Supplemental Oil and Gas Information (Unaudited) | NOTE 17 — SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED) Oil and Gas Reserve Information. The preparation of the Partnership’s natural gas, oil and NGL reserve estimates was completed in accordance with its prescribed internal control procedures by its reserve engineers. The reserve information included below was derived from the reserve reports prepared for the Partnership’s annual Form 10-K for the years ended December 31, 2015, 2014 and 2013. Other than for the Partnership’s Rangely assets, for the periods presented, Wright and Company, Inc., an independent third-party reserve engineer, was retained to prepare a report of proved reserves related to the Partnership. The reserve information for the Partnership includes natural gas, oil and NGL reserves which are all located throughout the United States. The independent reserves engineer’s evaluation was based on more than 39 years of experience in the estimation of and evaluation of petroleum reserves, specified economic parameters, operating conditions, and government regulations. For the Partnership’s Rangely assets, Cawley, Gillespie, and Associates, Inc. was retained to prepare a report of proved reserves. The independent reserves engineer’s evaluation was based on more than 33 years of experience in the estimation of and evaluation of petroleum reserves, specified economic parameters, operating conditions, and government regulations. The Partnership’s internal control procedures include verification of input data delivered to its third-party reserve specialist, as well as a multi-functional management review. The preparation of reserve estimates was overseen by its Senior Reserve Engineer, who is a member of the Society of Petroleum Engineers and has more than 17 years of natural gas and oil industry experience. The reserve estimates were reviewed and approved by the Partnership’s senior engineering staff and management, with final approval by the President. The reserve disclosures that follow reflect estimates of proved reserves, proved developed reserves and proved undeveloped reserves, net of royalty interests, of natural gas, crude oil and NGLs owned at year end and changes in proved reserves during the last three years. Proved oil, gas and NGL reserves are those quantities of oil, gas and NGLs, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible—from a given date forward, from known reservoirs, and under existing economic conditions, operating methods and government regulations—prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time. Proved developed reserves are those reserves of any category that can be expected to be recovered through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well; and through installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is by means not involving a well. Proved undeveloped reserves are reserves of any category that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. Reserves on undrilled acreage are limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes reasonable certainty of economic producibility at greater distances. Undrilled locations can be classified as having undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years, unless the specific circumstances justify a longer time. Estimates for undeveloped reserves cannot be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual projects in the same reservoir or an analogous reservoir, or by other evidence using reliable technology establishing reasonable certainty. The proved reserves quantities and future net cash flows as of December 31, 2015, 2014 and 2013 were estimated using an unweighted 12-month average pricing based on the prices on the first day of each month during the years ended December 31, 2015, 2014 and 2013, including adjustments related to regional price differentials and energy content. There are numerous uncertainties inherent in estimating quantities of proven reserves and in projecting future net revenues and the timing of development expenditures. The reserve data presented represents estimates only and should not be construed as being exact. In addition, the standardized measures of discounted future net cash flows may not represent the fair market value of oil, gas and NGL reserves included within the Partnership or the present value of future cash flows of equivalent reserves, due to anticipated future changes in oil, gas and NGL prices and in production and development costs and other factors, for their effects have not been proved. Reserve quantity information and a reconciliation of changes in proved reserve quantities included within the Partnership are as