future periods, as APL does not apply hedge accounting to its derivatives. While APL utilizes either quoted market prices or observable market data to calculate the fair value of its natural gas and crude oil derivatives, valuations of APL’s NGL fixed price swaps are based on a forward price curve modeled on a regression analysis of quoted price curves for NGLs for similar geographic locations, and valuations of its NGL options are based on forward price curves developed by third-party financial institutions. The use of unobservable market data for APL’s fixed price swaps and NGL options has no impact on the settlement of these derivatives. However, a change in management’s estimated fair values for these derivatives could impact our net income, though it would have no impact on our liquidity or capital resources. We recognized lossesa gain of $1.2$9.4 million and gainsa loss of $17.8$21.5 million for the three months ended JuneSeptember 30, 2014 and 2013, respectively, and lossesa gain of $2.3$7.1 million and $15.4a loss of $6.1 million for the sixnine months ended JuneSeptember 30, 2014 and 2013, respectively, for APL’s mark-to-market gain (loss) on derivatives valued upon unobservable inputs.
Three Months Ended JuneSeptember 30, 2014 Compared with the Three Months Ended JuneSeptember 30, 2013. LossGain on mark-to-market derivatives was $6.4$24.2 million for the three months ended JuneSeptember 30, 2014 as compared with a gainloss of $27.1$24.5 million for the three months ended JuneSeptember 30, 2013. The unfavorablefavorable movement of $33.5$48.7 million was primarily due to an unfavorable movement of $24.0a $50.3 million mark-to-market gain compared to the prior year period primarily due to a $26.7 million mark-to-market gain in the current year period as a result of a decrease in forward prices during the current year period combined with an increase in forward prices during the prior year period resulting in $23.6 million mark-to-market gainslosses on derivatives, andpartially offset by a $9.5$1.7 million unfavorable movement in cash settlements in the current year period compared to the prior year period mainly due to favorable propane swap settlements in the prior year period.
SixNine Months Ended JuneSeptember 30, 2014 Compared with the SixNine Months Ended JuneSeptember 30, 2013. LossGain on mark-to-market derivatives was $15.0$9.1 million for the sixnine months ended JuneSeptember 30, 2014 as compared with a gainloss of $15.0$9.5 million for the sixnine months ended JuneSeptember 30, 2013. The unfavorablefavorable movement of $30.0$18.6 million was primarily due to an unfavorable movement of $9.1a $41.2 million asfavorable mark-to-market gain compared to the prior year period primarily due to a result of$28.1 million gain in the current year period due to a decrease in forward prices and an increase in forward prices during the prior year period resulting in $13.1 million mark-to-market gainslosses on derivatives, andpartially offset by a $20.9$22.6 million unfavorable movement in cash settlements in the current year period compared to the prior year period.period mainly due to losses on NGL swap settlements.
Other, Net
Three Months Ended JuneSeptember 30, 2014 Compared with the Three Months Ended JuneSeptember 30, 2013. Other, net for the three months ended JuneSeptember 30, 2014 was expenseincome of $0.6$8.4 million as compared with revenueexpense of $0.6$11.9 million for the comparable prior year period. This decreaseincrease was primarily due to APL’s $4.8the $13.2 million loss in the current year period from the SouthTX equity method investments and a $1.0 million favorable settlement of APL’s business interruption insurance in the prior year period, partially offset by a $1.3 million increase in premium amortization associated with ARP’sswaption derivative contracts for production volumes related to wells ARP acquired from CarrizoEP Energy in the prior year period.period, the $2.0 million of our swaption amortization related to production volumes on wells acquired from EP Energy in the prior year period, and an arrangement with respect to APL’s SouthTX system in the current year period, partially offset by a $1.8 million decrease in income from the equity investment in Lightfoot and $1.4 million income in the prior year period related to WTLPG, which was sold on May 14, 2014 (see Recent Developments) and an increase in APL’s losses from its T2 Eagle Ford joint venture. APL’s T2 LaSalle and T2 Eagle Ford joint ventures are structured to earn revenues equal to their operating costs, exclusive of depreciation expense. APL’s loss on equity method investments primarily represents the depreciation expense of these assets.
SixNine Months Ended JuneSeptember 30, 2014 Compared with the SixNine Months Ended JuneSeptember 30, 2013. Other, net for the sixnine months ended JuneSeptember 30, 2014 was approximately $17,000income of $8.5 million as compared with $6.2expense of $5.7 million for the comparable prior year period.This decreaseincrease was primarily due to the $14.5 million of premium amortization associated with
83
swaption derivative contracts for production volumes related to wells ARP acquired from EP Energy in the prior year period, the $2.3 million of our swaption amortization related to production volumes on wells acquired from EP Energy in the prior year period, and an arrangement with respect to APL’s $8.4SouthTX system in the current year period, partially offset by a $7.6 million increase in APL’s loss from equity investments due to a loss in the current year period from the SouthTX equity method investments, a $2.5 million decrease in revenues from WTLPG due its sale in May 2014 (see Recent Developments), a $1.6 million decrease in income from the equity investment in Lightfoot and a $1.0 million favorable settlement of APL’s business interruption insurance in the prior year period, partially offset by a $1.3 million increase in premium amortization associated with ARP’s derivative contracts for production volumes related to wells acquired from Carrizo in the prior year period. APL’s T2 LaSalle and T2 Eagle Ford joint ventures are structured to earn revenues equal to their operating costs, exclusive of depreciation expense. APL’s loss on equity method investments primarily represents the depreciation expense of these assets.
79
OTHER COSTS AND EXPENSES
General and Administrative Expenses
The following table presents our general and administrative expenses and those attributable to ARP and APL for each of the respective periods (in thousands):
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
| 2013 |
|
| 2014 |
|
| 2013 |
|
| 2014 |
| 2013 |
| ||||||||||
General and Administrative expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Atlas Energy |
| $ | 16,245 |
|
| $ | 8,741 |
|
| $ | 30,290 |
| $ | 17,504 |
|
| $ | 14,964 |
|
| $ | 11,359 |
|
| $ | 45,254 |
| $ | 28,863 |
| ||
Atlas Resource |
|
| 21,315 |
|
|
| 14,217 |
|
|
| 37,770 |
|
| 31,784 |
|
|
| 13,124 |
|
|
| 31,983 |
|
|
| 50,894 |
|
| 63,767 |
| ||
Atlas Pipeline |
|
| 18,416 |
|
|
| 30,916 |
|
|
| 36,356 |
|
| 45,244 |
|
|
| 18,074 |
|
|
| 18,572 |
|
|
| 54,430 |
|
| 63,816 |
| ||
Total |
| $ | 55,976 |
|
| $ | 53,874 |
|
| $ | 104,416 |
| $ | 94,532 |
|
| $ | 46,162 |
|
| $ | 61,914 |
|
| $ | 150,578 |
| $ | 156,446 |
|
Three Months Ended JuneSeptember 30, 2014 Compared with the Three Months Ended JuneSeptember 30, 2013. Total general and administrative expenses increaseddecreased to $56.0$46.2 million for the three months ended JuneSeptember 30, 2014 compared with $53.9$61.9 million for the three months ended JuneSeptember 30, 2013. Our $16.2$15.0 million of general and administrative expenses for the three months ended JuneSeptember 30, 2014 represented a $7.5$3.6 million increase from the comparable prior year period, primarily due to a $4.1 million increase related to our Development Subsidiary and a $4.0$7.3 million increase in non-cash compensation expense, partially offset by a $0.6$1.7 million decrease related to our Development Subsidiary and a $2.0 million decrease in salaries, wages and other corporate activities. ARP’s $21.3$13.1 million of general and administrative expenses for the three months ended JuneSeptember 30, 2014 represents a $7.1$18.9 million decrease from the comparable prior year period primarily due to a $17.8 million decrease in non-recurring transaction costs related to ARP’s acquisitions in the current and prior year periods, a $1.0 million decrease in ARP’s non-cash compensation expense, and a $0.1 million decrease in salaries and wages and other corporate activities. APL’s $18.1 million of general and administrative expense for the three months ended September 30, 2014 represents a decrease of $0.5 million from the comparable prior year period due primarily to a decrease in outside services and other corporate activities.
Nine Months Ended September 30, 2014 Compared with the Nine Months Ended September 30, 2013. Total general and administrative expenses decreased to $150.6 million for the nine months ended September 30, 2014 compared with $156.4 million for the nine months ended September 30, 2013. Our $45.3 million of general and administrative expenses for the nine months ended September 30, 2014 represented a $16.4 million increase from the comparable prior year period, primarily due to a $6.0$13.0 million increase in non-cash compensation expense and a $4.9 million increase related to our Development Subsidiary, partially offset by $1.5 million decrease in salaries, wages and other corporate activities. ARP’s $50.9 million of general and administrative expenses for the nine months ended September 30, 2014 represents a $12.9 million decrease from the comparable prior year period primarily due to a $13.1 million decrease in non-recurring transaction costs related to ARP’s acquisitions in the current and prior year periods and a $2.1$3.9 million decrease in ARP’s non-cash compensation expense, partially offset by a $4.1 million increase in salaries and wages and other corporate activities due to the growth of its business, partially offset by a $1.0 million decrease in ARP’s non-cash compensation expense.business. APL’s $18.4$54.4 million of general and administrative expense for the threenine months ended JuneSeptember 30, 2014 represents a decrease of $12.5$9.4 million from the comparable prior year period, which was principally due to a $18.4$19.7 million decrease in non-recurring transaction costs, partially offset by a $3.0$5.4 million increase in non-cash compensation expense, and a $2.2$4.2 million increase in salaries and wages partially due to the increase in the number of employees as a result of the TEAK Acquisition, and continued growth in other operating areas of its business.
Six Months Ended June 30, 2014 Compared with the Six Months Ended June 30, 2013. Total general and administrative expenses increased to $104.4 million for the six months ended June 30, 2014 compared with $94.5 million for the six months ended June 30, 2013. Our $30.3 million of general and administrative expenses for the six months ended June 30, 2014 represented a $12.8 million increase from the comparable prior year period, primarily due to a $7.1 million increase related to our Development Subsidiary, a $5.6 million increase in non-cash compensation expense and $0.1 million increase in salaries, wages and other corporate activities. ARP’s $37.8 million of general and administrative expenses for the six months ended June 30, 2014 represents a $6.0 million increase from the comparable prior year period primarily due to a $4.7 million increase in non-recurring transaction costs related to ARP’s acquisitions in the current and prior year periods and a $4.2 million increase in salaries and wages and other corporate activities due to the growth of its business, partially offset by a $2.9 million decrease in ARP’s non-cash compensation expense. APL’s $36.4 million of general and administrative expense for the six months ended June 30, 2014 represents a decrease of $8.8 million from the comparable prior year period, which was principally due to a $18.9 million decrease in non-recurring transaction costs, partially offset by $5.1 million increase in non-cash compensation expense, and a $4.3 million increase in salaries and wages partially due to the growth of its business.
8084
Depreciation, Depletion and Amortization
The following table presents depreciation, depletion and amortization expense that was attributable to us, ARP and APL for each of the respective periods (in thousands):
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
| 2013 |
|
| 2014 |
|
| 2013 |
|
| 2014 |
| 2013 |
| ||||||||||
Depreciation, depletion and amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Atlas Energy |
| $ | 2,405 |
|
| $ | — |
|
| $ | 4,207 |
| $ | — |
|
| $ | 2,216 |
|
| $ | 1,331 |
|
| $ | 6,423 |
| $ | 1,331 |
| ||
Atlas Resource |
|
| 58,001 |
|
|
| 22,197 |
|
|
| 108,238 |
|
| 43,405 |
|
|
| 62,852 |
|
|
| 41,656 |
|
|
| 171,090 |
|
| 85,061 |
| ||
Atlas Pipeline |
|
| 49,220 |
|
|
| 46,383 |
|
|
| 98,459 |
|
| 76,841 |
|
|
| 50,173 |
|
|
| 51,080 |
|
|
| 148,632 |
|
| 127,921 |
| ||
Total |
| $ | 109,626 |
|
| $ | 68,580 |
|
| $ | 210,904 |
| $ | 120,246 |
|
| $ | 115,241 |
|
| $ | 94,067 |
|
| $ | 326,145 |
| $ | 214,313 |
|
Total depreciation, depletion and amortization increased to $109.6$115.2 million for the three months ended JuneSeptember 30, 2014 compared with $68.6$94.1 million for the comparable prior year period, which was primarily due to a $37.3$21.1 million increase in our and ARP’s depletion expense resulting from the acquisitions consummated during 2014 and 2013, partially offset by a $0.9 million decrease in APL’s depreciation expenses.
Total depreciation, depletion and amortization increased to $326.1 million for the nine months ended September 30, 2014 compared with $214.3 million for the comparable prior year period, which was primarily due to an $88.5 million increase in our and ARP’s depletion expense resulting from the acquisitions consummated during 2014 and 2013 and a $2.8$20.7 million increase in APL’s depreciation expenses, primarily due to additional expense related to assets acquired in the TEAK Acquisition and APL’s expansion capital expenditures incurred subsequent to June 30, 2013.
Total depreciation, depletion and amortization increased to $210.9 million for the six months ended June 30, 2014 compared with $120.2 million for the comparable prior year period, which was primarily due to a $67.5 million increase in our and ARP’s depletion expense resulting from the acquisitions consummated during 2013 and a $21.6 million increase in APL’s depreciation expenses, primarily due to additional expense related to assets acquired in the TEAK Acquisition and APL’s expansion capital expenditures incurred subsequent to JuneSeptember 30, 2013.
The following table presents our and ARP’s depletion expense per Mcfe for our and ARP’s operations for the respective periods (in thousands, except per Mcfe data):
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
| 2013 |
|
| 2014 |
|
| 2013 |
|
| 2014 |
| 2013 |
| ||||||||||
Depletion expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total |
| $ | 57,920 |
|
| $ | 20,580 |
|
| $ | 107,735 |
|
| $ | 40,276 |
|
| $ | 62,301 |
|
| $ | 41,224 |
|
| $ | 170,036 |
|
| $ | 81,500 |
|
Depletion expense as a percentage of gas and oil production revenue |
|
| 52 | % |
|
| 44 | % |
|
| 51 | % |
| 43 | % |
|
| 48 | % |
|
| 50 | % |
|
| 50 | % |
| 46 | % | ||
Depletion per Mcfe |
| $ | 2.31 |
|
| $ | 1.69 |
|
| $ | 2.29 |
|
| $ | 1.67 |
|
| $ | 2.26 |
|
| $ | 1.94 |
|
| $ | 2.24 |
|
| $ | 1.80 |
|
Three Months Ended JuneSeptember 30, 2014 Compared with the Three Months Ended JuneSeptember 30, 2013. Depletion expense varies from period to period and is directly affected by changes in gas and oil reserve quantities, production levels, product prices and changes in the depletable cost basis of gas and oil properties. Depletion expense was $57.9$62.3 million for the three months ended JuneSeptember 30, 2014, an increase of $37.3$21.1 million compared with $20.6$41.2 million for the three months ended JuneSeptember 30, 2013. Depletion expense of gas and oil properties as a percentage of gas and oil revenues increaseddecreased to 52%48% for three months ended JuneSeptember 30, 2014, compared with 44%50% for the three months ended JuneSeptember 30, 2013, which was primarily due to an increase in ARP’s depletion expense associated with the increased oil andrealized natural gas liquids volumes resulting from ARP’s drilling program.prices between the periods. Depletion expense per Mcfe was $2.31$2.26 for three months ended JuneSeptember 30, 2014, an increase of $0.62$0.32 per Mcfe from $1.69$1.94 per Mcfe for the three months ended JuneSeptember 30, 2013, which was primarily due to an increase in ARP’s depletion expense associated with its oil and natural gas liquids wells drilled between the periods. Depletion expense increased between periods principally due to an overall increase in production volume.
8185
SixNine Months Ended JuneSeptember 30, 2014 Compared with the SixNine Months Ended JuneSeptember 30, 2013. Depletion expense was $107.7$170.0 million for the sixnine months ended JuneSeptember 30, 2014, an increase of $67.5$88.5 million compared with $40.3$81.5 million for the sixnine months ended JuneSeptember 30, 2013. Depletion expense of gas and oil properties as a percentage of gas and oil revenues increased to 51%50% for sixnine months ended JuneSeptember 30, 2014, compared with 43%46% for the sixnine months ended JuneSeptember 30, 2013, which was primarily due to an increase in ARP’s depletion expense associated with the increased oil and natural gas liquids volumes resulting from ARP’s drilling program. Depletion expense per Mcfe was $2.29$2.24 for sixnine months ended JuneSeptember 30, 2014, an increase of $0.62$0.44 per Mcfe from $1.67$1.80 per Mcfe for the sixnine months ended JuneSeptember 30, 2013, which was primarily due to an increase in ARP’s depletion expense associated with its oil and natural gas liquids wells drilled between the periods. Depletion expense increased between periods principally due to an overall increase in production volume.
LossGain (Loss) on Asset Sales and Disposals
Three Months Ended JuneSeptember 30, 2014 Compared with the Three Months Ended JuneSeptember 30, 2013. Loss on asset sales and disposal for the three months ended September 30, 2014 was $0.7 million, which was comparable with the prior year period.
Nine Months Ended September 30, 2014 Compared with the Nine Months Ended September 30, 2013. During the threenine months ended JuneSeptember 30, 2014 and 2013, gains on asset sales and disposal were $48.5$46.1 million and losses on asset sales and disposal were $3.6 million, respectively. ARP recognized losses on asset sales and disposal of $1.7 million and $2.0 million during the nine months ended September 30, 2014 and 2013, respectively. The $1.7 million loss on asset sales and disposal were $2.2for the nine months ended September 30, 2014 was primarily related to the sale of producing wells in ARP’s Niobrara Shale in connection with the settlement of a third party farmout agreement. The $2.0 million respectively. ARP recognized gains on asset sales and disposals of $9,000 and loss on asset sales and disposal of $0.7 million duringfor the threenine months ended June 30, 2014 and 2013, respectively. The $0.7 million loss on asset disposal for the three months ended JuneSeptember 30, 2013 primarily pertained to ARP management’s decision not to drill wells on leasehold property that expired in the New Albany and Chattanooga Shales during the period. APL recognized gains of $48.5$47.8 million and losses of $1.5 million on asset sales and disposalsdisposal for the threenine months ended JuneSeptember 30, 2014 and 2013, respectively. The $47.8 million gain on asset sales and disposal for the nine months ended September 30, 2014 primarily related to its sale of WTLPG.
Six Months Ended June 30, 2014 Compared with the Six Months Ended June 30, 2013. During the six months ended June 30, 2014 and 2013, gains on asset sales and disposal were $46.9 million and losses on asset sales and disposal were $2.9 million, respectively. ARP recognized losses on asset sales and disposals of $1.6 million and $1.4 million during the six months ended June 30, 2014 and 2013, respectively. The $1.6WTLPG (see Recent Developments). APL’s $1.5 million loss on asset sales and disposal for the sixnine months ended JuneSeptember 30, 2014 was primarily related to ARP’s sale of producing wells in the Niobrara Shale in connection with the settlement of a third party farm out agreement. APL recognized gains of $48.5 million on asset sales and disposals for the six months ended June 30, 20142013 primarily related to its saledecision to not pursue a project to construct pipelines in an area where acquired rights of WTLPG.way had expired.
