| Summary of Significant Accounting Policies | NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation and Combination Our condensed combined consolidated financial statements for the three months ended March 31, 2016 and 2015, subsequent to the transfer of assets on February 27, 2015, include our accounts and accounts of our subsidiaries. Our condensed combined consolidated financial statements for the portion of 2015 which is prior to the transfer of assets on February 27, 2015, were derived from the separate records maintained by Atlas Energy and may not necessarily be indicative of the conditions or results of operations that would have existed if we had been operated as an unaffiliated entity. Because a direct ownership relationship did not exist among all the various entities comprising us, Atlas Energy’s net investment in us is shown as equity in the condensed combined consolidated financial statements. U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed combined consolidated balance sheets and related condensed combined consolidated statements of operations. Such estimates included allocations made from the historical accounting records of Atlas Energy, based on management’s best estimates, in order to derive the financial statements of us. Actual balances and results could be different from those estimates. Transactions between us and other Atlas Energy operations have been identified in the condensed combined consolidated financial statements as transactions between affiliates. In connection with Atlas Energy’s merger with Targa and the concurrent Separation, we were required to repay $150.0 million of Atlas Energy’s term loan credit facility, which was issued in July 2013 for $240.0 million. In accordance with U.S. GAAP, we included $150.0 million of Atlas Energy’s original term loan at the time of issuance, and the related interest expense, within our historical financial statements. Atlas Energy’s other historical borrowings were allocated to our historical financial statements in the same ratio. We used proceeds from the issuance of our Series A preferred units (see Note 9) and borrowings under our term loan credit facilities to fund the $150.0 million payment. We determined that ARP and AGP are variable interest entities (“VIE’s”) based on their respective partnership agreements, our power, as the general partner, to direct activities that most significantly impact their economic performance, and our ownership of the incentive distribution rights. Accordingly, we consolidate the financial statements of ARP and AGP into our condensed combined consolidated financial statements. Our VIE’s operating results and assets balances are presented separately in Note 11 – Operating Segment Information. As the general partner for both ARP and AGP, we have unlimited liability for the obligations of ARP and AGP except for those contractual obligations that are expressly made without recourse to the general partner. The non-controlling interests in ARP and AGP are reflected as (income) loss attributable to non-controlling interests in the condensed combined consolidated statements of operations and as a component of unitholders’ equity on the condensed combined consolidated balance sheets. All material intercompany transactions have been eliminated. In accordance with established practice in the oil and gas industry, our condensed combined consolidated financial statements include our 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%. Our condensed combined 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. On June 5, 2015, ARP completed the acquisition of our coal-bed methane producing natural gas assets in the Arkoma Basin in eastern Oklahoma for approximately $31.5 million, net of purchase price adjustments (the “Arkoma Acquisition”). ARP funded the purchase price using proceeds from the issuance of 6,500,000 common limited partner units. The Arkoma Acquisition had an effective date of January 1, 2015. ARP accounted for the Arkoma Acquisition as a transaction between entities under common control in its standalone consolidated financial statements. Use of Estimates The preparation of our condensed combined 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 our condensed combined consolidated financial statements, as well as the reported amounts of revenue and costs and expenses during the reporting periods. Our condensed combined consolidated financial statements are based on a number of significant estimates, including revenue and expense accruals, depletion, depreciation and amortization and fair value of derivative instruments. Such estimates included estimated allocations made from the historical accounting records of Atlas Energy in order to derive the historical financial statements of us. 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. Actual results could differ from those estimates. Liquidity and Capital Resources Our primary sources of liquidity are cash distributions received with respect to our ownership interests in ARP, AGP, and Lightfoot. Our primary cash requirements, in addition to normal operating expenses, are for debt service, capital expenditures, and distributions to unitholders, which we expect to fund through operating cash flow, and cash distributions received. We rely on the cash flows from the distributions received on our ownership interests in ARP, AGP, and Lightfoot. The amount of cash that ARP and AGP can distribute to their partners, including us, principally depends upon the amount of cash they each generate from their operations. ARP’s and AGP’s future cash flows are subject to a number of variables, including oil and natural gas prices. Prices for oil and natural gas began to decline significantly during the fourth quarter of 2014 and have continued to decline and remain low in 2016. These lower commodity prices have negatively impacted ARP’s and AGP’s revenues, earnings and cash flows. Sustained low commodity prices will have a material and adverse effect on ARP’s and AGP’s liquidity position and ability to make distributions. Reductions of such distributions to us would adversely affect our ability