follows (unaudited): Gas (Mcf) Oil (Bbls) NGLs (Bbls) Balance, January 1, 2013 573,774,257 8,868,836 16,061,897 Extensions, discoveries and other additions (1) 90,098,219 8,255,531 8,197,272 Sales of reserves in-place (2,755,155 ) — (4,625 ) Purchase of reserves in-place (2) 493,232,119 1,942 55,187 Transfers to limited partnerships (2,485,210 ) (239,910 ) (258,381 ) Revisions (3) (88,484,468 ) (1,412,371 ) (3,826,744 ) Production (59,841,724 ) (485,226 ) (1,267,590 ) Balance, December 31, 2013 1,003,538,038 14,988,802 18,957,016 Extensions, discoveries and other additions (1) 58,454,544 3,372,177 3,986,986 Sales of reserves in-place (169,035 ) (1,519 ) (11,326 ) Purchase of reserves in-place (2) 82,279,988 36,538,935 3,567,531 Transfers to limited partnerships (4,887,095 ) (684,613 ) (665,486 ) Revisions (3) 3,805,952 (4,941,359 ) (2,689,379 ) Production (86,637,612 ) (1,254,247 ) (1,387,865 ) Balance, December 31, 2014 1,056,384,780 48,018,176 21,757,477 Extensions, discoveries and other additions (1) 6,441,969 2,492,424 218,726 Sales of reserves in-place (2,713,428 ) (2,393 ) — Purchase of reserves in-place (2) 3,555,062 8,645,686 653,416 Transfers to limited partnerships (2,958,882 ) (481,771 ) (342,156 ) Revisions (3) (377,067,441 ) (11,992,308 ) (13,382,104 ) Production (79,063,564 ) (1,875,654 ) (1,055,345 ) Balance, December 31, 2015 604,578,496 44,804,160 7,850,014 Proved developed reserves at: January 1, 2013 338,655,325 3,400,447 7,884,778 December 31, 2013 766,630,929 3,459,238 7,676,389 December 31, 2014 887,818,577 30,537,868 12,004,774 December 31, 2015 567,992,268 25,484,491 6,334,327 Proved undeveloped reserves at: January 1, 2013 235,118,932 5,468,389 8,177,120 December 31, 2013 236,907,109 11,529,564 11,280,627 December 31, 2014 168,566,203 17,480,308 9,752,703 December 31, 2015 36,586,228 19,319,669 1,515,687 (1) For the year ended December 31, 2015, the increase represents PUD conversions related to development activity in the Eagle Ford Shale. For the year ended December 31, 2014, the increase was due to the Rangely, Eagle Ford and Geomet Acquisitions. For the year ended December 31, 2013, the increase was primarily due to the addition of Marble Falls wells. (2) Represents purchase of proved reserves in the Rangely, Eagle Ford and GeoMet Acquisitions for the year ended December 31, 2014. (3) The downward revisions for the year ended December 31, 2015 were primarily due to unfavorable economic conditions primarily related to gas and oil commodity prices. For the year ended December 31, 2014, the downward revision on oil and NGL was primarily due to production underperforming previous year’s forecasts. The upward revision for the year ended December 31, 2014 on gas was primarily due to production outperforming previous year’s forecast. The downward revisions for the year ended December 31, 2013 were primarily due to a reduction of the Partnership’s five year drilling plans in the Barnett Shale and pricing scenario revisions. Capitalized Costs Related to Oil and Gas Producing Activities The components of capitalized costs related to oil and gas producing activities of the Partnership during the periods indicated were as follows (in thousands): Years Ended December 31, 2015 2014 Natural gas and oil properties: Proved properties $ 3,585,839 $ 3,475,186 Unproved properties 213,047 217,322 Support equipment 44,921 37,359 3,843,807 3,729,867 Accumulated depreciation, depletion and (2,691,692 ) (1,509,509 ) Net capitalized costs $ 1,152,115 $ 2,220,358 Results of Operations from Oil and Gas Producing Activities. The results of operations related to the Partnership’s oil and gas producing activities during the periods indicated were as follows (in thousands): Years Ended December 31, 2015 2014 2013 Revenues $ 356,999 $ 470,051 $ 273,604 Production costs (169,653 ) (182,226 ) (100,098 ) Depletion (145,161 ) (229,482 ) (132,727 ) Asset impairment (1) (966,635 ) (573,774 ) (38,014 ) $ (924,450 ) $ (515,431 ) $ 2,765 (1) During the year ended December 31, 2015, the Partnership recognized $966.6 million of asset impairment primarily related to oil and gas properties in the Barnett, Coal-bed Methane, Rangely, Southern Appalachia, Marcellus and Mississippi Lime operating areas, and unproved acreage in the New Albany Shale, which were impaired due to lower forecasted commodity prices, net of $85.8 million of future hedge gains reclassified from accumulated other comprehensive income. During the year ended December 31, 2014, the Partnership recognized $573.8 million of asset impairment primarily consisting of $555.7 million related to oil and gas properties within property, plant, and equipment, net on its consolidated