Interest Expense
The following table presents our interest expense and that which was attributable to ARP and APL for each of the respective periods:
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
| 2013 |
|
| 2014 |
|
| 2013 |
|
| 2014 |
| 2013 |
| ||||||||||
Interest Expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Atlas Energy |
| $ | 4,497 |
|
| $ | 442 |
|
| $ | 8,960 |
| $ | 677 |
|
| $ | 4,553 |
|
| $ | 3,418 |
|
| $ | 13,513 |
| $ | 4,095 |
| ||
Atlas Resource |
|
| 13,263 |
|
|
| 4,508 |
|
|
| 26,451 |
|
| 11,397 |
|
|
| 16,577 |
|
|
| 10,748 |
|
|
| 43,028 |
|
| 22,145 |
| ||
Atlas Pipeline |
|
| 23,059 |
|
|
| 22,581 |
|
|
| 46,722 |
|
| 41,267 |
|
|
| 22,553 |
|
|
| 24,347 |
|
|
| 69,275 |
|
| 65,614 |
| ||
Total |
| $ | 40,819 |
|
| $ | 27,531 |
|
| $ | 82,133 |
| $ | 53,341 |
|
| $ | 43,683 |
|
| $ | 38,513 |
|
| $ | 125,816 |
| $ | 91,854 |
|
8286
Three Months Ended JuneSeptember 30, 2014 Compared with the Three Months Ended JuneSeptember 30, 2013. Total interest expense increased to $40.8$43.7 million for the three months ended JuneSeptember 30, 2014 as compared with $27.5$38.5 million for the three months ended JuneSeptember 30, 2013. This $13.3$5.2 million increase was due to our $4.0$1.1 million increase an $8.8and a $5.9 million increase related to ARP, andpartially offset by a $0.5$1.8 million increasedecrease related to APL. The $4.0$1.1 million increase in our interest expense consisted of a $4.2$1.3 million increase associated with our term loan facility, partially offset by a $0.2 million decrease associated with our credit facility. The $5.9 million increase in ARP’s interest expense consisted of a $2.5 million increase associated with higher weighted-average outstanding borrowings under its revolving credit facility net of capitalized interest amounts, a $1.9 million increase associated with the July 2013 issuance of its 9.25% ARP Senior Notes, and a $1.9 million increase associated with the June 2014 issuance of an additional $100.0 million of 7.75% ARP Senior Notes, partially offset by a $0.4 million decrease associated with amortization of deferred financing costs. The decrease in amortization associated with deferred financing costs was primarily related to the decrease in the amortization of deferred financing costs related to ARP’s amended credit facility between the respective periods. The $1.8 million decrease in interest expense for APL was primarily due to $2.3 million in capitalized interest partially offset by a $0.6 million increase on APL’s senior secured revolving credit facility. The increase in capitalized interest is due to increased capital expenditures over the same period last year. The increase in the interest on senior secured revolving credit facility is due to increased borrowings compared to the prior year period.
Nine Months Ended September 30, 2014 Compared with the Nine Months Ended September 30, 2013. Total interest expense increased to $125.8 million for the nine months ended September 30, 2014 as compared with $91.9 million for the nine months ended September 30, 2013. This $33.9 million increase was due to our $9.4 million increase, a $20.9 million increase related to ARP and a $3.7 million increase related to APL. The $9.4 million increase in our interest expense consisted of a $9.9 million increase associated with our term loan facility, including a $0.3$0.9 million increase in the amortization of deferred financing costs, partially offset by a $0.2$0.5 million decrease associated with our credit facility. The $8.8$20.9 million increase in ARP’s interest expense consisted of a $5.8$13.4 million increase associated with the JuneJuly 2013 issuance of its 9.25% ARP Senior Notes, a $0.6$6.0 million increase associated with higher weighted-average outstanding borrowings under its revolving credit facility net of capitalized interest amounts, a $2.6 million increase associated with the June 2014 issuance of an additional $100.0 million of the 7.75% ARP Senior Notes, a $1.5 million increase associated with higher weighted-average outstanding borrowings under its revolving credit facility net of capitalized interest amounts and a $0.9 million increase associated with amortization of deferred financing costs. The increase in amortization associated with deferred financing costs was primarily related to the increase in financing costs between the respective periods. The $0.5 million increase in interest expense for APL was primarily due to $2.1 million in additional interest related to the 4.75% APL Senior Notes, partially offset by a $1.8 million increase in capitalized interest expense. The increase in the interest on the 4.75% APL Senior Notes is due to their issuance in 2013.
Six Months Ended June 30, 2014 Compared with the Six Months Ended June 30, 2013. Total interest expense increased to $82.1 million for the six months ended June 30, 2014 as compared with $53.3 million for the six months ended June 30, 2013. This $28.8 million increase was due to our $8.3 million increase, a $15.1 million increase related to ARP and a $5.5 million increase related to APL. The $8.3 million increase in our interest expense consisted of an $8.6 million associated with our term loan facility, including a $0.8 million increase in the amortization of deferred financing costs, partially offset by a $0.3 million decrease associated with our credit facility. The $15.1 million increase in ARP’s interest expense consisted of an $11.6 million increase associated with the June 2013 issuance of its 9.25% senior notes due 2021, a $1.3 million increase associated with a full quarter’sthree quarters’ impact of the January 2013 issuance of $275.0 million of the 7.75% ARP Senior Notes, a $0.6 million increase associated with the June 2014 issuance of an additional $100.0 million of the 7.75% ARP Senior Notes, a $3.5 million increase associated with higher weighted-average outstanding borrowings under its revolving credit facility net of capitalized interest amounts, partially offset by a $1.9$2.4 million decrease associated with amortization of deferred financing costs. The decrease in amortization associated with deferred financing costs was primarily related to the accelerated amortization associated with the retirement of ARP’s then-existing term loan credit facility and the reduction in its revolving credit facility borrowing base subsequent to its issuance of the 7.75% ARP Senior Notes in the prior year period.period and the decrease in amortization of deferred financing costs resulting from ARP’s amended credit facility in the prior year. The $5.5$3.7 million increase in interest expense for APL was primarily due to $6.9 million in additional interest related to the 4.75% APL Senior Notes and $4.2 million in additional interest related to the 5.875% APL Senior Notes; partially offset by $4.2 million in reduced interest on the 8.75% APL Senior Notes and $2.2$4.5 million increase in capitalized interest. The increase in the interest on the 4.75% APL Senior Notes and the 5.875% APL Senior Notes is due to their issuance in 2013. The decrease in the interest for the 8.75% APL Senior Notes is due to their redemption in February 2013. The increase in capitalized interest is due to increased capital expenditures over the same period last year.
Loss on Early Extinguishment of Debt
Three Months Ended JuneSeptember 30, 2014 Compared with the Three Months Ended JuneSeptember 30, 2013. Loss on early extinguishment of debt for the three months ended JuneSeptember 30, 2013 was approximately $19,000. There was no loss on early extinguishment of debt for the three months ended JuneSeptember 30, 2014.
SixNine Months Ended JuneSeptember 30, 2014 Compared with the SixNine Months Ended JuneSeptember 30, 2013. Loss on early extinguishment of debt for the sixnine months ended JuneSeptember 30, 2013 represented $17.5 million premiums paid, an $8.0 million consent payment made with respect to the extinguishment, and a $5.3 million write off of deferred financing costs, partially offset by a $4.2 million recognition of unamortized premium, related to the redemption of the 8.75% APL Senior Notes (see “Senior Notes”). There was no loss on early extinguishment of debt for the sixnine months ended JuneSeptember 30, 2014.
87
Loss (Income) Attributable to Non-Controlling Interests
Three Months Ended JuneSeptember 30, 2014 Compared with the Three Months Ended JuneSeptember 30, 2013. Income attributable to non-controlling interests was $32.0$40.6 million for the three months ended JuneSeptember 30, 2014 as compared with $3.1a loss of $52.0 million for the comparable prior year period. Loss (income) attributable to non-controlling interests includes an allocation of APL’s, ARP’s and Development Subsidiary’s net income (loss) to non-controlling interest holders. The increase in income attributable to non-controlling interests between the three months ended JuneSeptember 30, 2014 and the prior year comparable period was primarily due to the increase in APL’s and ARP’s net earnings between periods and a decrease in our ownership interests in ARP and APL between the periods, partially offset by an increase in ARP’s net loss during the three months ended June 30, 2014 as compared to the comparable prior year period.periods.
83
SixNine Months Ended JuneSeptember 30, 2014 Compared with the SixNine Months Ended JuneSeptember 30, 2013. Income attributable to non-controlling interests was $24.8$65.4 million for the sixnine months ended JuneSeptember 30, 2014 as compared with a loss of $26.0$78.1 million for the comparable prior year period. Loss (income) attributable to non-controlling interests includes an allocation of APL’s, ARP’s and Development Subsidiary’s net income (loss) to non-controlling interest holders. The increase in income attributable to non-controlling interests between the sixnine months ended JuneSeptember 30, 2014 and the prior year comparable period was primarily due to the increase in APL’s net earnings between periods, a decrease in ARP’s net loss during the nine months ended September 30, 2014, and a decrease in our ownership interests in ARP and APL between the periods, partially offset by an increase in ARP’s net loss during the six months ended June 30, 2014 as compared to the comparable prior year period.periods.
LIQUIDITY AND CAPITAL RESOURCES
General
Our primary sources of liquidity are cash distributions received with respect to our ownership interests in ARP and APL, and our cash generated from operations and borrowings under our credit facilities (see “Credit Facilities”). Our primary cash requirements, in addition to normal operating expenses, are for debt service, capital expenditures, and quarterly distributions to our common unitholders, which we expect to fund through operating cash flow, cash distributions received and cash on hand. Our subsidiaries’ sources of liquidity are discussed in more detail below.
Atlas Resource. ARP’s primary sources of liquidity are cash generated from operations, capital raised through Drilling Partnerships, and borrowings under its credit facility (see “Credit Facilities”). ARP’s primary cash requirements, in addition to normal operating expenses, are for debt service, capital expenditures and distributions to its unitholders and us as general partner. In general, ARP expects to fund:
· | cash distributions and maintenance capital expenditures through existing cash and cash flows from operating activities; |
· | expansion capital expenditures and working capital deficits through cash generated from operations, additional borrowings and capital raised through Drilling Partnerships; and |
· | debt principal payments through additional borrowings as they become due or by the issuance of additional common units or asset sales. |
Atlas Pipeline. APL’s primary sources of liquidity are cash generated from operations and borrowings under its credit facility. APL’s primary cash requirements, in addition to normal operating expenses, are for debt service, capital expenditures, and quarterly distributions to its common unitholders and us as general partner. In general, APL expects to fund:
· | cash distributions and maintenance capital expenditures through existing cash and cash flows from operating activities; |
· | expansion capital expenditures and working capital deficits through the retention of cash and additional capital raising; and |
· | debt principal payments through operating cash flows and refinancings as they become due, or by the issuance of additional limited partner units or asset sales. |
88
ARP and APL rely on cash flow from operations and their credit facilities to execute their growth strategy and to meet their financial commitments and other short-term liquidity needs. ARP and APL cannot be certain that additional capital will be available to the extent required and on acceptable terms. We and our subsidiaries believe that we will have sufficient liquid assets, cash from operations and borrowing capacity to meet our financial commitments, debt service obligations, contingencies and anticipated capital expenditures for at least the next twelve month period. However, we and our subsidiaries are subject to business, operational and other risks that could adversely affect our cash flow. We and our subsidiaries may supplement our cash generation with proceeds from financing activities, including borrowings under our, ARP’s and APL’s credit facilities and other borrowings, the issuance of additional limited partner units, the sale of assets and other transactions.
84
Cash Flows – SixNine Months Ended JuneSeptember 30, 2014 Compared with the SixNine Months Ended JuneSeptember 30, 2013
Net cash provided by operating activities of $13.2$47.7 million for the sixnine months ended JuneSeptember 30, 2014 represented a favorable movement of $97.4$107.1 million from net cash used in operating activities of $84.2$59.4 million for the comparable prior year period. The $97.4$107.1 million favorable movement was derived principally from a $79.1 million favorable movement in working capital and a $76.7$219.3 million favorable movement in net income (loss) excluding non-cash items, partially offset by a $58.4an $81.8 million unfavorable movementincrease in distributions paid to non-controlling interests.interests and a $30.4 million unfavorable movement in working capital. The non-cash charges which impacted net income (loss) primarily included a $158.8 million favorable movement in net income (loss), an increase of $90.7$111.8 million of depreciation, depletion and amortization, a favorable movement in net income (loss) of $47.8 million, a favorable movement of $8.6$14.8 million in compensation expense and a favorable movement of $7.7$12.1 million in equity and distributions related to unconsolidated subsidiaries, partially offset by an unfavorable movement of $49.8$49.7 million in (gain) loss on asset sales and disposal, an unfavorable movement of $26.6 million in loss on early extinguishment of debt, an increase of $0.9 million in APL’s deferred income tax benefit and a decrease of $0.8$1.3 million in amortization of deferred financing costs.costs and an increase of $0.6 million in deferred income tax benefit. The movement in cash distributions to non-controlling interest holders was due principally to increases in cash distributions of ARP and APL. The movement in working capital was due to an $80.4 million unfavorable movement in accounts receivable, prepaid expenses and other, partially offset by a $80.2$50.0 million favorable movement in accounts payable and accrued liabilities, primarily due to the timing of ARP’s and APL’s respective capital programs and the growth of ARP’s business during the sixnine months ended JuneSeptember 30, 2014, partially offset by a $1.1 million unfavorable movement in accounts receivable, prepaid expenses and other. The movement in cash distributions to non-controlling interest holders was due principally to increases in cash distributions of ARP and APL.2014.
Net cash used in investing activities of $777.4$1,018.8 million for the sixnine months ended JuneSeptember 30, 2014 represented a favorable movement of $574.3$1,308.7 million from net cash used in investing activities of $1,351.7$2,327.5 million for the comparable prior year period. This favorable movement was principally due to a $482.3$1,270.8 million favorable movementdecrease in net cash paid for acquisitions, a favorable movement $132.6an increase of $131.0 million in net proceeds from asset sales pertaining to APL’s sale of its 20% interest in WTLPG (see “Recent Developments”) and, a $0.5$7.2 million favorable movement in other assets, and a favorable movement of $1.9 million in APL’s investment in joint ventures, partially offset by a $41.1$102.2 million increase in capital expenditures. See further discussion of capital expenditures under “Capital Requirements”.
Net cash provided by financing activities of $761.7$1,015.1 million for the sixnine months ended JuneSeptember 30, 2014 represented an unfavorable movement of $707.9$1,364.5 million from net cash provided by financing activities of $1,469.6$2,379.6 million for the comparable prior year period. This unfavorable movement was principally due to a $1,198.8$1,441.5 million decrease in net proceeds from the issuance of ARP’s and APL’s long-term debt, a $536.0$495.0 million decrease in net proceeds from ARP’s and APL’s equity offerings, a $123.5 million decrease in borrowings under the respective credit facilities and an increase of $16.4$19.0 million in distributions paid to our limited partners, partially offset by a favorable movement of $365.8 million in repayments of APL’s long-term debt, a decrease of $445.7$299.1 million in repayments of our and our subsidiaries’ revolving credit facilities, a decrease of $365.8 million in repayments of APL’s long-term debt, an increase of $202.5 million in our, ARP’s and APL’s borrowings under the respective credit facilities, a favorable movement of $25.6 million in payments of premium on the retirement of APL’s long-term debt, a $3.2 million increase in contributions from APL’s non-controlling interest and a favorable movement of $0.5$21.6 million in deferred financing costs, distribution equivalent rights and other.other, and a $2.4 million increase in contributions from APL’s non-controlling interest. The gross amount of borrowings and repayments under the revolving credit facilities included within net cash provided by financing activities, which are generally in excess of net borrowings or repayments during the period or at period end, reflect the timing of cash receipts, which generally occur at specific intervals during the period and are utilized to reduce borrowings under the revolving credit facilities, and payments, which generally occur throughout the period and increase borrowings under the revolving credit facilities for us, ARP and APL, which is generally common practice for our and their industries.
APL’s Class D Preferred Unit distributions paid in kind represented non-cash transactions during the sixnine months ended JuneSeptember 30, 2014.
85
89
Capital Requirements
At JuneSeptember 30, 2014, our and our subsidiaries’ capital requirements are as follows:
Natural gas and oil production. The capital requirements of our and ARP’s natural gas and oil production consist primarily of:
· | maintenance capital expenditures — oil and gas assets naturally decline in future periods and, as such, we and ARP recognize the estimated capitalized cost of stemming such decline in production margin for the purpose of stabilizing our and ARP’s distributable cash flow and cash distributions, which we refer to as maintenance capital expenditures. We and ARP calculate the estimate of maintenance capital expenditures by first multiplying forecasted future full year production margin by 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. We and ARP do not incur specific capital expenditures expressly for the purpose of maintaining or increasing production margin, but such amounts are a subset of hypothetical wells we and ARP expect to drill in future periods, including Marcellus Shale, Utica Shale, Mississippi Lime and Marble Falls wells, on undeveloped acreage already leased. Estimated capitalized cost of wells included within maintenance capital expenditures are also based upon relevant factors, including historical costs of similar wells and characteristics of each individual well. First year margin from wells included within maintenance capital 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. 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; and |
· | expansion capital expenditures — we and ARP consider 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. |
Gathering and processing. APL’s gathering and processing operations require continual investment to upgrade or enhance existing operations and to ensure compliance with safety, operational and environmental regulations. APL’s capital requirements consist primarily of:
· | maintenance capital expenditures to maintain equipment reliability and safety and to address environmental regulations; and |
· | expansion capital expenditures to acquire complementary assets and to expand the capacity of its existing operations. |
8690
The following table summarizes consolidated maintenance and expansion capital expenditures, excluding amounts paid for acquisitions, for the periods presented (in thousands):
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
| 2014 |
|
| 2014 |
|
| 2013 |
|
| 2014 |
| 2014 |
| ||||||||||
Atlas Energy |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Maintenance capital expenditures |
| $ | 300 |
|
| $ | — |
|
| $ | 600 |
| $ | — |
|
| $ | 300 |
|
| $ | 300 |
|
| $ | 900 |
| $ | 300 |
| ||
Expansion capital expenditures |
|
| 848 |
|
|
| — |
|
|
| 11,074 |
|
| — |
|
|
| 267 |
|
|
| 1,531 |
|
|
| 11,341 |
|
| 1,531 |
| ||
Total |
| $ | 1,148 |
|
| $ | — |
|
| $ | 11,674 |
| $ | — |
|
| $ | 567 |
|
| $ | 1,831 |
|
| $ | 12,241 |
| $ | 1,831 |
| ||
Atlas Resources |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maintenance capital expenditures |
| $ | 13,100 |
|
| $ | 7,000 |
|
| $ | 23,900 |
| $ | 11,000 |
|
| $ | 22,400 |
|
| $ | 10,000 |
|
| $ | 46,300 |
| $ | 21,000 |
| ||
Expansion capital expenditures |
|
| 41,558 |
|
|
| 64,565 |
|
|
| 70,655 |
|
| 119,052 |
|
|
| 33,530 |
|
|
| 63,944 |
|
|
| 104,185 |
|
| 182,996 |
| ||
Total |
| $ | 54,658 |
|
| $ | 71,565 |
|
| $ | 94,555 |
| $ | 130,052 |
|
| $ | 55,930 |
|
| $ | 73,944 |
|
| $ | 150,485 |
| $ | 203,996 |
| ||
Atlas Pipeline |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maintenance capital expenditures |
| $ | 5,555 |
|
| $ | 3,848 |
|
| $ | 10,880 |
| $ | 7,703 |
|
| $ | 7,417 |
|
| $ | 6,416 |
|
| $ | 18,297 |
| $ | 14,119 |
| ||
Expansion capital expenditures |
|
| 146,693 |
|
|
| 103,345 |
|
|
| 269,699 |
|
| 208,006 |
|
|
| 185,151 |
|
|
| 105,736 |
|
|
| 454,850 |
|
| 313,742 |
| ||
Total |
| $ | 152,248 |
|
| $ | 107,193 |
|
| $ | 280,579 |
| $ | 215,709 |
|
| $ | 192,568 |
|
| $ | 112,152 |
|
| $ | 473,147 |
| $ | 327,861 |
| ||
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maintenance capital expenditures |
| $ | 18,955 |
|
| $ | 10,848 |
|
| $ | 35,380 |
| $ | 18,703 |
|
| $ | 30,117 |
|
| $ | 16,716 |
|
| $ | 65,497 |
| $ | 35,419 |
| ||
Expansion capital expenditures |
|
| 189,099 |
|
|
| 167,910 |
|
|
| 351,428 |
|
| 327,058 |
|
|
| 218,948 |
|
|
| 171,211 |
|
|
| 570,376 |
|
| 498,269 |
| ||
Total |
| $ | 208,054 |
|
| $ | 178,758 |
|
| $ | 386,808 |
| $ | 345,761 |
|
| $ | 249,065 |
|
| $ | 187,927 |
|
| $ | 635,873 |
| $ | 533,688 |
|
Atlas Energy. During the three and sixnine months ended JuneSeptember 30, 2014, our total capital expenditures consisted primarily of the wells drilled and leasehold acquisition costs of our Development Subsidiary.