to fund our cash requirements and obligations and meet our financial covenants under our credit agreements. On May 5, 2016, the Board of Directors elected to suspend ARP’s common unit and Class C preferred distributions, beginning with the month of March of 2016, due to the continued lower commodity price environment. As a result of ARP’s distribution suspension and uncertainty regarding future covenant compliance, we classified $70.8 million of our outstanding amounts on our first and second lien credit agreements, net of $0.2 million deferred financing costs, as current portion of long-term debt within our condensed combined consolidated balance sheet as of March 31, 2016. We, ARP and AGP continually monitor our/their respective capital markets and their capital structures and may make changes from time to time, with the goal of maintaining financial flexibility, preserving or improving liquidity, strengthening the balance sheet, meeting debt service obligations and/or achieving cost efficiency. For example, we and ARP could pursue options such as refinancing, restructuring or reorganizing our/its indebtedness or capital structure or seek to raise additional capital through debt or equity financing to address its liquidity concerns and high debt levels. There is no certainty that we or ARP will be able to implement any such options, and we and ARP cannot provide any assurances that any refinancing or changes to our or its debt or equity capital structure would be possible or that additional equity or debt financing could be obtained on acceptable terms, if at all, and such options may result in a wide range of outcomes for its stakeholders, including cancellation of debt income (“CODI”) which would be directly allocated to its unitholders and reported on such unitholders’ separate returns (see Item 1A – Risk Factors for additional information). It is possible additional adjustments to our, ARP’s or AGP’s strategic plan and outlook may occur based on market conditions and our/their respective needs at that time, which could include selling assets, liquidating all or a portion of ARP’s hedge portfolio, seeking additional partners to develop our/their respective assets, reducing or suspending the payments of distributions to preferred unitholders and/or reducing our/their respective planned capital programs. Strategies involving further reduction or suspension of distributions to unitholders by AGP would adversely affect our ability to fund our cash requirements and obligations. Atlas Resource Partners - Liquidity and Capital Resources ARP has historically funded its operations, acquisitions and cash distributions primarily through cash generated from operations, amounts available under its credit facilities and equity and debt offerings. ARP’s future cash flows are subject to a number of variables, including oil and natural gas prices. The lower commodity prices discussed above have negatively impacted ARP’s revenues, earnings and cash flows. Sustained low commodity prices will have a material and adverse effect on ARP’s liquidity position. On May 10, 2016, ARP entered into a ninth amendment (the “Ninth Amendment”) to its Second Amended and Restated Credit Agreement, dated July 31, 2013 (as amended from time to time, the “ARP Credit Agreement”), with Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto, to, among other things, waive the requirement that ARP’s ratio of current assets to current liabilities (as calculated pursuant to the ARP Credit Agreement) not be less than 1.0 to 1.0 as of March 31, 2016 and waive the requirement that ARP’s ratio of the total First Lien Debt to EBITDA (as calculated pursuant to the ARP Credit Agreement) not be greater than 2.75 to 1.0 as of March 31, 2016, and required ARP to repay $2.5 million of outstanding borrowings. ARP is party to a Second Lien Credit Agreement, dated February 23, 2015, with certain lenders and Wilmington Trust, National Association, as administrative agent (the “ARP Term Loan Facility”), which contains the same financial covenants as those in the ARP Credit Agreement, and were automatically waived as a result of the Ninth Amendment to the Credit Agreement. Based on the terms of the Ninth Amendment to the ARP Credit Agreement and uncertainty regarding future covenant compliance, we classified $672.0 million of ARP’s outstanding amounts under the ARP Credit Agreement and $234.2 million of ARP’s outstanding amounts under the ARP Term Loan Facility, net of $10.0 million deferred financing costs and $5.8 million unamortized discount, as current portion of long-term debt within our condensed consolidated balance sheet as of March 31, 2016. ARP’s borrowing base, and thus its borrowing capacity, under the ARP Credit Agreement is impacted by the level of its oil and natural gas reserves. Downward revisions of its oil and natural gas reserves volume and value due to low commodity prices, the impact of lower estimated capital spending in response to lower prices, performance revisions, sales of assets or the incurrence of certain types of additional debt, among other items, could cause a reduction of its borrowing base in the future, and these reductions could be significant. The ARP Credit Agreement is currently in the process of its semi-annual redetermination. Based on projected market conditions, continued declines in commodity prices and recent conversations with its administrative agent, ARP expects that its borrowing base will be redetermined to a level below its outstanding borrowings of $672.0 million under the ARP Credit Agreement as of March 31, 2016. In the case of a borrowing base deficiency, the ARP Credit Agreement requires ARP to repay the deficiency, which it is permitted to do in equal monthly installments over a four-month period, or deposit additional collateral to eliminate such deficiency. If ARP’s borrowing base is redetermined below its current outstanding borrowings and ARP is unable to repay the deficiency or deposit additional collateral to eliminate such deficiency, there would be substantial doubt regarding ARP’s ability to continue as a going concern. In addition, if ARP is unable