balance sheet for its Appalachian and mid-continent operations, which was net of $82.3 million of future hedge gains reclassified from accumulated other comprehensive income, and $18.1 million of goodwill impairment resulting from the decline in overall commodity prices. During the year ended December 31, 2013, the Partnership recognized $38.0 million of impairment primarily related to its shallow natural gas wells in the New Albany Shale and unproved acreage in the Chattanooga and New Albany Shales. Costs Incurred in Oil and Gas Producing Activities. The costs incurred by the Partnership in its oil and gas activities during the periods indicated are as follows (in thousands): Years Ended December 31, 2015 2014 2013 Property acquisition costs: Proved properties $ 11,513 $ 699,451 $ 859,827 Unproved properties 43,820 10,978 895 Exploration costs (1) 1,601 722 1,053 Development costs 73,288 164,853 214,383 Total costs incurred in oil & gas producing activities $ 130,222 $ 876,004 $ 1,076,158 (1) There were no exploratory wells drilled during the years ended December 31, 2015, 2014 and 2013. Standardized Measure of Discounted Future Cash Flows. The following schedule presents the standardized measure of estimated discounted future net cash flows relating to the Partnership’s proved oil and gas reserves. The estimated future production was priced at a twelve-month average for the years ended December 31, 2015, 2014 and 2013, adjusted only for regional price differentials and energy content. The resulting estimated future cash inflows were reduced by estimated future costs to develop and produce the proved reserves based on year-end cost levels and includes the effect on cash flows of settlement of asset retirement obligations on gas and oil properties. The future net cash flows were reduced to present value amounts by applying a 10% discount factor. The standardized measure of future cash flows was prepared using the prevailing economic conditions existing at the dates presented and such conditions continually change. Accordingly, such information should not serve as a basis in making any judgment on the potential value of recoverable reserves or in estimating future results of operations (in thousands): Years Ended December 31, 2015 2014 2013 Future cash inflows $ 3,514,198 $ 9,317,915 $ 5,259,688 Future production costs (1,836,779 ) (4,188,364 ) (2,393,814 ) Future development costs (1,156,367 ) (1,157,305 ) (752,349 ) Future net cash flows 521,052 3,972,246 2,113,525 Less 10% annual discount for estimated timing of cash flows (18,283 ) (1,987,975 ) (1,037,343 ) Standardized measure of discounted future net cash flows $ 502,769 $ 1,984,271 $ 1,076,182 Change in Standardized Discounted Cash Flows. The following table summarizes the changes in the standardized measure of discounted future net cash flows from estimated production of proved oil, gas and NGL reserves (in thousands), including amounts related to asset retirement obligations. Since the Partnership allocates taxable income to its owner, no recognition has been given to income taxes: Years Ended December 31, 2015 2014 2013 Balance, beginning of year $ 1,984,271 $ 1,076,182 $ 623,676 Increase (decrease) in discounted future net cash flows: Sales of oil and gas produced, net of related costs (1) (129,352 ) (272,961 ) (171,300 ) Net changes in prices and production costs (2) (1,453,854 ) 339,718 85,191 Revisions of previous quantity estimates (52,775 ) 4,352 (1,880 ) Development costs incurred 58,117 52,077 27,245 Changes in future development costs (152,305 ) (90,887 ) (21,579 ) Transfers to limited partnerships (13,291 ) (2,966 ) (53,392 ) Extensions, discoveries, and improved recovery less related costs 13,980 60,832 143,338 Purchases of reserves in-place (3) 53,102 737,101 513,744 Sales of reserves in-place (2,162 ) (332 ) (2,053 ) Accretion of discount 198,427 107,618 62,368 Estimated settlement of asset retirement obligations (216 ) (16,708 ) (18,823 ) Estimated proceeds on disposals of well equipment (1,173 ) (21,906 ) 17,039 Changes in production rates (timing) and other — 12,151 (127,392 ) Outstanding, end of year $ 502,769 $ 1,984,271 $ 1,076,182 (1) Includes the amount of sales of oil and gas previously included in proved reserves and sold during the period ended. (2) Decrease due to commodity price declines for the year ended December 31, 2015. (3) Represents the change in discounted value of the proved reserves primarily due to the purchase of proved reserves due to the Rangely, Eagle Ford and Geomet Acquisitions for the period ended December 31, 2014 and primarily due to the purchase of proved reserves in Marble Falls for the period ended December 31, 2013. |