Atlas Resource Partners. During the three months ended JuneSeptember 30, 2014, ARP’s $54.7$55.9 million of total capital expenditures consisted primarily of $24.7$23.1 million for wells drilled exclusively for its own account compared with $29.1$28.6 million for the comparable prior year period, $13.8$16.8 million of investments in its Drilling Partnerships compared with $25.6$27.7 million for the prior year comparable period, $7.3$7.0 million of leasehold acquisition costs compared with $19.7$4.2 million for the prior year comparable period, and $8.9$9.0 million of corporate and other costs compared with $7.8$13.4 million for the prior year comparable period, which primarily related to an increase in capitalized interest expense.
During the sixnine months ended JuneSeptember 30, 2014, ARP’s $94.6$150.5 million of total capital expenditures consisted primarily of $41.8$64.9 million for wells drilled exclusively for its own account compared with $65.5$94.1 million for the comparable prior year period, $25.0$41.8 million of investments in its Drilling Partnerships compared with $37.2$64.4 million for the prior year comparable period, $11.3$18.3 million of leasehold acquisition costs compared with $13.4$17.6 million for the prior year comparable period, and $16.5$25.5 million of corporate and other costs compared with $14.0$27.9 million for the prior year comparable period, which primarily related to an increase in capitalized interest expense.
Atlas Pipeline Partners. APL’s capital expenditures increased to $152.2$192.6 million for the three months ended JuneSeptember 30, 2014 compared with $107.2$112.2 million for the comparable prior year period. The increase was primarily due to construction costs for the Stonewall plant within SouthOK, which was placed in service in May 1, 2014 (see “Recent Developments”); the Silver Oak II plant within SouthTX placed in service in June 2014;2014 (see “Recent Developments”); the Edward plant within WestTX scheduled to be placed in service during the third quarter of 2014;in September 2014 (see “Recent Developments”); and the construction of the Velma to Arkoma connection within SouthOK scheduled to be completed during thirdthe fourth quarter of 2014.
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APL’s capital expenditures increased to $280.6$473.1 million for the sixnine months ended JuneSeptember 30, 2014 compared with $215.7$327.9 million for the comparable prior year period. The increase was primarily due to construction costs for the Stonewall plant within SouthOK, which was placed in service in May 1, 2014 (see “Recent Developments”); the Silver Oak II plant within SouthTX placed in service in June 2014;2014 (see “Recent Developments”); the Edward plant within WestTX scheduled to be placed in service during the third quarter of 2014;in September 2014 (see “Recent Developments”); and the construction of the Velma to Arkoma connection within SouthOK scheduled to be completed during thirdthe fourth quarter of 2014.
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We, ARP and APL continuously evaluate acquisitions of gas and oil assets. In order to make any acquisitions in the future, we, ARP and APL believe we will be required to access outside capital either through debt or equity placements or through joint venture operations with other energy companies. There can be no assurance that we, ARP or APL will be successful in our and its efforts to obtain outside capital.
As of JuneSeptember 30, 2014, we and our subsidiaries are committed to expending approximately $218.8$231.2 million on drilling and completion expenditures, pipeline extensions, compressor station upgrades and processing facility upgrades.
OFF BALANCE SHEET ARRANGEMENTS
As of JuneSeptember 30, 2014, our off-balance sheet arrangements were limited to ARP’s letters of credit outstanding of $4.4 million, APL’s letters of credit outstanding of $3.1$3.4 million and commitments to spend $218.8$231.2 million related to capital expenditures.
CASH DISTRIBUTIONS
The Board has adopted a cash distribution policy, pursuant to our partnership agreement, which requires that we distribute all of our available cash quarterly to our limited partners within 50 days following the end of each calendar quarter in accordance with their respective percentage interests. Under our partnership agreement, available cash is defined to generally mean, for each fiscal quarter, cash generated from our business in excess of the amount of cash reserves established by our general partner to, among other things:
· | provide for the proper conduct of our business; |
· | comply with applicable law, any of our debt instruments or other agreements; or |
· | provide funds for distributions to our unitholders for any one or more of the next four quarters. |
These reserves are not restricted by magnitude, but only by type of future cash requirements with which they can be associated. When our general partner determines our quarterly distributions, it considers current and expected reserve needs along with current and expected cash flows to identify the appropriate sustainable distribution level. Our distributions to limited partners are not cumulative. Consequently, if distributions on our common units are not paid with respect to any fiscal quarter, our unitholders are not entitled to receive such payments in the future.
Atlas Resource Partners’ Cash Distribution Policy: ARP’s partnership agreement requires that it distribute 100% of available cash to its common and preferred unitholders and general partner, our wholly-owned subsidiary, within 45 days following the end of each calendar quarter in accordance with their respective percentage interests. Available cash consists generally of all of ARP’s cash receipts, less cash disbursements and net additions to reserves, including any reserves required under debt instruments for future principal and interest payments. We, as ARP’s general partner, are granted discretion under the partnership agreement to establish, maintain and adjust reserves for future operating expenses, debt service, maintenance capital expenditures, and distributions for the next four quarters. These reserves are not restricted by magnitude, but only by type of future cash requirements with which they can be associated.
On January 29, 2014, ARP’s Board of Directors approved a modification to its cash distribution payment practice to a monthly cash distribution program, beginning with January 2014. Monthly cash distributions are paid approximately 45 days following the end of each respective monthly period.
Available cash will generally be distributed: first, 98% to ARP’s Class B preferred unitholders and 2% to us as general partner until there has been distributed to each Class B preferred unit the greater of $0.40 per quarter and the distribution payable to common unitholders; second, 98% to ARP’s Class C preferred unitholders and 2% to us as general partner until there has been distributed to each outstanding Class C preferred unit the greater of $0.51 per quarter and the distribution payable to common unitholders; thereafter 98% to ARP’s common unitholders and 2% to us as general partner. These distribution percentages are modified to provide for incentive distributions to be paid to us, as ARP’s general partner, if quarterly distributions exceed specified targets. Incentive distributions are generally defined as all cash distributions paid to ARP’s general partner that are in excess of 2% of the aggregate amount of cash being distributed. The incentive distribution rights will entitle us to receive an increasing percentage of cash distributed by ARP as it reaches specified targets.
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Atlas Pipeline Partners’ Cash Distribution Policy. APL’s partnership agreement requires that it distribute 100% of available cash, for each calendar quarter, to its common unitholders and to the general partner, our wholly-owned subsidiary, within 45 days following the end of such calendar quarter in accordance with their respective percentage interests. Available cash consists generally of all of APL’s cash receipts, less cash disbursements and net additions to reserves, including any reserves required under debt instruments for future principal and interest payments.
APL’s general partner is granted discretion by APL’s partnership agreement to establish, maintain and adjust reserves for future operating expenses, debt service, maintenance capital expenditures, and distributions for the next four quarters. These reserves are not restricted by magnitude, but only by type of future cash requirements with which they can be associated. When APL’s general partner determines its quarterly distributions, it considers current and expected reserve needs along with current and expected cash flows to identify the appropriate sustainable distribution level.
Available cash is initially distributed 98% to APL’s common limited partners and 2% to its general partner. These distribution percentages are modified to provide for incentive distributions to be paid to APL’s general partner if quarterly distributions to common limited partners exceed specified targets. Incentive distributions are generally defined as all cash distributions paid to APL’s general partner that are in excess of 2.0% of the aggregate amount of cash being distributed. We, as general partner, agreed to allocate up to $3.75 million of incentive distribution rights per quarter back to APL after we receive the initial $7.0 million per quarter of incentive distribution rights.
APL’s Class D Preferred Units received distributions of additional Class D Preferred Units for the first four full quarterly periods beginning with the distribution for the quarter ended June 30, 2013. Thereafter, the Class D Preferred Units will receive distributions in cash, Class D Preferred Units or a combination of cash and Class D Preferred Units, at the discretion of APL.
CREDIT FACILITIES
Term Loan Facility
On July 31, 2013, in connection with the Arkoma Acquisition, we entered into a $240.0 million secured term facility with a group of outside investors (the “Term Facility”). At JuneSeptember 30, 2014, $238.2$237.6 million was outstanding under the Term Facility. The Term Facility has a maturity date of July 31, 2019. Borrowings under the Term Facility bear interest, at our election at either an adjusted LIBOR rate plus an applicable margin of 5.50% per annum or the alternate base rate (as defined in the Term Facility) (“ABR”) plus an applicable margin of 4.50% per annum. Interest is generally payable quarterly for ABR loans and, for LIBOR loans at the interest periods selected by us. We are required to repay principal at the rate of $0.6 million per quarter commencing December 31, 2013 and continuing until the maturity date when the remaining balance is due.
The Term Facility contains customary covenants, similar to those in our credit facility, that limit our ability to incur additional indebtedness, grant liens, make loans or investments, make distributions if a default exists or would result from the distribution, merge into or consolidate with other persons, enter into commodity or interest rate swap agreements that do not conform to specified terms or that exceed specified amounts, or engage in certain asset dispositions including a sale of all or substantially all of our assets. The Term Facility also contains covenants that require (i) us to maintain a ratio of Total Funded Debt (as defined in the Term Facility) to EBITDA (as defined in the Term Facility), calculated over a period of four consecutive fiscal quarters, of not greater than 4.5 to 1.0 as of the last day of each of the quarters ending on or before September 30, 2014; 4.0 to 1.0 as of the last day of each of the quarters ending on or before September 30, 2015; and 3.5 to 1.0 for the last day of each of the quarters thereafter, and (ii) the entry into swap agreements with respect to the assets acquired in the EP Energy and Arkoma acquisitions. At JuneSeptember 30, 2014, we were in compliance with these covenants. The events which constitute events of default are also customary for credit facilities of this nature, including payment defaults, breaches of representations, warranties or covenants, defaults in the payment of other indebtedness over a specified threshold, insolvency and change of control.
Our obligations under the Term Facility are secured by first priority security interests in substantially all of our assets, including all of our ownership interests in our material subsidiaries and our ownership interests in APL and ARP. Additionally, our obligations under our Term Facility are guaranteed by our material wholly-owned subsidiaries (excluding Atlas Pipeline Partners GP, LLC) and may be guaranteed by future subsidiaries. Any of our subsidiaries, other than the subsidiary guarantors, are minor. The Term Facility is subject to an intercreditor agreement, which provides for certain rights and procedures, between the lenders under the Term Facility and our credit facility, with respect to enforcement of rights, collateral and application of payment proceeds.
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Revolving Credit Facility
On July 31, 2013, in connection with the Arkoma Acquisition, we amended our credit facility with a syndicate of banks that matures on July 31, 2018. The credit facility has a maximum credit amount of $50.0 million, of which up to $5.0 million may be in the form of standby letters of credit. At JuneSeptember 30, 2014, no amounts were outstanding under the credit facility. Our obligations under the credit facility are secured by first priority security interests in substantially all of our assets, including all of our ownership interests in our material subsidiaries and our ownership interests in APL and ARP. Additionally, our obligations under the credit facility are guaranteed by our material wholly-owned subsidiaries (excluding Atlas Pipeline Partners GP, LLC) and may be guaranteed by future subsidiaries. Any of our subsidiaries, other than the subsidiary guarantors, are minor. At our election, interest on borrowings under the credit agreement is determined by reference to either an adjusted LIBOR rate plus an applicable margin of 5.50% per year or the ABR plus an applicable margin of 4.50% per year. Interest is generally payable quarterly for ABR loans and at the interest payment periods selected by us for LIBOR loans. We are required to pay a fee between 0.5% and 0.625% per annum on the unused portion of the commitments under the credit facility.
The credit facility contains customary covenants that limit our ability to incur additional indebtedness, grant liens, make loans or investments, make distributions if a default exists or would result from the distribution, merge into or consolidate with other persons, enter into commodity or interest rate swap agreements that do not conform to specified terms or that exceed specified amounts, or engage in certain asset dispositions including a sale of all or substantially all of our assets. The credit facility also contains covenants the same as those in our Term Facility with respect to (i) the required ratio of Total Funded Debt (as defined in the credit facility) to EBITDA (as defined in the credit facility), and (ii) entry into swap agreements. At JuneSeptember 30, 2014, we were in compliance with these covenants.
The credit facility is subject to an intercreditor agreement as described above under the “Term Loan Facility”.
At JuneSeptember 30, 2014, we have not guaranteed any of ARP’s or APL’s debt obligations.
Atlas Resource
On June 30,September 24, 2014, in connection with the Rangelyits Eagle Ford Acquisition (see Recent Developments)Subsequent Events), ARP entered into an amended and restateda fourth amendment to its revolving credit agreement (as amended, the “ARP Credit Agreement”) with Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto.thereto (as so amended, the “ARP Credit Agreement”). The ARP Credit Agreement provides for a senior secured revolving credit facility with a syndicate of banks with a current borrowing base of $825.0 million and a maximum facility amount of $1.5 billion scheduled to mature in July 2018. The fourth amendment amends the ARP Credit Agreement to permit the guarantee by ARP of certain deferred purchase price obligations and contingent indemnity obligations in connection with the Eagle Ford Acquisition, and, with certain constraints, to permit ARP and its subsidiaries to enter into certain derivative instruments related to the producing wells to be acquired in the Eagle Ford Acquisition.
ARP’s borrowing base under the revolving credit facility is scheduled for semi-annual redeterminations on May 1 and November 1 of each year. Up to $20.0 million of the revolving credit facility may be in the form of standby letters of credit, of which $4.4 million was outstanding at JuneSeptember 30, 2014. ARP’s obligations under the facility are secured by mortgages on its oil and gas properties and first priority security interests in substantially all of its assets. Additionally, obligations under the facility are guaranteed by certain of ARP’s material subsidiaries, and any of its non-guarantor subsidiaries are minor. Borrowings under the revolving credit facility bear interest, at ARP’s election, at either an adjusted LIBOR rate plus an applicable margin between 1.50% and 2.75% per annum or the base rate (which is the higher of the bank’s prime rate, the Federal funds rate plus 0.5% or one-month LIBOR plus 1.00%) plus an applicable margin between 0.50% and 1.75% per annum. ARP is also required to pay a fee on the unused portion of the borrowing base at a rate of 0.375% if less than 50% of the borrowing base is utilized and 0.5% if 50% or more of the borrowing base is utilized, which is included within interest expense on our consolidated statements of operations.
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The ARP Credit Agreement contains customary covenants that limit ARP’s ability to incur additional indebtedness, grant liens, make loans or investments, make distributions if a borrowing base deficiency or default exists or would result from the distribution, merger or consolidation with other persons, or engage in certain asset dispositions including a sale of all or substantially all of its assets. ARP was in compliance with these covenants as of JuneSeptember 30, 2014. The ARP Credit Agreement also requires ARP to maintain a ratio of Total Funded Debt (as defined in the ARP Credit Agreement) to EBITDA (as defined in the ARP Credit Agreement) (actual or annualized, as applicable), calculated over a period of four consecutive fiscal quarters, of not greater than 4.50 to 1.0 as of the last day of the quarters ended through December 31, 2014, 4.25 to 1.0 as of the last day of the quarter ending March 31, 2015, and 4.00 to 1.0 as of the last day of fiscal quarters ending thereafter and a ratio of current assets (as defined in the ARP Credit Agreement) to current liabilities (as defined in the ARP Credit Agreement) of not less than 1.0 to 1.0 as of the last day of any fiscal quarter.
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Atlas Pipeline
At JuneSeptember 30, 2014, APL had a $600.0an $800.0 million senior secured revolving credit facility with a syndicate of banks, which matures in May 2017,August 2019, of which $100.0$203.4 million was outstanding. Borrowings under APL’s credit facility bear interest, at APL’s option, at either (i) the higher of (a) the prime rate, (b) the federal funds rate plus 0.50% and (c) three-month LIBOR plus 1.0%, or (ii) the LIBOR rate for the applicable period (each plus the applicable margin). The weighted average interest rate on APL’s outstanding revolving credit facility borrowings at September 30, 2014 was 2.7%. Up to $50.0 million of the credit facility may be utilized for letters of credit, of which $3.1$3.4 million was outstanding at JuneSeptember 30, 2014. These outstanding letter of credit amounts were not reflected as borrowings on our consolidated balance sheet at JuneSeptember 30, 2014. At JuneSeptember 30, 2014, APL had $496.9$596.6 million of remaining committed capacity under its credit facility, subject to covenant limitations. We have not guaranteed any of the obligations under APL’s senior secured revolving credit facility.
On August 28, 2014, APL entered into the Revised APL Credit Agreement which, among other changes, extended the maturity date, increased the revolving credit commitment and incremental revolving credit amount, and reduced the applicable margin used to determine interest rates by 0.25% (see “Recent Developments”).
On March 11, 2014, APL entered into an amendment to its credit agreement governing its revolving credit facility, which among other changes, adjusted the Acquisition Period, as defined in the credit agreement, for the Consolidated Funded Debt Ratio, as defined in the credit agreement, and permitted the payment of cash distributions, if any, on the Class E Preferred Units so long as APL has a pro forma Minimum Liquidity, as defined in the credit agreement, of greater than or equal to $50.0 million (see “Recent Developments”).