to remain in compliance with the covenants under its credit facilities or the indentures governing its senior notes, absent relief from its lenders or noteholders, as applicable, ARP may be forced to repay or refinance such indebtedness. Upon the occurrence of an event of default, the lenders under ARP’s credit facilities or holders or its notes, as applicable, could elect to declare all amounts outstanding immediately due and payable and the lenders could terminate all commitments to extend further credit. A breach of any of the covenants (including if ARP’s borrowing base is redetermined below its current outstanding borrowings and it is unable to repay the deficiency or deposit additional collateral to eliminate such deficiency) in these credit facilities or the indentures governing ARP’s senior notes, respectively, could result in an event of default thereunder as well as a cross-default under ARP’s other debt agreements and, in either case, our credit agreement. If an event of default occurs, or if other debt agreements cross-default, and the lenders under the affected debt agreements accelerate the maturity of any loans or other debt outstanding, ARP will not have sufficient liquidity to repay all of its outstanding indebtedness, and as a result, there would be substantial doubt regarding ARP’s ability to continue as a going concern. As discussed above, ARP continually monitors the capital markets and its capital structure and may make changes to its capital structure from time to time, with the goal of maintaining financial flexibility, preserving or improving liquidity, strengthening its balance sheet, meeting its debt service obligations and/or achieving cost efficiency. Although ARP has a significant hedge position for the remainder of 2016 through 2018, the forecasted long-term downturn in commodity prices has had a detrimental impact on ARP’s financial position. For example, ARP could pursue options such as refinancing, restructuring or reorganizing its indebtedness or capital structure or seek to raise additional capital through debt or equity financing to address its liquidity concerns and high debt levels. ARP is evaluating various options with the lenders under the ARP Credit Agreement and ARP Term Loan Facility, and holders of ARP’s Senior Notes, but there is no certainty that ARP will be able to implement any such options, and ARP cannot provide any assurances that any refinancing or changes in its debt or equity capital structure would be possible or that additional equity or debt financing could be obtained on acceptable terms, if at all, and such options may result in a wide range of outcomes for its stakeholders, including CODI which would be directly allocated to its unitholders and reported on such unitholders’ separate returns (see Item 1A – Risk Factors for additional information). ARP also continues to implement various cost saving measures to reduce its capital, operating and general and administrative costs, including renegotiating contracts with contractors, suppliers and service providers, reducing the number of staff and contractors and deferring and eliminating discretionary costs. ARP will continue to be opportunistic and aggressive in managing its cost structure and, in turn, its liquidity to meet its capital and operating needs. ARP cannot provide any assurances that any of these efforts will be successful or will result in cost reductions or cash flows or the timing of any such cost reductions or additional cash flows. It is also possible additional adjustments to ARP’s plan and outlook may occur based on market conditions and ARP’s needs at that time, which could include selling assets, liquidating all or a portion of its hedge portfolio, seeking additional partners to develop its assets, reducing or suspending the payments of distributions to preferred unitholders and/or reducing its planned capital program. In addition, to the extent commodity prices remain low or decline further, or ARP experiences disruptions in ARP’s longer-term access to or cost of capital, ARP’s ability to fund future capital expenditures or growth projects may be further impacted. Atlas Growth Partners - Liquidity and Capital Resources AGP has historically funded its operations, acquisitions and cash distributions primarily through cash generated from operations and financing activities, including its recent private placement. AGP’s future cash flows are subject to a number of variables, including oil and natural gas prices. Prices for oil and natural gas began to decline significantly during the fourth quarter of 2014 and have continued to decline and remain low in 2016. These lower commodity prices have negatively impacted AGP’s revenues, earnings and cash flows. Sustained low commodity prices will have a material and adverse effect on AGP’s liquidity position. Net Income (Loss) Per Common Unit Basic net income (loss) attributable to common unitholders per unit is computed by dividing net income (loss) attributable to common unitholders, which is determined after the deduction of net income attributable to participating securities and the preferred unitholders’ interests, if applicable, by the weighted average number of common unitholders units outstanding during the period. Unvested unit-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities. A portion of our phantom unit awards, which consist of common units issuable under the terms of our long-term incentive plans and incentive compensation agreements, contain non-forfeitable rights to distribution equivalents. The participation rights result in a non-contingent transfer of value each time we declare 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 unitholders for purposes of calculating net income (loss) attributable to common unitholders per unit (in thousands, except unit data):
Three Months Ended March 31,
2016
2015
Net income (loss)
$
(1,272
)
$
53,479
Preferred unitholders’ dividends
(339
)
(333
)
Income attributable to non-controlling interests
(5,340
)
(58,298
)
Loss attributable to owner’s interest (period prior to the transfer of assets on February 27, 2015)
—
10,475
