Exploration & Production | Quarterly / Earnings Reports | Third Quarter (3Q) Update

Atlas Resource Partners Highlights Targa Deal in Q3 Report

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Atlas Resource Partners, L.P. has reported operating and financial results for the third quarter 2014.

Matthew A. Jones, President of ARP, stated: "Our solid results this quarter reflect primarily the diversity of our natural gas and oil producing properties."

• Third quarter 2014 Adjusted EBITDA, a non-GAAP measure, including discretionary adjustments by the Board of Directors of the General Partner, was $107.4 million(1), compared to $79.7 million for the second quarter 2014, and $60.7 million for the prior year comparable quarter. The increase from the sequential and prior year quarters was due to the cash flow contribution from recently acquired assets in the Eagle Ford shale in south Texas, the acquisition of the Rangely Field oil and liquids assets in northwest Colorado in June 2014, and the acquisition of the GeoMet natural gas assets in West Virginia in May 2014.
• Distributable Cash Flow with discretionary adjustments by the Board of Directors of the General Partner, a non-GAAP measure, was $62.7 million(1), or approximately $0.72 per common unit, for the third quarter 2014, compared to $50.0 million for the second quarter 2014 and $37.7 million for the prior year comparable quarter. Distributable Cash Flow with discretionary adjustments by the Board of Directors of the General Partner increased due primarily to the increases in cash flow as described above.
• ARP paid monthly cash distributions totaling approximately $0.59 per limited partner unit for the third quarter 2014, an approximate 5% increase over the prior year third quarter distribution. The most recent ARP monthly distribution of $0.1966 per unit ($2.36 per unit on an annual basis) for September 2014 will be paid on November 14, 2014 to holders of record as of November 10, 2014.
• On a GAAP basis, net income was $1.1 million for the third quarter 2014 compared to a net loss of $20.5 million for the second quarter 2014 and a net loss of $39.7 million for the prior year comparable period. The higher level of income in the third quarter 2014 compared to prior quarters was caused principally by higher amounts of non-cash expenses related to acquisitions of oil and natural gas assets in the earlier periods.

2015 Financial Outlook

ARP has provided an initial financial outlook for the full year 2015, which includes expected cash distributions of at least $2.40 per unit with distribution coverage of approximately 1.1x. The following are several of the key assumptions included in the forecast:

Recent Events

Merger Transaction Between Targa Resources, Atlas Energy and Atlas Pipeline

On October 13, 2014, ARP's parent company, Atlas Energy, L.P. (ATLS), and ATLS' midstream subsidiary, Atlas Pipeline Partners, L.P. (APL), entered into definitive agreements to be acquired by Targa Resources Corp. and Targa Resources Partners LP, respectively.

Immediately prior to the closing of the acquisition of ATLS by TRC, ATLS will transfer its non-midstream assets to Atlas Energy Group, LLC, a wholly owned subsidiary of ATLS, and then distribute to the ATLS unitholders common units representing a 100% limited liability company interest in Atlas Energy Group. The distribution is subject to the satisfaction of certain conditions, including the effectiveness of the Form 10 registration statement filed by Atlas Energy Group, and the satisfaction or waiver of the conditions to the consummation of the acquisition of ATLS by TRC. The acquisition of ATLS by TRC is subject to, among other conditions, the approval of the acquisition by holders of a majority of the outstanding limited partner interests in ATLS and the approval of a majority of the shareholders of TRC voting at the meeting to approve the transaction. The ATLS transaction is also cross-conditioned on the acquisition of APL by TRP, which is subject to, among other conditions, the approval of the acquisition by holders of a majority of the outstanding limited partner interests in APL.

Acquisition of Eagle Ford Properties

On November 5, 2014, ARP completed a transaction in which it acquired primarily oil assets in the Eagle Ford Shale in south Texas. ARP paid approximately $200 million at closing and will pay an additional $24 million of the deferred portion of the purchase price in three quarterly installments beginning in March 31, 2015. Additionally, the original purchase agreement was amended to allow ARP to pay up to $20 million of its deferred portion of the purchase price by issuing to the seller its 8.625% Class D Cumulative Redeemable Perpetual Preferred Units at a price of $25.00 per unit. The acquired assets consist of 22 producing wells and 19 undeveloped locations containing estimated net reserves of approximately 12 million barrels of oil equivalent.

Issuance of additional $75 million of its 9.25% Senior Notes due 2021

On October 14, 2014, ARP issued an additional $75 million of its 9.25% Senior Notes due 2021 in a private placement transaction issued at 100.5%. ARP used the net proceeds from this offering to fund a portion of its previously announced acquisition of primarily oil assets in the Eagle Ford shale in south Texas. The senior notes are subject to a registration rights agreement entered in connection with the transaction, which requires ARP, among other things, to file a registration statement with the SEC and exchange the privately placed notes for registered notes by certain dates.

E&P Operating Highlights

Average net daily production for the third quarter 2014 was 286.1 million cubic feet equivalents per day (Mmcfed), a 29% increase from the prior year comparable quarter and approximately 9% higher than the second quarter 2014. The increase in net production as compared to second quarter 2014 was due primarily to production from the Rangely Field assets, which were acquired on June 30, 2014. The increase in net production compared with the third quarter 2013 was due primarily to the acquisition of the Rangely Field assets, as well as the GeoMet natural gas production assets in May 2014.
ARP's net realized price for natural gas including the effect of hedge positions was $3.55 per mcf for the third quarter 2014, approximately 6% lower than the second quarter 2014. Net realized oil prices including the effect of hedge positions averaged $90.18 per barrel for the third quarter 2014, relatively consistent with $90.66 per barrel realized during the second quarter 2014.

Hedge Positions

ARP continued to expand its commodity hedge positions on its existing production during the third quarter 2014. A summary of ARP's derivative positions as of November 10, 2014 is provided in the financial tables of this release.

Corporate Expenses & Capital Position

• Cash general and administrative expense was $9.5 million for the third quarter 2014, $1.0 million lower than the second quarter 2014 and consistent with the prior year third quarter. The decrease compared with the second quarter 2014 was due primarily to lower administrative and marketing costs associated with ARP's 2014 partnership program.
• Cash interest expense was $14.1 million for the third quarter 2014, $2.9 million higher than the second quarter 2014 and $6.2 million higher than the prior year third quarter. The increases were primarily due to higher levels of borrowing used to expand ARP's operations over the prior periods.
• ARP had $1.385 billion of total debt, pro forma for the recent acquisition of oil producing assets in the Eagle Ford shale, including $687 million outstanding under its revolving credit facility. ARP had approximately $209 million available on its revolving credit facility pro forma for the Eagle Ford transaction.