Borrowings under APL’s credit facility are secured by (i) a lien on and security interest in all of APL’s property and that of its subsidiaries, except for the assets owned by the West OK, West TX and Centrahoma joint ventures and their respective subsidiaries; and (ii) the guarantee of each of APL’s consolidated subsidiaries other than the joint venture companies.
The revolving credit facility contains customary covenants, including requirements that APL maintain certain financial thresholds and restrictions on its ability to (i) incur additional indebtedness, (ii) make certain acquisitions, loans or investments, (iii) make distribution payments to its unitholders if an event of default exists, or (iv) enter into a merger or sale of assets, including the sale or transfer of interests in its subsidiaries. APL is also unable to borrow under its credit facility to pay distributions of available cash to unitholders because such borrowings would not constitute “working capital borrowings” pursuant to its partnership agreement.
The events which constitute an event of default under the revolving credit facility are also customary for loans of this size, including payment defaults, breaches of representations or covenants contained in the credit agreement, adverse judgments against APL in excess of a specified amount and a change of control of APL’s general partner. As of JuneAt September 30, 2014, APL was in compliance with all covenants under its revolving credit facility.these covenants.
ATLAS RESOURCE SECURED HEDGE FACILITY
At JuneSeptember 30, 2014, ARP had a secured hedge facility agreement with a syndicate of banks under which certain Drilling Partnerships have the ability to enter into derivative contracts to manage their exposure to commodity price movements. Under ARP’s revolving credit facility, ARP is required to utilize this secured hedge facility for future commodity risk management activity for its equity production volumes within the participating Drilling Partnerships. ARP, as general partner of the Drilling Partnerships, administers the commodity price risk management activity for the Drilling Partnerships under the secured hedge facility and guarantees their obligations under it. Before executing any hedge
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transaction, a participating Drilling Partnership is required to, among other things, provide mortgages on its oil and gas properties and first priority security interests in substantially all of its assets to the collateral agent for the benefit of the counterparties. The secured hedge facility agreement contains covenants that limit each of the participating Drilling Partnership’s ability to incur indebtedness, grant liens, make loans or investments, make distributions if a default under the secured hedge facility agreement exists or would result from the distribution, merge into or consolidate with other persons, enter into commodity or interest rate swap agreements that do not conform to specified terms or that exceed specified amounts, or engage in certain asset dispositions including a sale of all or substantially all of its assets.
In addition, it will be an event of default under ARP’s revolving credit facility if ARP, as general partner of the Drilling Partnerships, breaches an obligation governed by the secured hedge facility and the effect of such breach is to cause amounts owing under swap agreements governed by the secured hedge facility to become immediately due and payable.
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SENIOR NOTES
Atlas Resource Senior Notes
At JuneSeptember 30, 2014, ARP had $374.5 million outstanding of its 7.75% senior unsecured notes due 2021 (“7.75% ARP Senior Notes”), inclusive of an additional $100.0 million of such notes in a private placement transaction on June 2, 2014 at an offering price of 99.5% of par value, yielding net proceeds of approximately $97.5$97.4 million. The net proceeds were used to partially fund the Rangely Acquisition (see Recent Developments). ARP issued $275.0 million of its 7.75% ARP Senior Notes in a private placement transaction at par on January 23, 2013. The 7.75% ARP Senior Notes were presented net of a $0.5 million unamortized discount as of JuneSeptember 30, 2014. Interest is payable semi-annually on January 15 and July 15. At any time prior to January 15, 2016, the 7.75% ARP Senior Notes are redeemable for up to 35% of the outstanding principal amount with the net cash proceeds of equity offerings at the redemption price of 107.75%. The 7.75% ARP Senior Notes are also subject to repurchase at a price equal to 101% of the principal amount, plus accrued and unpaid interest, upon a change of control. At any time prior to January 15, 2017, the 7.75% ARP Senior Notes are redeemable, in whole or in part, at a redemption price as defined in the governing indenture, plus accrued and unpaid interest and additional interest, if any. On and after January 15, 2017, the 7.75% ARP Senior Notes are redeemable, in whole or in part, at a redemption price of 103.875%, decreasing to 101.938% on January 15, 2018 and 100% on January 15, 2019.
ARP entered into a registration rights agreementsagreement with respect to the $100.0 million 7.75% ARP Senior Notes issued in June 2014. Under the registration rights agreements,agreement, ARP will cause to be filed with the SEC a registration statementsstatement with respect to offersan offer to exchange the 7.75% ARP Senior Notes for substantially identical notes that are registered under the Securities Act. ARP will use reasonable best efforts to cause such exchange offer registration statementsstatement to become effective under the Securities Act. In addition, ARP will use reasonable best efforts to cause an exchange offer to be consummated not later than 270 days after the issuance of the 7.75% ARP Senior Notes. Under some circumstances, in lieu of, or in addition to, a registered exchange offer, ARP has agreed to file a shelf registration statement with respect to the 7.75% ARP Senior Notes. ARP is required to pay additional interest if it fails to comply with its obligations to register the 7.75% ARP Senior Notes within the specified time periods.
At JuneSeptember 30, 2014, ARP had $250.0$248.5 million outstanding of its 9.25% senior unsecured notes due 2021 (“9.25% ARP Senior Notes”), issued in a private placement transaction at an offering price of 99.297% of par value, yielding net proceeds of approximately $242.8 million.. The net proceeds were used to partially fund the EP Energy Acquisition. The 9.25% ARP Senior Notes were presented net of a $1.6$1.5 million unamortized discount as of JuneSeptember 30, 2014. Interest on the 9.25% Senior Notes is payable semi-annually on February 15 and August 15. At any time on or after August 15, 2017, ARP may redeem some or all of the 9.25% ARP Senior Notes at a redemption price of 104.625%. On or after August 15, 2018, ARP may redeem some or all of the 9.25% ARP Senior Notes at the redemption price of 102.313% and on or after August 15, 2019, ARP may redeem some or all of the 9.25% ARP Senior Notes at the redemption price of 100.0%. In addition, at any time prior to August 15, 2016, ARP may redeem up to 35% of the 9.25% ARP Senior Notes with the proceeds received from certain equity offerings at a redemption price of 109.250%. Under certain conditions, including if ARP sells certain assets and does not reinvest the proceeds or repay senior indebtedness or if it experiences specific kinds of changes of control, ARP must offer to repurchase the 9.25% ARP Senior Notes.
In connection with the issuance of the 9.25% ARP Senior Notes, ARP entered into a registration rights agreement, whereby it agreed to (a) file an exchange offer registration statement with the SEC to exchange the privately issued notes for registered notes, and (b) cause the exchange offer to be consummated by July 30, 2014. On March 28, 2014, the registration statement relating to the exchange offer for the 9.25% ARP Senior Notes was declared effective, and the exchange offer was completed on April 29, 2014.
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The 9.25% ARP Senior Notes and 7.75% ARP Senior Notes are guaranteed by certain of ARP’s material subsidiaries. The guarantees under the 9.25% ARP Senior Notes and 7.75% ARP Senior Notes are full and unconditional and joint and several, and any of ARP’s subsidiaries, other than the subsidiary guarantors, are minor. There are no restrictions on ARP’s ability to obtain cash or any other distributions of funds from the guarantor subsidiaries.
The indentures governing the 9.25% ARP Senior Notes and 7.75% ARP Senior Notes contain covenants, including limitations on ARP’s ability to incur certain liens; incur additional indebtedness; declare or pay distributions if an event of default has occurred; redeem, repurchase, or retire equity interests or subordinated indebtedness; make certain investments; or merge, consolidate or sell substantially all of its assets. ARP was in compliance with these covenants as of JuneSeptember 30, 2014.
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Atlas Pipeline Senior Notes
At JuneSeptember 30, 2014, APL had $500.0 million principal outstanding of 6.625% unsecured senior notes due October 1, 2020 (“6.625% APL Senior Notes”), $650.0 million principal outstanding of 5.875% unsecured senior notes due August 1, 2023 (“5.875% APL Senior Notes”) and $400.0 million of 4.75% Senior Notes due 2021 (and with the 6.625% APL Senior Notes and 5.875% APL Senior Notes, the “APL Senior Notes”).
The 6.625% APL Senior Notes are presented combined with a net $4.2$4.1 million unamortized premium as of JuneSeptember 30, 2014. Interest on the 6.625% APL Senior Notes is payable semi-annually in arrears on April 1 and October 1. The 6.625% APL Senior Notes are redeemable at any time after October 1, 2016, at certain redemption prices, together with accrued and unpaid interest to the date of redemption.
On February 11, 2013, APL issued $650.0 million of the 5.875% APL Senior Notes in a private placement transaction. The 5.875% APL Senior Notes were issued at par. APL received net proceeds of $637.3 million after underwriting commissions and other transaction costs and utilized the proceeds to redeem the 8.75% unsecured senior notes due June 15, 2018 (“8.75% APL Senior Notes”) and repay a portion of the outstanding indebtedness under its revolving credit agreement. Interest on the 5.875% APL Senior Notes is payable semi-annually in arrears on February 1 and August 1. The 5.875% APL Senior Notes are redeemable any time after February 1, 2018, at certain redemption prices, together with accrued and unpaid interest to the date of redemption. APL commenced an exchange offer for the 5.875% APL Senior Notes on December 10, 2013 and the exchange offer was completed on January 9, 2014.
On May 10, 2013, APL issued $400.0 million of the 4.75% APL Senior Notes in a private placement transaction. The 4.75% APL Senior Notes were issued at par. APL received net proceeds of $391.2 million after underwriting commissions and other transaction costs and utilized the proceeds to repay a portion of the outstanding indebtedness under its revolving credit facility as part of the TEAK Acquisition. Interest on the 4.75% APL Senior Notes is payable semi-annually in arrears on May 15 and November 15. The 4.75% APL Senior Notes are due on November 15, 2021 and are redeemable any time after March 15, 2016, at certain redemption prices, together with accrued and unpaid interest to the date of redemption. APL commenced an exchange offer for the 4.75% APL Senior Notes on December 10, 2013 and the exchange offer was completed on January 9, 2014.
On January 28, 2013, APL commenced a cash tender offer for any and all of its outstanding $365.8 million 8.75% APL Senior Notes and a solicitation of consents to eliminate most of the restrictive covenants and certain of the events of default contained in the indenture governing the 8.75% APL Senior Notes (“8.75% APL Senior Notes Indenture”). Approximately $268.4 million aggregate principal amount of the 8.75% APL Senior Notes were validly tendered as of the expiration date of the consent solicitation. In February 2013, APL accepted for purchase all 8.75% APL Senior Notes validly tendered as of the expiration of the consent solicitation and paid $291.4 million to redeem the $268.4 million principal plus $11.2 million make-whole premium, $3.7 million accrued interest and $8.0 million consent payment. ��APL entered into a supplemental indenture amending and supplementing the 8.75% APL Senior Notes Indenture.
On March 12, 2013, APL paid $105.6 million to redeem the remaining $97.3 million 8.75% APL Senior Notes not purchased in connection with the tender offer, plus a $6.3 million make-whole premium and $2.0 million in accrued interest. APL funded the redemption with a portion of the net proceeds from the issuance of the 5.875% APL Senior Notes. During the sixnine months ended JuneSeptember 30, 2013, APL recognized a loss of $26.6 million within loss on early extinguishment of debt on our consolidated statements of operations, related to the redemption of the 8.75% APL Senior Notes. The loss includes $17.5 million premiums paid, $8.0 million consent payment and a $5.3 million write-off of deferred financing costs, partially offset by $4.2 million of unamortized premium recognized.
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The APL Senior Notes are subject to repurchase by APL at a price equal to 101% of their principal amount, plus accrued and unpaid interest, upon a change of control or upon certain asset sales if APL does not reinvest the net proceeds within 360 days. The APL Senior Notes are junior in right of payment to APL’s secured debt, including its obligations under its revolving credit facility.
Indentures governing the APL Senior Notes contain covenants, including limitations on APL’s ability to: incur certain liens; engage in sale/leaseback transactions; incur additional indebtedness; declare or pay distributions if an event of default has occurred; redeem, repurchase or retire equity interests or subordinated indebtedness; make certain investments; or merge, consolidate or sell substantially all its assets. APL was in compliance with these covenants as of JuneSeptember 30, 2014.
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ISSUANCE OF UNITS
We recognize gains on ARP’s and APL’sour subsidiaries’ equity transactions as credits to partners’ capital on our consolidated balance sheets rather than as income on our consolidated statements of operations. These gains represent our portion of the excess net offering price per unit of each of ARP’s and APL’sour subsidiaries’ common units over the book carrying amount per unit.
Atlas Energy
In July 2013, in connection with the closing of ARP’s EP Energy Acquisition, we purchased 3,746,986 of ARP’s newly created Class C convertible preferred units, at a negotiated price per unit of $23.10, for proceeds of $86.6 million. The Class C preferred units were offered and sold in a private transaction exempt from registration under Section 4(2) of the Securities Act. The Class C preferred units pay cash distributions in an amount equal to the greater of (i) $0.51 per unit and (ii) the distributions payable on each common unit at each declared quarterly distribution date. The initial Class C preferred distribution was paid for the quarter ended September 30, 2013. The Class C preferred units have no voting rights, except as set forth in the certificate of designation for the Class C preferred units, which provides, among other things, that the affirmative vote of 75% of the Class C Preferred Units is required to repeal such certificate of designation. Holders of the Class C preferred units have the right to convert the Class C preferred units on a one-for-one basis, in whole or in part, into common units at any time before July 31, 2016. Unless previously converted, all Class C preferred units will convert into common units on July 31, 2016. Upon issuance of the Class C preferred units, we, as purchaser of the Class C preferred units, received 562,497 warrants to purchase ARP’s common units at an exercise price equal to the face value of the Class C preferred units. The warrants were exercisable beginning October 29, 2013 into an equal number of ARP common units, at an exercise price of $23.10 per unit, subject to adjustments provided therein. The warrants will expire on July 31, 2016.
Atlas Resource Partners
Equity Offerings
In August 2014, ARP entered into an equity distribution agreement with Deutsche Bank Securities Inc., as representative of the several banks named therein (the “Agents”). Pursuant to the equity distribution agreement, ARP may sell from time to time through the Agents common units representing limited partner interests of ARP having an aggregate offering price of up to $100.0 million. Sales of common units, if any, may be made in negotiated transactions or transactions that are deemed to be “at-the-market” offerings as defined in Rule 415 of the Securities Act, including sales made directly on the New York Stock Exchange, the existing trading market for the common units, or sales made to or through a market maker other than on an exchange or through an electronic communications network. ARP will pay each of the Agents a commission, which in each case shall not be more than 2.0% of the gross sales price of common units sold through such Agent. Under the terms of the equity distribution agreement, ARP may also sell common units from time to time to any Agent as principal for its own account at a price to be agreed upon at the time of sale. Any sale of common units to an Agent as principal would be pursuant to the terms of a separate terms agreement between ARP and such Agent. As of September 30, 2014, no units have been sold under this program.
In May 2014, in connection with the closing of the Rangely Acquisition (see “Recent Developments”), ARP issued 15,525,000 of its common limited partner units (including 2,025,000 units pursuant to an over-allotment option) in a public offering at a price of $19.90 per unit, yielding net proceeds of approximately $297.5 million. The units were registered under the Securities Act, pursuant to a shelf registration statement on Form S-3, which was automatically effective on the filing date of February 3, 2014.
In March 2014, ARP issued 6,325,000 of its common limited partner units (including 825,000 units pursuant to an over-allotment option) in a public offering at a price of $21.18 per unit, yielding net proceeds of approximately $129.1
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million. The units were registered under the Securities Act, pursuant to a shelf registration statement on Form S-3, which was automatically effective on the filing date of February 3, 2014.
In July 2013, in connection with ARP’s EP Energy Acquisition, ARP issued 3,749,986 newly created Class C convertible preferred units to us, at a negotiated price per unit of $23.10, for proceeds of $86.6 million. The Class C preferred units were issued with 562,497 warrants to purchase ARP common units at an exercise price of $23.10 at our option beginning on October 29, 2013. The warrants will expire on July 31, 2016. The Class C preferred units were offered and sold in a private transaction exempt from registration under Section 4(2) of the Securities Act.
Upon issuance of the Class C preferred units and warrants on July 31, 2013, ARP entered into a registration rights agreement pursuant to which it agreed to file a registration statement with the SEC to register the resale of the common units issuable upon conversion of the Class C preferred units and upon exercise of the warrants. ARP agreed to use commercially reasonable efforts to file such registration statement within 90 days of the conversion of the Class C preferred units into common units or the exercise of the warrants.
In June 2013, in connection with the EP Energy acquisition, ARP sold an aggregate of 14,950,000 of its common limited partner units (including 1,950,000 units pursuant to an over-allotment option) in a public offering at a price of $21.75 per unit, yielding net proceeds of approximately $313.1 million. ARP utilized the net proceeds from the sale to repay the outstanding balance under its revolving credit facility (see “Credit Facilities”).
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In May 2013, ARP entered into an equity distribution agreement with Deutsche Bank Securities Inc., as representative of several banks. Pursuant to the equity distribution agreement, ARP could sell, from time to time through the agents, common units having an aggregate offering price of up to $25.0 million. During the year ended December 31, 2013, ARP issued 309,174 common limited partner units under the equity distribution program for net proceeds of $6.9 million, net of $0.4 million in commissions paid. ARP utilized the net proceeds from the sale to repay borrowings outstanding under its revolving credit facility. ARP terminated the equity distribution agreement effective December 27, 2013.
For the sixnine months ended JuneSeptember 30, 2014, in connection with the issuance of ARP’s common units, we recorded gains of $41.6$40.7 million within partners’ capital and a corresponding decrease in non-controlling interests on our consolidated balance sheet and consolidated statement of partners’ capital. At December 31, 2013, in connection with the issuance of ARP’s common units, the Partnershipwe recorded gains of $27.3 million within partners’ capital and a corresponding decrease in non-controlling interests on its consolidated balance sheets and consolidated statement of partners’ capital
Atlas Pipeline Partners
Equity Offerings
On May 12, 2014, APL entered into an equity distribution agreement with Citigroup Global Markets Inc. (“Citigroup”), Wells Fargo Securities, LLC and MLV &Co. LLC, through whichas sales agents. Pursuant to the 2014 equity distribution agreement, APL may offer and sell from time to time through its sales agents, common units having an aggregate value up to $250.0 million. Sales are at market prices prevailing at the time of the sale. In November 2012, APL entered into a previous equity distribution program with Citigroup. Pursuant to this program, APL offered and sold through Citigroup, as its sales agent, common units for $150.0 million. APL has used the full capacity under the equity distribution program during the year ended 2013.