Net income (loss) attributable to common unitholders
(6,951
)
5,323
Less: Net income attributable to participating securities – phantom units (1)
—
13
Net income (loss) utilized in the calculation of net loss attributable to common unitholders per unit – diluted (1)
$
(6,951
)
$
5,310
(1)
Net income (loss) attributable to common unitholders for the net income (loss) attributable to common unitholders per unit calculation is net income (loss) attributable to common unitholders, less income allocable to participating securities. For the three months ended March 31, 2016, net loss attributable common unitholder’s ownership interest is not allocated to approximately 263,000 phantom units, because the contractual terms of the phantom units as participating securities do not require the holders to share in the losses of the entity. 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 and convertible preferred units, as calculated by the treasury stock or if converted methods, as applicable. Unit options consist of common units issuable upon payment of an exercise price by the participant under the terms of our long-term incentive plan. The following table sets forth the reconciliation of our weighted average number of common unitholder units used to compute basic net loss attributable to common unitholders per unit with those used to compute diluted net loss attributable to common unitholders per unit (in thousands):
Three Months Ended March 31,
2016
2015
Weighted average number of common unitholders per unit—basic
26,028
26,011
Add effect of dilutive incentive awards (1)
—
63
Add effect of dilutive convertible preferred units (1)
—
4,902
Weighted average number of common unitholders per unit—diluted
26,028
30,976
(1)
For the three months ended March 31, 2016, 2,689,000 phantom units were excluded from the computation of diluted net income (loss) attributable to common unitholders per unit, because the inclusion of such units would have been anti-dilutive. For the three months ended March 31, 2016, potential common units issuable upon conversion of our Series A preferred units were excluded from the computation of diluted earnings attributable to common unitholders per unit, because the inclusion of such units would have been anti-dilutive. Rabbi Trust In 2011, we established an excess 401(k) plan relating to certain executives. In connection with the plan, we established a “rabbi” trust for the contributed amounts. At March 31, 2016 and December 31, 2015, we reflected $3.9 million and $5.6 million, respectively, related to the value of the rabbi trust within other assets, net on our condensed combined consolidated balance sheets, and recorded corresponding liabilities of $3.9 million and $5.6 million as of those same dates, respectively, within asset retirement obligations and other on our condensed combined consolidated balance sheets. During the three months ended March 31, 2016, a $2.3 million distribution was made to participants related to the rabbi trust. No distributions were made to participants related to the rabbi trust for the three months ended March 31, 2015. Recently Issued Accounting Standards In February 2016, the Financial Accounting Standards Board (“FASB”) updated the accounting guidance related to leases. The updated accounting guidance requires lessees to recognize a lease asset and liability at the commencement date of all leases (with the exception of short-term leases), initially measured at the present value of the lease payments. The updated guidance is effective for us as of January 1, 2019 and requires a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest period presented. We are currently in the process of determining the impact that the updated accounting guidance will have on our condensed combined consolidated financial statements. In August 2015, the FASB updated the accounting guidance related to the balance sheet presentation of debt issuance costs specific to line-of-credit arrangements. The updated accounting guidance allows the option of presenting deferred debt issuance costs related to line-of-credit arrangements as an asset, and subsequently amortizing over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings. We adopted the updated accounting guidance effective January 1, 2016 and it did not have a material impact on our condensed combined consolidated financial statements. In February 2015, the FASB updated the accounting guidance related to consolidation under the variable interest entity and voting interest entity models. The updated accounting guidance modifies the consolidation guidance for variable interest entities, limited partnerships and similar legal entities. We adopted this accounting guidance upon its effective date of January 1, 2016, and it did not have a material impact on our condensed combined consolidated financial statements. In August 2014, the FASB updated the accounting guidance related to the evaluation of whether there is substantial doubt about an entity’s ability to continue as a going concern. The updated accounting guidance requires an entity’s management 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 and provide footnote disclosures, if necessary. We adopted this accounting guidance on January 1, 2016, and provided enhanced disclosures, as applicable, within our condensed combined consolidated financial statements. In May 2014, the FASB updated the accounting guidance related to revenue recognition. The updated accounting guidance provides a single, contract-based revenue recognition model to help improve financial reporting by providing clearer guidance on when an entity should recognize revenue, and by reducing the number of standards to which an entity has to refer. In July 2015, the FASB voted to defer the effective date by one year to December 15, 2017 for annual reporting periods beginning after that date. The updated accounting guidance provides companies with alternative methods of adoption. We are currently in the process of determining the impact that the updated accounting guidance will have on our condensed combined consolidated financial statements and our method of adoption. |