During the three months ended JuneSeptember 30, 2014 and 2013, APL issued 1,462,1872,095,818 and 642,4951,772,800 common units, respectively, under the equity distribution programs for net proceeds of $47.4$74.2 million and $24.5$63.7 million, respectively, net of $0.5$0.8 million and $0.5$1.3 million, respectively, in commissions paid to the sellingsales agents. During the sixnine months ended JuneSeptember 30, 2014 and 2013, APL issued 1,462,1873,558,005 and 1,090,2802,863,080 common units, respectively, under the equity distribution programs for net proceeds of $47.4$121.6 million and $38.9$102.7 million, respectively, net of $0.5$1.2 million and $0.8$2.1 million, respectively, in commissions paid to the sellingsales agents. APL also received capital contributions from us of $1.0$1.5 million and $0.5$1.3 million respectively, during the three months ended JuneSeptember 30, 2014 and 2013, respectively, and $1.0$2.5 million and $0.8$2.1 million respectively, during the sixnine months ended JuneSeptember 30, 2014 and 2013, respectively, to maintain itsour 2.0% general partner interest in APL. APL utilized the net proceeds from the common unit offerings for general partnership purposes.purposes
In March 2014, APL issued 5,060,000 of its Class E Preferred Units to the public at an offering price of $25.00 per Class E Preferred Unit. APL received $122.3 million in net proceeds. The proceeds were used to pay down APL’s revolving credit facility.
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APL will makemakes cumulative cash distributions on the Class E Preferred Units, from the date of original issue. The cash distributions will bewhich are payable quarterly in arrears on January 15, April 15, July 15 and October 15 of each year, when, and if, declared by the board of directors. The initial distribution on the Class E Preferred Units was paid on July 15, 2014 in an amount equal to $0.67604 per unit, or approximately $3.4 million, representing the distribution for the period March 17, 2014 tothrough July 14, 2014. Subsequent to July 14, 2014, APL has paid and will continue to pay cumulative distributions in cash on the Class E Preferred Units on a quarterly basis at a rate of $0.515625 per unit, or 8.25% per year. On October 15, 2014, APL paid a cash distribution of $2.6 million on its outstanding Class E Preferred Units, representing the cash distribution for the period from July 15, 2014 through October 14, 2014. The $2.6 million distribution was paid on October 15, 2014. For the three and sixnine months ended JuneSeptember 30, 2014, APL allocated net income of $2.6 million and $3.0$5.6 million, respectively, to the Class E Preferred Units for the dividends earned during the period, which was recorded as preferred unit dividendswithin income (loss) from non-controlling interests on itsour consolidated statements of operations.
At any time on or after March 17, 2019, or in the event of a liquidation or certain changes of control, APL may redeem the Class E Preferred Units, in whole or in part, at a redemption price of $25.00 per unit plus an amount equal to all accumulated and unpaid distributions on the date of redemption, whether or not declared. If APL does not exercise this redemption right upon a change of control, then the holders of the Class E Preferred Units will have the option to convert their Class E Preferred Units into a number of APL’s common units, as set forth in the Certificate of Designation relating to the Class E Preferred Units.
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In May 2013, APL issued Class D Preferred Units in a private placement transaction to third party investors which are presented combined with a net $38.8$27.4 million unaccreted beneficial conversion discount within non-controlling interests on our consolidated balance sheet at JuneSeptember 30, 2014. The discount will be accreted and recognized by APL as imputed dividends over the term of the Class D Preferred Units as a reduction to APL’s net income attributable to the common limited partners and us, as general partner. APL recorded $11.4 million and $6.7 million forin each of the three months ended JuneSeptember 30, 2014 and 2013, respectively, and $22.8$34.1 million and $6.7$18.1 million for the sixnine months ended JuneSeptember 30, 2014 and 2013, respectively, within income (loss) attributable to non-controlling interests for the preferred unit imputed dividend effect on our consolidated statements of operations to recognize the accretion of the beneficial conversion discount.
The Class D Preferred Units will receivereceived distributions of additional Class D Preferred Units for the first four full quarterly periods following their issuance in May 2013, and thereafter will receive distributions in Class D Preferred Units, or cash or a combination of Class D Preferred Units and cash, at our discretion, as general partner. APL recorded Class D Preferred Unit distributions in kind of $10.4$11.4 million and $5.3$9.1 million for the three months ended JuneSeptember 30, 2014 and 2013, respectively, and $20.1$31.5 million and $5.3$14.4 million for the sixnine months ended JuneSeptember 30, 2014 and 2013, respectively, within income (loss) attributable to non-controlling interests on our consolidated statements of operations. During the three and sixnine months ended JuneSeptember 30, 2014, APL distributed 305,983294,439 and 580,768,875,207, respectively, Class D Preferred Units to the holders of the Class D Preferred Units as a distribution in kind. During each of the three and nine months ended September 30, 2013, APL did not distribute anydistributed 138,598 Class D Preferred Units duringto the three and six months ended June 30, 2013.holders of the Class D Preferred Units as a distribution in kind. APL’s Class D Preferred Unit distributions paid in kind represented non-cash transactions during the three and sixnine months ended JuneSeptember 30, 2014.
In April 2013, APL sold 11,845,000 of its common units in a public offering at a price of $34.00 per unit, yielding net proceeds of $388.4 million after underwriting commissions and expenses. APL also received a capital contribution from us of $0.5$8.3 million during both the three monthsyear ended June 30, 2014 and 2013, and $0.8 million during both the six months ended June 30, 2014 andDecember 31, 2013, to maintain our 2.0% general partnership interest in APL. APL used the proceeds from this offering to fund a portion of the purchase price of the TEAK Acquisition.
For the sixnine months ended JuneSeptember 30, 2014, in connection with the issuance of APL’s common units, we recorded a $1.1$2.8 million gain within partner’s capital and a corresponding decrease in non-controlling interests on our consolidated balance sheet and consolidated statement of partners’ capital. At December 31, 2013, in connection with the issuance of APL’s common units, we recorded an $11.9 million gain within partner’spartners’ capital and a corresponding decrease in non-controlling interests on itsour consolidated balance sheet and consolidated statement of partner’spartners’ capital.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires making estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of actual revenue and expenses during the reporting period. Although we base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances, actual results may differ from the estimates on which our financial statements are prepared at any given point of time. Changes in these estimates could materially affect our financial position,
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results of operations or cash flows. Significant items that are subject to such estimates and assumptions include revenue and expense accruals, depletion, depreciation and amortization, asset impairment, fair value of derivative instruments, the probability of forecasted transactions and the allocation of purchase price to the fair value of assets acquired. A discussion of the significant accounting policies we have adopted and followed in the preparation of our consolidated financial statements was included in our Annual Report on Form 10-K for the year ended December 31, 2013, and we summarize our significant accounting policies within our consolidated financial statements included in Note 2 under “Item 1: Financial Statements” included in this report. The critical accounting policies and estimates we have identified are discussed below.
Depreciation and Impairment of Long-Lived Assets and Goodwill
Long-Lived Assets. The cost of property, plant and equipment, less estimated salvage value, is generally depreciated on a straight-line basis over the estimated useful lives of the assets. Useful lives are based on historical experience and are adjusted when changes in planned use, technological advances or other factors indicate that a different life would be more appropriate. Changes in useful lives that do not result in the impairment of an asset are recognized prospectively.
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Long-lived assets, other than goodwill and intangibles with infinite lives, generally consist of natural gas and oil properties and pipeline, processing and compression facilities and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. A long-lived asset, other than goodwill and intangibles with infinite lives, is considered to be impaired when the undiscounted net cash flows expected to be generated by the asset are less than its carrying amount. The undiscounted net cash flows expected to be generated by the asset are based upon our estimates that rely on various assumptions, including natural gas and oil prices, production and operating expenses. Any significant variance in these assumptions could materially affect the estimated net cash flows expected to be generated by the asset. As discussed in “General Trends and Outlook”, recent increases in natural gas drilling have driven an increase in the supply of natural gas and put a downward pressure on domestic prices. Further declines in natural gas prices may result in additional impairment charges in future periods.
There were no impairments of proved or unproved gas and oil properties recorded for the three and sixnine months ended JuneSeptember 30, 2014 and 2013. During the year ended December 31, 2013, ARP recognized $38.0 million of asset impairments related to gas and oil properties within property, plant and equipment, net on our consolidated balance sheet primarily for its shallow natural gas wells in the New Albany Shale and unproved acreage in the Chattanooga and New Albany Shales. The impairments of proved and unproved properties during the year ended December 31, 2013 related to the carrying amount of these gas and oil properties being in excess of ARP’s estimate of their fair values at December 31, 2013 and ARP’s intention not to drill on certain expiring unproved acreage. The estimate of fair values of these gas and oil properties was impacted by, among other factors, the deterioration of natural gas prices at the date of measurement.
Events or changes in circumstances that would indicate the need for impairment testing include, among other factors: operating losses; unused capacity; market value declines; technological developments resulting in obsolescence; changes in demand for products manufactured by others utilizing our services or for our products; changes in competition and competitive practices; uncertainties associated with the United States and world economies; changes in the expected level of environmental capital, operating or remediation expenditures; and changes in governmental regulations or actions. Additional factors impacting the economic viability of long-lived assets are discussed under “Item 1A: Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2013.
Goodwill and Intangibles with Infinite Lives. Goodwill and intangibles with infinite lives must be tested for impairment annually or more frequently if events or changes in circumstances indicate that the related asset might be impaired. An impairment loss should be recognized if the carrying value of an entity’s reporting units exceeds its estimated fair value.
There were no goodwill impairments recognized by ARP or APL during the three and sixnine months ended JuneSeptember 30, 2014 and 2013.
Fair Value of Financial Instruments
We and our subsidiaries have established a hierarchy to measure our financial instruments at fair value which requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The hierarchy defines three levels of inputs that may be used to measure fair value:
Level 1 – Unadjusted quoted prices in active markets for identical, unrestricted assets and liabilities that the reporting entity has the ability to access at the measurement date.
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Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability.
Level 3 – Unobservable inputs that reflect the entity’s own assumptions about the assumptions market participants would use in the pricing of the asset or liability and are consequently not based on market activity but rather through particular valuation techniques.
We use a fair value methodology to value the assets and liabilities for our and our subsidiaries’ outstanding derivative contracts.contracts and our rabbi trust assets. Our and our subsidiaries’ commodity hedges, with the exception of APL’s NGL fixed price swaps and NGL options, are calculated based on observable market data related to the change in price of the underlying commodity and are therefore defined as Level 2 fair value measurements. Investments held in our rabbi trust are publicly traded equity and debt securities and are therefore defined as Level 1 fair value measurements. Valuations for APL’s NGL fixed price swaps are based on a forward price curve modeled on a regression analysis of natural gas, crude oil and propane prices and therefore are defined as Level 3 fair value measurements. Valuations for APL’s NGL options are based on forward price curves developed by the related financial institution and therefore are defined as Level 3 fair value measurements.
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Of the $28.6$66.1 million of net derivative liabilities and $14.9 million of net derivative assets at JuneSeptember 30, 2014 and December 31, 2013, respectively, APL had net derivative liabilitiesassets of $5.6$4.7 million and net derivative liabilities of $11.8 million at JuneSeptember 30, 2014 and December 31, 2013, respectively, that were classified as Level 3 fair value measurements which rely on subjective forward developed price curves. Holding all other variables constant, a 10% change in the price APL utilized in calculating the fair value of derivatives at JuneSeptember 30, 2014 would have resulted in a $1.2$1.1 million non-cash change, net of non-controlling interests, to net income (loss) for the sixnine months ended JuneSeptember 30, 2014.
Liabilities that are required to be measured at fair value on a nonrecurring basis include our asset retirement obligations that are defined as Level 3. Estimates of the fair value of asset retirement obligations are based on discounted cash flows using numerous estimates, assumptions, and judgments regarding the cost, timing of settlement, our credit-adjusted risk-free rate and inflation rates.
During the threenine months ended JuneSeptember 30, 2014, ARP completed the Rangely and GeoMet acquisitions. During the year ended December 31, 2013, we completed the Arkoma Acquisition and ARP completed the EP Energy acquisition. During the year ended December 31, 2013, APL completed the TEAK Acquisition. The fair value measurements of assets acquired and liabilities assumed are based on inputs that are not observable in the market and therefore represent Level 3 inputs. The fair values of natural gas and oil properties were measured using a discounted cash flow model, which considered the estimated remaining lives of the wells based on reserve estimates, future operating and development costs of the assets, as well as the respective natural gas, oil and natural gas liquids forward price curves. The fair values of the asset retirement obligations were measured under our and ARP’s existing methodology for recognizing an estimated liability for the plugging and abandonment of our and its gas and oil wells (see “Item 1: Financial Statements—Note 7”). These inputs require significant judgments and estimates by our, ARP’s and APL’s management at the time of the valuation and are subject to change.
Reserve Estimates
Estimates of proved natural gas, oil and natural gas liquids reserves and future net revenues from them are based upon reserve analyses that rely upon various assumptions, including those required by the SEC, as to natural gas, oil and natural gas liquids prices, drilling and operating expenses, capital expenditures and availability of funds. The accuracy of these reserve estimates is a function of many factors including the following: the quality and quantity of available data, the interpretation of that data, the accuracy of various mandated economic assumptions and the judgments of the individuals preparing the estimates. As discussed in “Item 2: Properties” of our Annual Report on Form 10-K for the year ended December 31, 2013, we and ARP engaged Wright and Company, Inc., an independent third-party reserve engineer, to prepare a report of our and ARP’s proved reserves.
Any significant variance in the assumptions utilized in the calculation of reserve estimates could materially affect the estimated quantity of reserves. As a result, estimates of proved natural gas, oil and natural gas liquids reserves are inherently imprecise. Actual future production, natural gas, oil and natural gas liquids prices, revenues, development expenditures, operating expenses and quantities of recoverable natural gas, oil and natural gas liquids reserves may vary substantially from our estimates or estimates contained in the reserve reports and may affect our and ARP’s ability to pay amounts due under our and ARP’s credit facilities or cause a reduction in our or ARP’s credit facilities. In addition, proved reserves may be subject to downward or upward revision based upon production history, results of future exploration and development, prevailing natural gas, oil and natural gas liquids prices, mechanical difficulties, governmental regulation and other factors,
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many of which are beyond our control. Reserves and their relation to estimated future net cash flows impact the calculation of impairment and depletion of oil and gas properties. Adjustments to quarterly depletion rates, which are based upon a units of production method, are made concurrently with changes to reserve estimates. Generally, an increase or decrease in reserves without a corresponding change in capitalized costs will have a corresponding inverse impact to depletion expense.
Asset Retirement Obligations
We and our subsidiaries estimate the cost of future dismantlement, restoration, reclamation and abandonment of our operating assets.
We and ARP recognize an estimated liability for the plugging and abandonment of gas and oil wells and related facilities. We and ARP also recognize a liability for future asset retirement obligations if a reasonable estimate of the fair value of that liability can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. We and ARP also consider the estimated salvage value in the calculation of depreciation, depletion and amortization.
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The estimated liability is based on historical experience in plugging and abandoning wells, estimated remaining lives of those wells based on reserve estimates, external estimates as to the cost to plug and abandon the wells in the future and federal and state regulatory requirements. The liability is discounted using an assumed credit-adjusted risk-free interest rate. Asset removal technologies and costs are constantly changing, as are regulatory, political, environmental, safety and public relations considerations. Since there are many variables in estimating asset retirement obligations, we and ARP attempt to limit the impact of management’s judgment on certain of these variables by developing a standard cost estimate based on historical costs and industry quotes updated annually. Revisions to the liability could occur due to changes in estimates of plugging and abandonment costs or remaining lives of the wells, or if federal or state regulators enact new plugging and abandonment requirements. Neither we nor ARP have any assets legally restricted for purposes of settling asset retirement obligations. Except for gas and oil properties, there are no other material retirement obligations associated with our and ARP’s tangible long lived assets.
Atlas Pipeline
APL performs ongoing analysis of asset removal and site restoration costs that it may be required to perform under law or contract once an asset has been permanently taken out of service. APL has property, plant and equipment at locations owned by APL and at sites leased or under right of way agreements. APL is under no contractual obligation to remove the assets at locations it owns. In evaluating its asset retirement obligation, APL reviews its lease agreements, right of way agreements, easements and permits to determine which agreements, if any, require an asset removal and restoration obligation. Determination of the amounts to be recognized is based upon numerous estimates and assumptions, including expected settlement dates, future retirement costs, future inflation rates and the credit-adjusted-risk-free interest rates. However, APL was not able to reasonably measure the fair value of the asset retirement obligation as of JuneSeptember 30, 2014 and December 31, 2013 because the settlement dates were indeterminable. Any cost incurred in the future to remove assets and restore sites will be expensed as incurred.
The primary objective of the following information is to provide forward-looking quantitative and qualitative information about our and our subsidiaries’ potential exposure to market risks. The term “market risk” refers to the risk of loss arising from adverse changes in interest rates and commodity prices. The disclosures are not meant to be precise indicators of expected future losses, but rather indicators of reasonable possible losses. This forward-looking information provides indicators of how we and our subsidiaries view and manage our ongoing market risk exposures. All of the market risk sensitive instruments were entered into for purposes other than trading.
General
All of our and our subsidiaries’ assets and liabilities are denominated in U.S. dollars, and as a result, we do not have exposure to currency exchange risks.
We and our subsidiaries are exposed to various market risks, principally fluctuating interest rates and changes in commodity prices. These risks can impact our results of operations, cash flows and financial position. We and our subsidiaries manage these risks through regular operating and financing activities and periodic use of derivative financial instruments such as forward contracts and interest rate cap and swap agreements. The following analysis presents the effect
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on our results of operations, cash flows and financial position as if the hypothetical changes in market risk factors occurred on JuneSeptember 30, 2014. Only the potential impact of hypothetical assumptions was analyzed. The analysis does not consider other possible effects that could impact our and our subsidiaries’ business.
Current market conditions elevate our and our subsidiaries’ concern over counterparty risks and may adversely affect the ability of these counterparties to fulfill their obligations to us, if any. The counterparties related to our and our subsidiaries’ commodity derivative contracts are banking institutions or their affiliates, who also participate in our, ARP’s and APL’s revolving credit facilities. The creditworthiness of our and our subsidiaries’ counterparties is constantly monitored, and we and our subsidiaries currently believe them to be financially viable. We and our subsidiaries are not aware of any inability on the part of their counterparties to perform under their contracts and believe our and our subsidiaries’ exposure to non-performance is remote.
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Interest Rate Risk. At JuneSeptember 30, 2014, we had $238.2$237.6 million of outstanding borrowings under our term loan facility, ARP had $581.0$660.0 million of outstanding borrowings under its revolving credit facility and APL had $100.0$200.0 million of outstanding borrowings under its senior secured revolving credit facility. At JuneSeptember 30, 2014, we had no borrowings outstanding under our revolving credit facility. Holding all other variables constant, a hypothetical 100 basis-point or 1% change in variable interest rates would change our consolidated interest expense for the twelve-month period ending JuneSeptember 30, 2015 by $9.2$11.0 million, excluding the effect of non-controlling interests.
Commodity Price Risk. Our and our subsidiaries’ market risk exposures to commodities are due to the fluctuations in the commodity prices and the impact those price movements have on our and our subsidiaries’ financial results. To limit the exposure to changing commodity prices, we and our subsidiaries use financial derivative instruments, including financial swap and option instruments, to hedge portions of future production. The swap instruments are contractual agreements between counterparties to exchange obligations of money as the underlying commodities are sold. Under these swap agreements, we and our subsidiaries receive or pay a fixed price and receive or remit a floating price based on certain indices for the relevant contract period. Option instruments are contractual agreements that grant the right, but not the obligation, to purchase or sell commodities at a fixed price for the relevant period.
Holding all other variables constant, including the effect of commodity derivatives, a 10% change in average commodity prices would result in a change to our consolidated operating income for the twelve-month period ending JuneSeptember 30, 2015 of approximately $8.9$8.2 million, net of non-controlling interests.
Realized pricing of natural gas, oil, and natural gas liquids production is primarily driven by the prevailing worldwide prices for crude oil and spot market prices applicable to United States natural gas, oil and natural gas liquids production. Pricing for natural gas, oil and natural gas liquids production has been volatile and unpredictable for many years. To limit our and our subsidiaries’ exposure to changing natural gas, oil and natural gas liquids prices, we enter into natural gas and oil swap, put option and costless collar option contracts. At any point in time, such contracts may include regulated NYMEX futures and options contracts and non-regulated over-the-counter (“OTC”) futures contracts with qualified counterparties. NYMEX contracts are generally settled with offsetting positions, but may be settled by the delivery of natural gas. OTC contracts are generally financial contracts which are settled with financial payments or receipts and generally do not require delivery of physical hydrocarbons. Crude oil contracts are based on a West Texas Intermediate (“WTI”) index. Natural gas liquids fixed price swaps are priced based on a WTI crude oil index, while other natural gas liquids contracts are based on an OPIS Mt. Belvieu index. These contracts have qualified and been designated as cash flow hedges and been recorded at their fair values.
At JuneSeptember 30, 2014, we had the following commodity derivatives:
Natural Gas – Fixed Price Swaps
Production |
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| Volumes |
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| Average |
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| Volumes |
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| Average |
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| (MMBtu)(1) |
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| (per MMBtu)(1) |
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|
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| (MMBtu)(1) |
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| (per MMBtu)(1) |
| ||||||
2014 |
|
|
|
|
| 1,380,000 |
|
| $ | 4.177 |
|
|
|
|
|
| 690,000 |
|
| $ | 4.177 |
| ||
2015 |
|
|
|
|
| 2,280,000 |
|
| $ | 4.302 |
|
|
|
|
|
| 2,280,000 |
|
| $ | 4.302 |
| ||
2016 |
|
|
|
|
| 1,440,000 |
|
| $ | 4.433 |
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|
|
|
|
| 1,440,000 |
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| $ | 4.433 |
| ||
2017 |
|
|
|
|
| 1,200,000 |
|
| $ | 4.590 |
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|
|
|
|
| 1,200,000 |
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| $ | 4.590 |
| ||
2018 |
|
|
|
|
| 420,000 |
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| $ | 4.797 |
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|
|
|
|
| 420,000 |
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| $ | 4.797 |
|
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(1) | “MMBtu” represents million British Thermal Units. |
At JuneSeptember 30, 2014, ARP had the following commodity derivatives:
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Natural Gas – Fixed Price Swaps
Production |
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| Volumes |
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| Average |
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| Volumes |
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| Average |
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| (MMBtu)(1) |
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|
|
| (MMBtu)(1) |
|
| (per MMBtu)(1) |
| ||||
2014 |
|
|
|
|
|
| 30,076,500 |
|
| $ | 4.152 |
|
|
|
|
|
|
| 15,038,200 |
|
| $ | 4.152 |
|
2015 |
|
|
|
|
|
| 51,924,500 |
|
| $ | 4.239 |
|
|
|
|
|
|
| 51,924,500 |
|
| $ | 4.239 |
|
2016 |
|
|
|
|
|
| 45,746,300 |
|
| $ | 4.311 |
|
|
|
|
|
|
| 45,746,300 |
|
| $ | 4.311 |
|
2017 |
|
|
|
|
|
| 24,840,000 |
|
| $ | 4.532 |
|
|
|
|
|
|
| 24,840,000 |
|
| $ | 4.532 |
|
2018 |
|
|
|
|
|
| 9,360,000 |
|
| $ | 4.619 |
|
|
|
|
|
|
| 9,360,000 |
|
| $ | 4.619 |
|
Natural Gas – Costless Collars
Production |
|
| Option Type |
|
| Volumes |
|
| Average |
|
|
| Option Type |
|
| Volumes |
|
| Average |
| ||||
|
|
|
|
|
| (MMBtu)(1) |
|
| (per MMBtu)(1) |
|
|
|
|
|
| (MMBtu)(1) |
|
| (per MMBtu)(1) |
| ||||
2014 |
|
| Puts purchased |
|
|
| 1,920,000 |
|
| $ | 4.221 |
|
|
| Puts purchased |
|
|
| 960,000 |
|
| $ | 4.221 |
|
2014 |
|
| Calls sold |
|
|
| 1,920,000 |
|
| $ | 5.120 |
|
|
| Calls sold |
|
|
| 960,000 |
|
| $ | 5.120 |
|
2015 |
|
| Puts purchased |
|
|
| 3,480,000 |
|
| $ | 4.234 |
|
|
| Puts purchased |
|
|
| 3,480,000 |
|
| $ | 4.234 |
|
2015 |
|
| Calls sold |
|
|
| 3,480,000 |
|
| $ | 5.129 |
|
|
| Calls sold |
|
|
| 3,480,000 |
|
| $ | 5.129 |
|
Natural Gas – Put Options – Drilling Partnerships
Production |
|
| Option Type |
|
| Volumes |
|
| Average |
|
|
| Option Type |
|
| Volumes |
|
| Average |
| ||||
|
|
|
|
|
| (MMBtu)(1) |
|
| (per MMBtu)(1) |
|
|
|
|
|
| (MMBtu)(1) |
|
| (per MMBtu)(1) |
| ||||
2014 |
| Puts purchased |
|
| 900,000 |
|
| $ | 3.800 |
|
| Puts purchased |
|
| 450,000 |
|
| $ | 3.800 |
| ||||
2015 |
| Puts purchased |
|
| 1,440,000 |
|
| $ | 4.000 |
|
| Puts purchased |
|
| 1,440,000 |
|
| $ | 4.000 |
| ||||
2016 |
| Puts purchased |
|
| 1,440,000 |
|
| $ | 4.150 |
|
| Puts purchased |
|
| 1,440,000 |
|
| $ | 4.150 |
|
Natural Gas – WAHA Basis Swaps
Production |
|
|
|
|
| Volumes |
|
| Average |
|
|
|
|
|
| Volumes |
|
| Average |
| ||||
|
|
|
|
|
| (MMBtu)(1) |
|
| (per MMBtu)(1) |
|
|
|
|
|
| (MMBtu)(1) |
|
| (per MMBtu)(1) |
| ||||
2014 |
|
|
|
|
| 5,400,000 |
|
| $ | (0.110 | ) |
|
|
|
|
| 2,700,000 |
|
| $ | (0.110 | ) | ||
2015 |
|
|
|
|
| 3,000,000 |
|
| $ | (0.068 | ) |
Natural Gas – NGPL Basis Swaps
Production |
|
|
|
|
| Volumes |
|
| Average |
|
|
|
|
|
| Volumes |
|
| Average |
| ||||
|
|
|
|
|
| (MMBtu)(1) |
|
| (per MMBtu)(1) |
|
|
|
|
|
| (MMBtu)(1) |
|
| (per MMBtu)(1) |
| ||||
2014 |
|
|
|
|
| 2,700,000 |
|
| $ | (0.110 | ) |
|
|
|
|
| 2,250,000 |
|
| $ | (0.108 | ) |
105
Natural Gas Liquids – Natural Gasoline Fixed Price Swaps
Production |
|
|
|
| Volumes |
|
| Average |
|
|
|
|
| Volumes |
|
| Average |
| ||||||
|
|
|
|
| (Bbl)(1) |
|
| (per Bbl)(1) |
|
|
|
|
| (Gal)(1) |
|
| (per Gal)(1) |
| ||||||
2014 |
|
|
|
|
| 1,386,000 |
|
| $ | 2.123 |
| |||||||||||||
2015 |
|
|
|
|
| 96,000 |
|
| $ | 88.550 |
|
|
|
|
|
| 5,040,000 |
|
| $ | 1.983 |
| ||
2016 |
|
|
|
|
| 84,000 |
|
| $ | 85.651 |
| |||||||||||||
2017 |
|
|
|
|
| 60,000 |
|
| $ | 83.780 |
|
101
Natural Gas Liquids – Ethane Fixed Price Swaps
Production |
|
|
|
| Volumes |
|
| Average |
|
|
|
|
| Volumes |
|
| Average |
| ||||||
|
|
|
|
| (Gal)(1) |
|
| (per Gal)(1) |
|
|
|
|
| (Gal)(1) |
|
| (per Gal)(1) |
| ||||||
2014 |
|
|
|
|
| 1,260,000 |
|
| $ | 0.303 |
|
|
|
|
|
| 630,000 |
|
| $ | 0.303 |
|
Natural Gas Liquids – Propane Fixed Price Swaps
Production |
|
|
|
| Volumes |
|
| Average |
|
|
|
|
| Volumes |
|
| Average |
| ||||||
|
|
|
|
| (Gal)(1) |
|
| (per Gal)(1) |
|
|
|
|
| (Gal)(1) |
|
| (per Gal)(1) |
| ||||||
2014 |
|
|
|
|
| 6,174,000 |
|
| $ | 0.999 |
|
|
|
|
|
| 3,087,000 |
|
| $ | 1.000 |
| ||
2015 |
|
|
|
|
| 8,064,000 |
|
| $ | 1.016 |
|
|
|
|
|
| 8,064,000 |
|
| $ | 1.016 |
|
Natural Gas Liquids – Butane Fixed Price Swaps
Production |
|
|
|
| Volumes |
|
| Average |
|
|
|
|
| Volumes |
|
| Average |
| ||||||
|
|
|
|
| (Gal)(1) |
|
| (per Gal)(1) |
|
|
|
|
| (Gal)(1) |
|
| (per Gal)(1) |
| ||||||
2014 |
|
|
|
|
| 756,000 |
|
| $ | 1.308 |
|
|
|
|
|
| 378,000 |
|
| $ | 1.308 |
| ||
2015 |
|
|
|
|
| 1,512,000 |
|
| $ | 1.248 |
|
|
|
|
|
| 1,512,000 |
|
| $ | 1.248 |
|
Natural Gas Liquids – Iso Butane Fixed Price Swaps
Production |
|
|
|
| Volumes |
|
| Average |
|
|
|
|
| Volumes |
|
| Average |
| ||||||
|
|
|
|
| (Gal)(1) |
|
| (per Gal)(1) |
|
|
|
|
| (Gal)(1) |
|
| (per Gal)(1) |
| ||||||
2014 |
|
|
|
|
| 756,000 |
|
| $ | 1.323 |
|
|
|
|
|
| 378,000 |
|
| $ | 1.323 |
| ||
2015 |
|
|
|
|
| 1,512,000 |
|
| $ | 1.263 |
|
|
|
|
|
| 1,512,000 |
|
| $ | 1.263 |
|
Natural Gas Liquids – Crude Oil Fixed Price Swaps
Production |
|
|
|
|
| Volumes |
|
| Average |
| ||
|
|
|
|
|
| (Bbl)(1) |
|
| (per Bbl)(1) |
| ||
2016 |
|
|
|
|
|
| 84,000 |
|
| $ | 85.651 |
|
2017 |
|
|
|
|
|
| 60,000 |
|
| $ | 83.780 |
|
106
Crude Oil – Fixed Price Swaps
Production |
|
|
|
| Volumes |
|
| Average |
|
|
|
|
|
| Volumes |
|
| Average |
| |||||
|
|
|
|
| (Bbl)(1) |
|
| (per Bbl)(1) |
|
|
|
|
|
| (Bbl)(1) |
|
| (per Bbl)(1) |
| |||||
2014 |
|
|
|
|
| 591,000 |
|
| $ | 95.599 |
|
|
|
|
|
|
| 439,500 |
|
| $ | 95.090 |
| |
2015 |
|
|
|
|
| 1,095,000 |
|
| $ | 90.160 |
|
|
|
|
|
|
| 1,743,000 |
|
| $ | 90.645 |
| |
2016 |
|
|
|
|
| 777,000 |
|
| $ | 87.785 |
|
|
|
|
|
|
| 1,029,000 |
|
| $ | 88.650 |
| |
2017 |
|
|
|
|
| 132,000 |
|
| $ | 83.305 |
|
|
|
|
|
|
| 492,000 |
|
| $ | 87.752 |
| |
2018 |
|
|
|
|
|
| 360,000 |
|
| $ | 88.283 |
|
Crude Oil – Costless Collars
Production |
|
| Option Type |
|
| Volumes |
|
| Average |
|
|
| Option Type |
|
| Volumes |
|
| Average |
| ||||
|
|
|
|
|
| (Bbl)(1) |
|
| (per Bbl)(1) |
|
|
|
|
|
| (Bbl)(1) |
|
| (per Bbl)(1) |
| ||||
2014 |
|
| Puts purchased |
|
|
| 20,580 |
|
| $ | 84.169 |
|
|
| Puts purchased |
|
|
| 10,290 |
|
| $ | 84.169 |
|
2014 |
|
| Calls sold |
|
|
| 20,580 |
|
| $ | 113.308 |
|
|
| Calls sold |
|
|
| 10,290 |
|
| $ | 113.308 |
|
2015 |
|
| Puts purchased |
|
|
| 29,250 |
|
| $ | 83.846 |
|
|
| Puts purchased |
|
|
| 29,250 |
|
| $ | 83.846 |
|
2015 |
|
| Calls sold |
|
|
| 29,250 |
|
| $ | 110.654 |
|
|
| Calls sold |
|
|
| 29,250 |
|
| $ | 110.654 |
|
(1) | “MMBtu” represents million British Thermal Units; “Bbl” represents barrels; “Gal” represents gallons. |
102
As of JuneSeptember 30, 2014, APL had the following commodity derivatives:
Fixed Price Swaps
Production Period |
| Purchased/ |
|
|
| Commodity |
| Volumes(1) |
|
| Average |
|
| Purchased/ |
|
| Commodity |
| Volumes(1) |
|
| Average |
| |||||
Natural Gas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
2014 |
| Sold |
|
|
| Natural Gas |
|
| 10,400,000 |
|
| $ | 4.109 |
|
| Sold |
|
| Natural Gas |
|
| 5,350,000 |
|
| $ | 4.154 |
| |
2015 |
| Sold |
|
|
| Natural Gas |
|
| 19,510,000 |
|
| $ | 4.267 |
|
| Sold |
|
| Natural Gas |
|
| 19,810,000 |
|
| $ | 4.264 |
| |
2016 |
| Sold |
|
|
| Natural Gas |
|
| 8,100,000 |
|
| $ | 4.278 |
|
| Sold |
|
| Natural Gas |
|
| 9,300,000 |
|
| $ | 4.262 |
| |
2017 |
| Sold |
|
|
| Natural Gas |
|
| 1,200,000 |
|
| $ | 4.474 |
|
| Sold |
|
| Natural Gas |
|
| 1,800,000 |
|
| $ | 4.433 |
| |
Natural Gas Liquids |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
2014 |
| Sold |
|
|
| Natural Gas Liquids |
|
| 38,052,000 |
|
| $ | 1.244 |
|
| Sold |
|
| Natural Gas Liquids |
|
| 19,278,000 |
|
| $ | 1.248 |
| |
2015 |
| Sold |
|
|
| Natural Gas Liquids |
|
| 68,166,000 |
|
| $ | 1.207 |
|
| Sold |
|
| Natural Gas Liquids |
|
| 71,442,000 |
|
| $ | 1.215 |
| |
2016 |
| Sold |
|
|
| Natural Gas Liquids |
|
| 9,450,000 |
|
| $ | 1.035 |
|
| Sold |
|
| Natural Gas Liquids |
|
| 34,650,000 |
|
| $ | 1.030 |
| |
2017 |
| Sold |
|
| Natural Gas Liquids |
|
| 10,080,000 |
|
| $ | 1.040 |
| |||||||||||||||
Crude Oil |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
2014 |
| Sold |
|
|
| Crude Oil |
|
| 159,000 |
|
| $ | 91.091 |
|
| Sold |
|
| Crude Oil |
|
| 69,000 |
|
| $ | 91.707 |
| |
2015 |
| Sold |
|
|
| Crude Oil |
|
| 210,000 |
|
| $ | 90.263 |
|
| Sold |
|
| Crude Oil |
|
| 210,000 |
|
| $ | 90.263 |
| |
2016 |
| Sold |
|
|
| Crude Oil |
|
| 30,000 |
|
| $ | 90.000 |
|
| Sold |
|
| Crude Oil |
|
| 30,000 |
|
| $ | 90.000 |
|
107
Options
Production Period |
| Purchased/ |
| Type |
| Commodity |
| Volumes(1) |
|
| Average |
|
| Purchased/ |
| Type |
| Commodity |
| Volumes(1) |
|
| Average |
| ||||
Natural Gas |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
2014 |
| Purchased |
| Put |
| Natural Gas |
|
| 200,000 |
|
| $ | 4.150 |
| ||||||||||||||
Natural Gas Liquids |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
| Purchased |
| Put |
| Natural Gas Liquids |
|
| 5,040,000 |
|
| $ | 0.959 |
|
| Purchased |
| Put |
| Natural Gas Liquids |
|
| 2,520,000 |
|
| $ | 0.964 |
|
2014 |
| Sold |
| Call |
| Natural Gas Liquids |
|
| 2,520,000 |
|
| $ | 1.323 |
|
| Sold |
| Call |
| Natural Gas Liquids |
|
| 1,260,000 |
|
| $ | 1.340 |
|
2015 |
| Purchased |
| Put |
| Natural Gas Liquids |
|
| 3,150,000 |
|
| $ | 0.941 |
|
| Purchased |
| Put |
| Natural Gas Liquids |
|
| 3,150,000 |
|
| $ | 0.941 |
|
2015 |
| Sold |
| Call |
| Natural Gas Liquids |
|
| 1,260,000 |
|
| $ | 1.275 |
|
| Sold |
| Call |
| Natural Gas Liquids |
|
| 1,260,000 |
|
| $ | 1.275 |
|
Crude Oil |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
| Purchased |
| Put |
| Crude Oil |
|
| 207,000 |
|
| $ | 90.849 |
|
| Purchased |
| Put |
| Crude Oil |
|
| 117,000 |
|
| $ | 91.569 |
|
2015 |
| Purchased |
| Put |
| Crude Oil |
|
| 270,000 |
|
| $ | 89.175 |
|
| Purchased |
| Put |
| Crude Oil |
|
| 270,000 |
|
| $ | 89.175 |
|
(1) | Volumes for natural gas are stated in MMBtu’s. Volumes for NGLs are stated in gallons. Volumes for crude oil are stated in barrels. |
103108
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934 reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our general partner’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Under the supervision of our general partner’s Chief Executive Officer and Chief Financial Officer and with the participation of our disclosure committee appointed by such officers, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our general partner’s Chief Executive Officer and Chief Financial Officer concluded that, as of JuneSeptember 30, 2014, our disclosure controls and procedures were effective at the reasonable assurance level.
In June 2014, ARP acquired certain assets in the Rangely field of northwestern Colorado (see Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Developments”). ARP is continuing to integrate this system’s historical internal controls over financial reporting with our existing internal controls over financial reporting. This integration may lead to changes in our or the acquired system’s historical internal controls over financial reporting in future fiscal reporting periods.
Other than the previously mentioned item, there have been no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
104109
Part II
On October 13, 2014 the Partnership announced the transactions (the “Merger”) contemplated by the definitive Agreement and Plan of Merger (the “Merger Agreement”) between the Partnership, the General Partner, Targa Resources Corp. (“TRC”) and Targa Resources GP LLC. Concurrently with the Merger Agreement, Atlas Pipeline Partners, L.P. (“APL”) announced that it entered into a definitive merger agreement with Atlas Pipeline Partners GP, LLC ( “APL GP”), the Partnership, TRC, Targa Resources Partners LP (“TRP”) and certain other parties, pursuant to which TRP agreed to acquire APL through a merger of a newly formed wholly-owned subsidiary of TRP with and into APL (the “APL Merger”).
In October 2014, three alleged public unitholders of APL (the “APL Plaintiffs”) filed class action lawsuits against the Partnership, APL, APL GP, its managers, TRC, TRP, Targa Resources GP LLC, and Trident MLP Merger Sub LLC (the “APL Lawsuit Defendants”). These lawsuits are styled (a) Michael Evnin v. Atlas Pipeline Partners, L.P., et al., in the Court of Common Pleas for Alleghany County, Pennsylvania; (b) William B. Federman Family Wealth Preservation Trust v. Atlas Pipeline Partners, L.P., et al., in the District Court of Tulsa County, Oklahoma; and (c) Greenthal Living Trust U/A 01/26/88 v. Atlas Pipeline Partners, L.P., et al., in the Court of Common Pleas for Alleghany County, Pennsylvania (the “APL Lawsuits”).
On October 23, 2014, and November 3, 2014, respectively, two alleged public unitholders of the Partnership (the “ATLS Plaintiffs” and, together with the APL Plaintiffs, “Plaintiffs”) filed class action lawsuits against the Partnership, the General Partner, its managers, TRC, and Trident GP Merger Sub LLC (the “ATLS Lawsuit Defendants” and, together with the APL Lawsuit Defendants, “Defendants”). These lawsuits are styled (a) Rick Kane v. Atlas Energy, L.P., et al., in the Court of Common Pleas for Alleghany County, Pennsylvania; and (b) Jeffrey Ayers v. Atlas Energy, L.P., et al., in the Court of Common Pleas for Alleghany County, Pennsylvania (the “ATLS Lawsuits” and, together with the APL Lawsuits, the “Lawsuits”).
Plaintiffs allege a variety of causes of action challenging the Merger and APL Merger. The APL Plaintiffs allege that (a) APL GP’s managers have breached the covenant of good faith and/or their fiduciary duties and (b) the Partnership, APL, APL GP, TRC, TRP, Targa Resources GP LLC, and Trident MLP Merger Sub LLC have aided and abetted these alleged breaches of the covenant of good faith and/or fiduciary duties. One of the APL Plaintiffs also alleges that (a) the APL GP and its managers breached APL’s partnership agreement and (b) the Partnership, APL, APL GP, TRC, TRP, Targa Resources GP LLC, and Trident MLP Merger Sub LLC aided and abetted APL GP’s alleged breaches of APL’s partnership agreement. Specifically, the APL Plaintiffs allege that (a) the premium offered to APL’s unitholders is inadequate, (b) APL agreed to contractual terms in the APL Merger Agreement that will allegedly dissuade other potential acquirers from seeking to acquire APL, and (c) APL GP’s managers favored their self-interests over the interests of APL’s unitholders.
The ATLS Plaintiffs allege that (a) the General Partner’s managers have breached the covenant of good faith and/or their fiduciary duties and (b) the Partnership, the General Partner, TRC, and Trident GP Merger Sub LLC have aided and abetted these alleged breaches of the covenant of good faith and/or fiduciary duties. Specifically, the ATLS Plaintiffs allege that (a) the premium offered to the Partnership’s unitholders is inadequate, (b) the Partnership agreed to contractual terms that will allegedly dissuade other potential acquirers from seeking to acquire the Partnership and (c) the Partnership’s managers favored their self-interests over the interests of the Partnership’s unitholders.
Based on these allegations, Plaintiffs seeks to enjoin Defendants from proceeding with or consummating the Merger and APL Merger. To the extent that the Merger and the APL Merger are consummated before injunctive relief is granted, Plaintiffs seek to have the mergers rescinded. Plaintiffs also seek damages and attorneys’ fees. Plaintiffs have not yet served Defendants, and Defendants’ date to answer, move to dismiss or otherwise respond to the Lawsuits has not yet been set. We cannot predict the outcome of the Lawsuits or any others that might be filed subsequent to the date of this filing; nor can we predict the amount of time and expense that will be required to resolve the Lawsuits. Defendants intend to vigorously defend the Lawsuits.
Due to the proposed Merger, there have been material changes to the risk factors disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2013. For a complete discussion of our risk factors you should carefully review the risk factors disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2013 and the following risk factors relating to the Merger:
110
Completion of the Merger is subject to conditions and if these conditions are not satisfied or waived, the Merger will not be completed.
The obligations of TRC and us to complete the Merger are subject to satisfaction or waiver, to the extent permitted under applicable law, of a number of conditions including, among others, approval of the Merger Agreement and the Merger by holders of a majority of the outstanding common units, approval of the issuance of TRC stock in the Merger by a majority of the holders of TRC stock voting at a special meeting held to approve such issuance, satisfaction of all conditions to consummation of the APL Merger (other than the condition that the Merger shall have occurred) and the parties to the APL Merger Agreement standing ready to consummate the APL Merger substantially concurrently with the Merger, consummation of the Distribution, the performance by the other party of its respective obligations under the Merger Agreement in all material respects and the accuracy of the representations and warranties by the other party under the Merger Agreement subject to, in most cases, a material adverse effect standard.
The requirement for the conditions to closing to be satisfied or waived could delay the completion of the Merger for a significant period of time or prevent it from occurring. Any delay in completing the Merger could cause the combined company not to realize some or all of the benefits that TRC expects to achieve if the Merger is successfully completed within its expected timeframe. Further, there can be no assurance the conditions to the closing of the Merger will be satisfied or waived or the Merger will be completed. See the risk factor entitled "Failure to complete the Merger could negatively impact our unit price and the future business and financial results,'' below.
Combining the two companies may be more difficult, costly, or time consuming than expected and the anticipated benefits and cost savings of the Merger may not be realized.
TRC and we have operated and, until the completion of the Merger, will continue to operate, independently. The success of the Merger, including anticipated benefits and cost savings, will depend, in part, on TRC’s ability to successfully combine and integrate our businesses of TRC and us. It is possible the pending nature of the Merger and/or the integration process could result in the loss of key employees, higher than expected costs, diversion of TRP’s and our management’s attention, the disruption of either company's ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the combined company's ability to achieve the anticipated benefits and cost savings of the Merger. If TRC experiences difficulties with the integration process, the anticipated benefits of the Merger may not be realized fully or at all, or may take longer to realize than expected. Integration efforts between the two companies will also divert management's attention and resources. These integration matters could have an adverse effect on each of the Partnership and TRC during this transition period and for an undetermined period after completion of the Merger on the combined company. In addition, the actual cost savings and other benefits of the Merger could be less than anticipated.
Lawsuits have been filed against us, TRC and certain of our affiliates challenging the Merger and an adverse ruling in such lawsuits may prevent the Merger from becoming effective or from becoming effective within the expected timeframe.
Following the announcement on October 13, 2014 of the Merger, we, our general partner, TRC, Trident GP Sub and the members of our board have been named as defendants in two putative unitholder class action lawsuits challenging the Merger. In addition, we, APL, APL GP, TRC, TRP, Targa Resources GP LLC, Trident MLP Merger Sub LLC and the members of the managing board of our general partner have been named as defendants in three putative unitholder class action lawsuits challenging the APL Merger.
The lawsuits filed generally allege that the individual defendants breached their fiduciary duties and/or contractual obligations by, among other things, failing to obtain sufficient value for our unitholders in the Merger. The plaintiffs seek, among other things, injunctive relief, unspecified compensatory and/or rescissory damages, attorney’s fees, other expenses and costs. As such, if any of the plaintiffs are successful in obtaining an injunction or prohibiting the consummation of the Merger, then such injunction may prevent the Merger from becoming effective or from becoming effective within the expected timeframe.
Failure to complete the Merger could negatively impact the unit price and the future business and financial results of the Partnership.
If the Merger is not completed for any reason, including as a result of our common unitholders failing to approve the Merger, our ongoing business may be adversely affected and, without realizing any of the benefits of having completed the Merger, we would be subject to a number of risks, including the following:
· | we may experience negative reactions from the financial markets, including negative impacts on our unit price; |
· | we may experience negative reactions from our customers, suppliers, employees and other business partners; |
· | we will be required to pay certain costs relating to the Merger, whether or not the Merger is completed; |
· | The Merger Agreement places certain restrictions on the conduct of our businesses prior to completion of the Merger. Such restrictions, the waiver of which is subject to the consent of TRC (in certain cases, not to be unreasonably withheld, conditioned or delayed), may prevent us from making certain acquisitions or taking certain other specified actions during the pendency of the Merger; and |
· | Matters relating to the Merger, including integration planning, will require substantial commitments of time and resources by our management, which would otherwise have been devoted to day-to-day operations and other opportunities that may have been beneficial to us as an independent company |
The Merger Agreement limits our ability to pursue alternatives to the Merger and may discourage other companies from trying to acquire us for greater consideration than what TRC has agreed to pay.
The Merger Agreement contains provisions that make it more difficult for us to sell our business to a party other than TRC. These provisions include a general prohibition on us from soliciting any acquisition proposal or offer for a competing transaction. In some circumstances upon termination of the Merger Agreement, we may be required to pay to TRC one of the following (depending on the circumstances giving rise to termination): (1) a termination fee of $53.4 million, (2) a payment of $17.8 million in respect of the other party’s expenses or (3) fifty percent (50%) of such termination fee or expense payment. Further, there are only limited exceptions to our agreement that our general partner’s Board of Directors will not withdraw or modify in a manner adverse to TRC the recommendation of our general partner’s Board in favor of approval of the Merger and to our agreement not to enter into an agreement with respect to an alternative transaction proposal.
These provisions might discourage a third party that has an interest in acquiring all or a significant part of us from considering or proposing an acquisition, even if the party were prepared to pay consideration with a higher per share value than the value proposed to be received or realized in the Merger, or might result in a potential competing acquirer proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee or expense payment that may become payable in certain circumstances.
The value of the equity portion of the Merger consideration is subject to changes based on fluctuations in the value of TRC common shares.
The market value of TRC common shares will fluctuate during the period before the date of the special meeting of our common unitholders to vote on approval of the Merger Agreement and will continue to fluctuate during the period prior to the effective time of the Merger, as well as thereafter.
Upon completion of the Merger, holders of our common units will have the right to receive (i) 0.1809 shares of TRC common stock and (ii) $9.12 in cash for each of our common units. It is impossible to accurately predict the market price of TRC common stock at the effective time and therefore impossible to accurately predict the value of the TRC common stock that holders of Partnership common units will receive in the Merger.
The market price of TRC common stock after the Merger will continue to fluctuate and may be affected by factors different from those affecting common units of the Partnership currently.
Upon completion of the Merger, holders of our common units will become holders of TRC common stock. The market price of TRC common stock may fluctuate significantly following consummation of the Merger and holders of our common units could lose some or all of the value of their investment in TRC common stock. In addition, the stock market has experienced significant price and volume fluctuations in recent times, which could have a material adverse effect on the market for, or liquidity of, the TRC common stock, regardless of TRC's actual operating performance. In addition, TRC's business differs in important respects from ours, and accordingly, the results of operations of the combined company and the market price of TRC common stock after the completion of the Merger may be affected by factors different from those currently affecting the independent results of our operations and TRC’s operations.
Sales of TRC common stock before and after the completion of the Merger may cause the market price of TRC common shares to fall.
The issuance of new TRC common stock in connection with the Merger could have the effect of depressing the market price for TRC common stocks. In addition, holders of our common units may decide not to hold the TRC common stock they will receive in the Merger. Such sales of TRC common stock could have the effect of depressing the market price for TRC common shares and may take place promptly following the Merger.
Exhibit No. |
| Description |
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2.1 | Agreement and Plan of Merger, by and among Targa Resources Corp., Trident GP Merger Sub LLC, Atlas Energy, L.P. and Atlas Energy GP, LLC, dated October 13, 2014. The schedules to the Agreement and Plan of Merger have been omitted pursuant to Item 601(b) of Regulation S-K. A copy of the omitted schedules will be furnished to the U.S. Securities and Exchange Commission supplementally upon request.(47) | |
2.2 | Agreement and Plan of Merger, by and among Targa Resources Corp., Targa Resources Partners LP, Targa Resources GP LLC, Trident MLP Merger Sub LLC, Atlas Energy, L.P., Atlas Pipeline Partners, L.P. and Atlas Pipeline Partners GP, LLC, dated October 13, 2014. The schedules to the Agreement and Plan of Merger have been omitted pursuant to Item 601(b) of Regulation S-K. A copy of the omitted schedules will be furnished to the U.S. Securities and Exchange Commission supplementally upon request.(47) | |
2.3 | Letter Agreement, by and between Atlas Energy, L.P. and Atlas Pipeline Partners, L.P., dated October 13, 2014.(47)
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3.1(a) |
| Certificate of Limited Partnership of Atlas Pipeline Holdings, L.P.(1) |
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3.1(b) |
| Certificate of Amendment of Limited Partnership of Atlas Pipeline Holdings, L.P.(13) |
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3.1(c) |
| Amendment to Certificate of Limited Partnership of Atlas Energy, L.P. (5) |
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3.2(a) |
| Second Amended and Restated Agreement of Limited Partnership of Atlas Pipeline Holdings, L.P.(13) |
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3.2(b) |
| Amendment No. 1 to Second Amended and Restated Limited Partnership Agreement of Atlas Pipeline Holdings, L.P.(13) |
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3.2(c) |
| Amendment No. 2 to Second Amended and Restated Limited Partnership Agreement of Atlas Energy, L.P. (5) |
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4.1 |
| Specimen Certificate Representing Common Units(1) |
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10.1 |
| Second Amended and Restated Limited Liability Company Agreement of Atlas Pipeline Holdings GP, LLC. (13) |
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10.2 |
| Second Amended and Restated Limited Liability Company Agreement of Atlas Pipeline Partners GP, LLC(22) |
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10.3(a) |
| Second Amended and Restated Agreement of Limited Partnership of Atlas Pipeline Partners, L.P.(1) |
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10.3(b) |
| Amendment No. 2 to Second Amendment and Restated Agreement of Limited Partnership of Atlas Pipeline Partners, L.P.(4) |
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10.3(c) |
| Amendment No. 3 to Second Amended and Restated Agreement of Limited Partnership of Atlas Pipeline Partners, L.P.(6) |
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10.3(d) |
| Amendment No. 4 to Second Amended and Restated Agreement of Limited Partnership of Atlas Pipeline Partners, L.P.(6) |
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10.3(e) |
| Amendment No. 5 to Second Amended and Restated Agreement of Limited Partnership of Atlas Pipeline Partners, L.P.(6) |
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113
Exhibit No. | Description | |
10.3(f) |
| Amendment No. 6 to Second Amended and Restated Agreement of Limited Partnership of Atlas Pipeline Partners, L.P.(7) |
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10.3(g) |
| Amendment No. 7 to Second Amended and Restated Agreement of Limited Partnership of Atlas Pipeline Partners, L.P.(8) |
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10.3(h) |
| Amendment No. 8 to Second Amended and Restated Agreement of Limited Partnership of Atlas Pipeline Partners, L.P.(9) |
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10.3(i) |
| Amendment No. 9 to Second Amended and Restated Agreement of Limited Partnership of Atlas Pipeline Partners, L.P.(14) |
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10.3(j) |
| Amendment No. 10 to Second Amended and Restated Agreement of Limited Partnership of Atlas Pipeline Partners, L.P. (39) |
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10.3(k) |
| Amendment No. 11 to Second Amended and Restated Agreement of Limited Partnership of Atlas Pipeline Partners, L.P. (10) |
105
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10.4(a) |
| Atlas Pipeline Partners, L.P.’s Certificate of Designation of the Powers, Preferences and Relative, Participating, Optional and Other Special Rights and Qualifications, Limitations and Restrictions |
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10.4(b) |
| Atlas Pipeline Partners, L.P.’s Certificate of Amendment to Certificate of Designation of the Powers, Preferences and Relative, Participating, Optional, and Other Special Rights and Qualifications, Limitations and Restrictions Thereof, dated as of March 12, 2014(10) |
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| Second Amended and Restated Limited Liability Company Agreement of Atlas Resource Partners GP, LLC (41) |
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10.5(b) | Amendment No. 1 to Second Amended and Restated Limited Liability Company Agreement of Atlas Resource Partners GP, LLC dated as of November 3, 2014(53)
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10.6(a) |
| Amended and Restated Limited Partnership Agreement of Atlas Resource Partners, L.P.(28) |
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10.6(b) |
| Amendment No. 1 to Amended and Restated Agreement of Limited Partnership of Atlas Resource Partners, L.P. dated as of July 25, 2012(17) |
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10.6(c) |
| Amendment No. 2 to Amended and Restated Agreement of Limited Partnership of Atlas Resource Partners, L.P. dated as of July 31, 2013(44) |
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10.6(d) | Amendment No. 3 to Amended and Restated Agreement of Limited Partnership of Atlas Resource Partners, L.P. dated as of October 2, 2014(51) | |
10.6(e) | Amendment No. 4 to Amended and Restated Agreement of Limited Partnership of Atlas Resource Partners, L.P. dated as of November 3, 2014(53) | |
10.7 |
| Atlas Resource Partners, |
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10.8 |
| Atlas Resource Partners, |
10.9 | Atlas Resource Partners, L.P.’s Certificate of Designation of the Powers, Preferences and Relative, Participating, Optional, and Other Special Rights and Qualifications, Limitations and Restrictions thereof of Class D Preferred Units, dated as of October 2, 2014(51) | |
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| Long-Term Incentive Plan(6) |
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| Amendment No. 1 to Long-Term Incentive Plan(15) |
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114
| Description | |
10.11 |
| Form of Phantom Grant under 2006 Long-Term Incentive Plan(40) |
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| Form of Phantom Grant under 2006 Long-Term Incentive Plan (2013)(2) |
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| 2010 Long-Term Incentive Plan(16) |
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| Form of Phantom Unit Grant under 2010 Long-Term Incentive Plan(32) |
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| Form of Stock Option Grant under 2010 Long-Term Incentive Plan(32) |
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| Amended and Restated Credit Agreement, dated July 31, 2013 among Atlas Energy, L.P., the lenders party thereto and Wells Fargo Bank, NA as administrative agent(45) |
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| Secured Term Loan Credit Agreement, dated July 31, 2013 among Atlas Energy, L.P., the lenders party thereto and Deutsche Bank AG New York Branch, as administrative agent(45) |
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| Intercreditor Agreement, dated July 31, 2013 among Atlas Energy, L.P., the grantors party |
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| Amended and Restated Credit Agreement, dated July 27, 2007, amended and restated as of December 22, 2010, among Atlas Pipeline Partners, L.P., the guarantors therein, Wells Fargo Bank, National Association, and other banks party thereto(23) |
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106
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| Amendment No. 1 to the Amended and Restated Credit Agreement, dated as of April 19, 2011 (25) |
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| Incremental Joinder Agreement to the Amended and Restated Credit Agreement, dated as of July 8, 2011 (26) |
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| Amendment No. 2 to the Amended and Restated Credit Agreement, dated as of May 31, 2012(18) |
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| Amendment No. 3 to the Amended and Restated Credit Agreement(34) |
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| Amendment No. 4 to the Amended and Restated Credit Agreement(11) |
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| Amendment No. 6 to the Amended and Restated Credit Agreement(3) |
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107
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| Employment Agreement between Atlas Energy, L.P. and Edward E. Cohen dated as of May 13, 2011(12) |
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| Employment Agreement between Atlas Energy, L.P. and Jonathan Z. Cohen dated as of May 13, 2011(12) |
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| Employment Agreement between Atlas Energy, L.P. and Eugene N. Dubay dated as of November 4, 2011(21) |
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| Employment Agreement between Atlas Energy, L.P. and Matthew A. Jones dated as of November 4, 2011(32) |
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| Employment Agreement between Atlas Energy, L.P. and Daniel Herz dated as of November 4, 2011(24) |
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| Employment Agreement between Atlas Energy, L.P., Atlas Pipeline Partners, L.P. and Patrick J. McDonie dated as of July 3, 2012 (35) |
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| Letter Agreement, by and between Atlas Pipeline Partners, L.P. and Atlas Pipeline Holdings, L.P., dated November 8, 2010(21) |
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| Second Amended and Restated Credit Agreement dated July 31, 2013 among Atlas Resource Partners, L.P., the lenders party thereto and Wells Fargo Bank, N.A., as administrative agent for the lenders(44) |
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| First Amendment to Second Amended and Restated Credit Agreement dated December 6, 2013 among Atlas Resource Partners, L.P., the lenders party thereto and Wells Fargo Bank, N.A., as administrative agent for the lenders(19) |
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115
| Description | |
10.33(c) |
| Third Amendment to Second Amended and Restated Credit Agreement dated as of June 30, 2014 among Atlas Resource Partners, L.P., the lenders party thereto Wells Fargo Bank, N.A., as administrative agent for the lenders(31) |
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| Fourth Amendment to Second Amended and Restated Credit Agreement dated as of September 24, 2014 among Atlas Resource Partners, L.P., the lenders party thereto Wells Fargo Bank, N.A., as administrative agent for the lenders(50) | |
10.34 |
| Secured Hedge Facility Agreement dated as of March 5, 2012 among Atlas Resources, LLC, the participating partnerships from time to time party thereto, the hedge providers from time to time party thereto and Wells Fargo Bank, N.A., as collateral agent for the hedge providers(30) |
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| Atlas Resource Partners, L.P. 2012 Long-Term Incentive Plan(28) |
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| Atlas Pipeline Partners, L.P. Long-Term Incentive Plan (27) |
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| Atlas Pipeline Partners, L.P. Amended and Restated 2010 Long-Term Incentive Plan(20) |
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| Atlas Pipeline Partners, L.P.’s Certificate of Designation of the Powers, Preferences and Relative, Participating, Optional, and Other Special Rights of Preferred Units and Qualifications, Limitations and Restrictions Thereof, dated as of March 17, 2014(10) |
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| Indenture dated as of January 23, 2013, by and among Atlas Resource Partners, L.P., Atlas Energy Holdings Operating Company, LLC, Atlas Resource Finance Corporation, the guarantors named therein and U.S. Bank, National Association(37) |
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| Supplemental Indenture dated as of June 2, 2014, by and among Atlas Resource Partners, L.P., Atlas Energy Holdings Operating Company, LLC, Atlas Resource Finance Corporation, the guarantors named therein and U.S. Bank, National Association(38) |
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| Registration Rights Agreement, dated May 16, 2012, between Atlas Pipeline Partners, L.P., Wells Fargo Bank, National Association and the lenders named in the Credit Agreement dated May 16, 2012 by and among Atlas Energy, L.P. and the lenders named therein(35) |
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| Equity Distribution Agreement dated May 12, 2014, by and between Atlas Pipeline Partners, L.P., Citigroup Global Markets Inc., Wells Fargo Securities, LLC and MLV & Co. LLC(43) |
108
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| Purchase and Sale Agreement, dated as of April 16, 2013, among TEAK Midstream Holdings, LLC, TEAK Midstream, L.L.C. and Atlas Pipeline Mid-Continent Holdings, LLC. The schedules to the Purchase and Sale Agreement have been omitted pursuant to Item 601(b) of Registration S-K. A copy of the omitted schedules will be furnished to the U.S. Securities and Exchange Commission supplementally upon request(29) |
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| Registration Rights Agreement, dated as of June 2, 2014, by and among Atlas Resource Partners, L.P., Atlas Energy Holdings Operating Company, LLC, Atlas Resource Finance Corporation, the guarantors named therein and Wells Fargo Securities, LLC and Deutsche Bank Securities, Inc. (38) |
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| Class D Preferred Unit Purchase Agreement, dated as of April 16, 2013, among Atlas Pipeline Partners, L.P. and the various purchasers party thereto(29) |
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| Registration Rights Agreement, dated May 7, 2013, by and among Atlas Pipeline Partners, L.P. and the purchasers named therein(39) |
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| Warrant to Purchase Common Units(44) |
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| Indenture dated as of July 30, 2013, by and between Atlas Resource Escrow Corporation and Wells Fargo Bank, National Association(42) |
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| Supplemental Indenture dated as of July 31, 2013, by and among Atlas Resource Partners, L.P., Atlas Energy Holdings Operating Company, LLC, Atlas Resource Finance Corporation, the guarantors named therein and Wells Fargo Bank, National Association(42) |
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116
| Description | |
10.47(c) | Second Supplemental Indenture dated as of October 14, 2014, by and among Atlas Resource Partners, L.P., Atlas Energy Holdings Operating Company, LLC, Atlas Resource Finance Corporation, the guarantors named therein and Wells Fargo Bank, National Association(52) | |
10.48 |
| Registration Rights Agreement dated as of July 31, 2013, by and among Atlas Resource Partners, L.P., Atlas Energy Holdings Operating Company, LLC, Atlas Resource Finance Corporation, the guarantors named therein and Deutsche Bank Securities, Inc., for itself and on behalf of the |
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| Registration Rights Agreement dated as of October 14, 2014, by and among Atlas Resource Partners, L.P., Atlas Energy Holdings Operating Company, LLC, Atlas Resource Finance Corporation, the guarantors named therein and Wells Fargo Securities, LLC, for itself and on behalf of the initial purchasers(51) | |
10.50 |
| Indenture dated as of May 10, 2013, by and among Atlas Pipeline Partners, L.P., Atlas Pipeline Finance Corporation, the subsidiaries named therein and U.S. Bank National Association(46) |
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| Registration Rights Agreement, dated May 10, 2013, by and among Atlas Pipeline Partners, L.P., Atlas Pipeline Finance Corporation, the guarantors named therein and Citigroup Global Markets, Inc. for itself and on behalf of the initial purchasers(46) |
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| Asset Purchase Agreement, dated as of February 13, 2014, by and among GeoMet, Inc., GeoMet Operating Company, Inc., GeoMet Gathering Company, LLC and ARP Mountaineer Production, LLC. The exhibits and schedules to the Asset Purchase Agreement have been omitted pursuant to Item 601(b) of Regulation S-K. A copy of the omitted exhibits and schedules will be furnished to the U.S. Securities and Exchange Commission upon request(33) |
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| Purchase and Sale Agreement, dated as of May 6, 2014, by and among Merit Management Partners I, L.P., Merit Energy Partners III, L.P., Merit Energy Company, LLC, ARP Rangely Production, LLC and Atlas Resource Partners, L.P. The schedules to the Purchase and Sale Agreement have been omitted pursuant to Item 601(b) of Regulation S-K. A copy of the omitted schedules will be furnished to the U.S. Securities and Exchange Commission supplementally upon request.(36) |
10.54 | Distribution Agreement dated as of August 29, 2014 between Atlas Resource Partners, L.P. and Deutsche Bank Securities Inc., as representative of the several underwriters.(49) | |
10.55(a) | Purchase and Sale Agreement, dated September 24, 2014, by and between Cinco Resources, Inc., Cima Resources, LLC, ARP Eagle Ford, LLC, Atlas Growth Eagle Ford, LLC and Atlas Resource Partners, L.P. The schedules to the Purchase and Sale Agreement have been omitted pursuant to Item 601(b) of Regulation S-K. A copy of the omitted schedules will be furnished to the U.S. Securities and Exchange Commission supplementally upon request.(50) | |
10.55(b) | First Amendment, dated October 27, 2014, to Purchase and Sale Agreement, dated September 24, 2014, by and between Cinco Resources, Inc., Cima Resources, LLC, ARP Eagle Ford, LLC, Atlas Growth Eagle Ford, LLC and Atlas Resource Partners, L.P.(54) | |
10.56 | Shared Acquisition and Operating Agreement, dated September 24, 2014, by and among ARP Eagle Ford, LLC and Atlas Growth Eagle Ford, LLC. The schedules to the Shared Acquisition and Operating Agreement have been omitted pursuant to Item 601(b) of Regulation S-K. A copy of the omitted schedules will be furnished to the U.S. Securities and Exchange Commission supplementally upon request.(50) | |
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31.1 |
| Rule 13(a)-14(a)/15(d)-14(a) Certification |
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31.2 |
| Rule 13(a)-14(a)/14(d)-14(a) Certification |
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32.1 |
| Section 1350 Certification |
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32.2 |
| Section 1350 Certification |
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109
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99.1 |
| Voting Agreement, dated as of February 13, 2014, by and among ARP Mountaineer Production, LLC, Atlas Resource Partners, L.P. and each of the persons listed on Annex I thereto(33) |
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117
Exhibit No. | Description | |
99.2 | Form of Voting and Support Agreement, by and between Atlas Energy, L.P. and the individual named on the signature page thereto(47) | |
99.3 | Form of Voting and Support Agreement, by and between Targa Resources Corp. and the individual named on the signature page thereto(47) | |
99.4 | Form of Voting and Support Agreement, by and between Targa Resources Partners LP and the individual named on the signature page thereto(47) | |
99.5 | Confidentiality, Non-Competition and Non-Solicitation Agreement, by and among Targa Resources Corp., Targa Resources Partners LP and Edward E. Cohen, dated October 13, 2014(47) | |
99.6 | Confidentiality, Non-Competition and Non-Solicitation Agreement, by and among Targa Resources Corp., Targa Resources Partners LP and Jonathan Z. Cohen, dated October 13, 2014(47) | |
99.7 | Confidentiality, Non-Competition and Non-Solicitation Agreement, by and among Targa Resources Corp., Targa Resources Partners LP and Eugene N. Dubay, dated October 13, 2014(47) | |
101.INS |
| XBRL Instance Document |
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101.SCH |
| XBRL Schema Document |
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101.CAL |
| XBRL Calculation Linkbase Document |
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| |
101.LAB |
| XBRL Label Linkbase Document |
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| |
101.PRE |
| XBRL Presentation Linkbase Document |
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| |
101.DEF |
| XBRL Definition Linkbase Document |
(1) | Previously filed as an exhibit to the registration statement on Form S-1 (File No. 333-130999). |
(2) | Previously filed as an exhibit to annual report on Form 10-K for the year ended December 31, 2013. |
(3) | Previously filed as an exhibit to Atlas Pipeline Partners, L.P.’s current report on Form 8-K filed on March 11, 2014. |
(4) | Previously filed as an exhibit to current report on Form 8-K filed July 30, 2007. |
(5) | Previously filed as an exhibit to current report on Form 8-K filed December 13, 2011. |
(6) | Previously filed as an exhibit to annual report on Form 10-K for the year ended December 31, 2008. |
(7) | Previously filed as an exhibit to quarterly report on Form 10-Q for the quarter ended March 31, 2009. |
(8) | Previously filed as an exhibit to Atlas Pipeline Partners, L.P.’s current report on Form 8-K filed on April 2, 2010. |
(9) | Previously filed as an exhibit to Atlas Pipeline Partners, L.P.’s current report on Form 8-K filed on July 7, 2010. |
(10) | Previously filed as an exhibit to Atlas Pipeline Partners, L.P.’s current report on Form 8-K filed on March 17, 2014. |
(11) | Previously filed as an exhibit to Atlas Pipeline Partners, L.P.’s current report on Form 8-K filed on April 23, 2013. |
(12) | Previously filed as an exhibit to quarterly report on Form 10-Q for the quarter ended March 31, 2011. |
(13) | Previously filed as an exhibit to current report on Form 8-K filed on February 24, 2011. |
(14) | Previously filed as an exhibit to Atlas Pipeline Partners, L.P.’s current report on Form 8-K filed on December 13, 2011. |
(15) | Previously filed as an exhibit to annual report on Form 10-K for the year ended December 31, 2010. |
(16) | Previously filed as an exhibit to current report on Form 8-K filed on November 12, 2010. |
(17) | Previously filed as an exhibit to Atlas Resource Partners, L.P.’s current report on Form 8-K filed on July 26, 2012. |
(18) | Previously filed as an exhibit to Atlas Pipeline Partners, L.P.’s current report on Form 8-K filed on May 31, 2012. |
(19) | Previously filed as an exhibit to Atlas Resource Partners, L.P.’s annual report on Form 10-K for the year ended December 31, 2013. |
(20) | Previously filed as an exhibit to Atlas Pipeline Partners, L.P.’s quarterly report on Form 10-Q filed on March 31, 2011. |
(21) | Previously filed as an exhibit to quarterly report on Form 10-Q for the quarter ended September 30, 2011. |
(22) | Previously filed as an exhibit to Atlas Pipeline Partners, L.P.’s current report on Form 8-K filed on October 29, 2013. |
(23) | Previously filed as an exhibit to Atlas Pipeline Partners, L.P.’s current report on Form 8-K filed on December 23, 2010. |
(24) | Previously filed as an exhibit to Atlas Energy, L.P.’s quarterly report on Form 10-Q for the quarter ended June 30, 2013. |
(25) | Previously filed as an exhibit to Atlas Pipeline Partners, L.P.’s quarterly report on Form 10-Q for the quarter ended March 31, 2011. |
(26) | Previously filed as an exhibit to Atlas Pipeline Partners, L.P.’s current report on Form 8-K filed on July 11, 2011. |
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(27) | Previously filed as an exhibit to Atlas Pipeline Partners, L.P.’s annual report on Form 10-K for the year ended December 31, 2009. |
(28) | Previously filed as an exhibit to Atlas Resource Partners, L.P.’s current report on Form 8-K filed on March 14, 2012. |
(29) | Previously filed as an exhibit to Atlas Pipeline Partners, L.P.’s current report on Form 8-K filed on April 17, 2013. |
(30) | Previously filed as an exhibit to Atlas Resource Partners, L.P.’s current report on Form 8-K filed on March 7, 2012. |
(31) | Previously filed as an exhibit to Atlas Resource Partners, L.P.’s current report on Form 8-K filed on July 2, 2014. |
(32) | Previously filed as an exhibit to annual report on Form 10-K for the year ended December 31, 2011. |
(33) | Previously filed as an exhibit to Atlas Resource Partners, L.P.’s current report on Form 8-K filed on February 18, 2014. |
(34) | Previously filed as an exhibit to Atlas Pipeline Partners, L.P.’s current report on Form 8-K filed on December 13, 2012. |
(35) | Previously filed as an exhibit to Atlas Pipeline Partners, L.P.’s quarterly report on Form 10-Q for the quarter ended September 30, 2012. |
(36) | Previously filed as an exhibit to Atlas Resource Partners, L.P.’s current report on Form 8-K filed on May 7, 2014. |
(37) | Previously filed as an exhibit to Atlas Resource Partners, L.P.’s current report on Form 8-K filed on January 25, 2013. |
(38) | Previously filed as an exhibit to Atlas Resource Partners, L.P.’s current report on Form 8-K filed on June 3, 2014. |
(39) | Previously filed as an exhibit to Atlas Pipeline Partners, L.P.’s current report on Form 8-K filed on May 8, 2013. |
110
(40) | Previously filed as an exhibit to Atlas Energy, L.P.’s quarterly report on Form 10-Q for the quarter ended September 30, 2010. |
(41) | Previously filed as an exhibit to Atlas Resource Partners, L.P.’s quarterly report on Form 10-Q for the quarter ended September 30, 2013. |
(42) | Previously filed as an exhibit to Atlas Resource Partners, L.P.’s current report on Form 8-K filed on August 2, 2013. |
(43) | Previously filed as an exhibit to Atlas Pipeline Partners, L.P.’s current report on Form 8-K filed on May 13, 2014. |
(44) | Previously filed as an exhibit to Atlas Resource Partners, L.P.’s current report on Form 8-K filed on August 6, 2013. |
(45) | Previously filed as an exhibit to current report on Form 8-K filed on August 6, 2013. |
(46) | Previously filed as an exhibit to Atlas Pipeline Partners, L.P.’s current report on Form 8-K filed on May 13, 2013. |
(47) | Previously filed as an exhibit to current report on Form 8-K filed on October 16, 2014. |
(48) | Previously filed as an exhibit to Atlas Pipeline Partners, L.P.’s current report on Form 8-K filed on August 29, 2014. |
(49) | Previously filed as an exhibit to Atlas Resource Partners, L.P.’s current report on Form 8-K filed on August 29, 2014 |
(50) | Previously filed as an exhibit to Atlas Resource Partners, L.P.’s current report on Form 8-K filed on September 30, 2014 |
(51) | Previously filed as an exhibit to Atlas Resource Partners, L.P.’s registration statement on Form 8-A filed on October 2, 2014 |
(52) | Previously filed as an exhibit to Atlas Resource Partners, L.P.’s current report on Form 8-K filed on October 15, 2014 |
(53) | Previously filed as an exhibit to Atlas Resource Partners, L.P.’s current report on Form 8-K filed on November 5, 2014 |
(54) | Previously filed as an exhibit to Atlas Resource Partners, L.P.’s current report on Form 8-K filed on November 6, 2014 |
(55) | Attached as Exhibit 101 to this report are documents formatted in XBRL (Extensible Business Reporting Language). The financial information contained in the XBRL-related documents is “unaudited” or “unreviewed.” |
111
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| ATLAS ENERGY, L.P. | ||
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| By: Atlas Energy GP, LLC, its General Partner | ||
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Date: |
| By: | /s/ EDWARD E. COHEN | |
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| Edward E. Cohen | |
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|
| Chief Executive Officer and President of the General Partner | |
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| |
Date: |
| By: | /s/ SEAN P. MCGRATH | |
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| Sean P. McGrath | |
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|
| Chief Financial Officer of the General Partner | |
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Date: |
| By: | /s/ JEFFREY M. SLOTTERBACK | |
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| Jeffrey M. Slotterback | |
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|
| Chief Accounting Officer |
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