Attached files

file filename
EX-31.2 - EXHIBIT 31.2 - ATLAS AMERICA PUBLIC #11-2002 LTD.c16908exv31w2.htm
EX-32.1 - EXHIBIT 32.1 - ATLAS AMERICA PUBLIC #11-2002 LTD.c16908exv32w1.htm
EX-31.1 - EXHIBIT 31.1 - ATLAS AMERICA PUBLIC #11-2002 LTD.c16908exv31w1.htm
EX-32.2 - EXHIBIT 32.2 - ATLAS AMERICA PUBLIC #11-2002 LTD.c16908exv32w2.htm
Table of Contents

 
 
United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
(Mark One)
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2011
     
o   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 000-50246
ATLAS AMERICA PUBLIC #11-2002 LTD.
(Name of small business issuer in its charter)
     
Delaware   02-0600231
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)
     
Westpointe Corporate Center One    
1550 Coraopolis Heights Rd. 2nd Floor    
Moon Township, PA   15108
(Address of principal executive offices)   (zip code)
Issuer’s telephone number, including area code: (412) 262-2830
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 þ No o
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
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,” “non accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):
             
Large accelerated filer o   Accelerated filer o   Non-accelerated filer o   Smaller reporting company þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
Transitional Small Business Disclosure Format (check one): Yes o No þ
 
 

 

 


 

ATLAS AMERICA PUBLIC #11-2002 LTD.
(A DELAWARE LIMITED PARTNERSHIP)
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
         
    PAGE  
       
 
       
       
 
       
    3  
 
       
    4  
 
       
    5  
 
       
    6  
 
       
    7-14  
 
       
    15-18  
 
       
    18  
 
       
       
 
       
    18  
 
       
    19  
 
       
    20  
 
       
CERTIFICATIONS
       
 
       
 Exhibit 31.1
 Exhibit 31.2
 Exhibit 32.1
 Exhibit 32.2

 

2


Table of Contents

ATLAS AMERICA PUBLIC #11-2002 LTD.
BALANCE SHEETS
                 
    March 31,     December 31,  
    2011     2010  
    (Unaudited)        
ASSETS
               
Current assets:
               
Cash and cash equivalents
  $ 132,100     $ 174,400  
Accounts receivable-affiliate
    563,000       320,800  
Short-term hedge receivable due from affiliate
          378,500  
 
           
Total current assets
    695,100       873,700  
 
               
Oil and gas properties, net
    8,185,600       8,347,500  
Long-term hedge receivable due from affiliate
          370,000  
Long-term receivable due from affiliate
    268,700        
 
           
 
  $ 9,149,400     $ 9,591,200  
 
           
 
               
LIABILITIES AND PARTNERS’ CAPITAL
               
Current liabilities:
               
Accrued liabilities
  $ 12,700     $ 12,500  
Short-term hedge liability due to affiliate
          3,800  
 
           
Total current liabilities
    12,700       16,300  
 
               
Asset retirement obligation
    2,304,300       2,270,300  
Long-term hedge liability due to affiliate
          65,600  
 
               
Partners’ capital:
               
Managing general partner
    4,319,000       4,477,300  
Limited partners (3,126.55 units)
    2,103,100       2,328,400  
Accumulated other comprehensive income
    410,300       433,300  
 
           
Total partners’ capital
    6,832,400       7,239,000  
 
           
 
  $ 9,149,400     $ 9,591,200  
 
           
See accompanying notes to financial statements.

 

3


Table of Contents

ATLAS AMERICA PUBLIC #11-2002 LTD.
STATEMENTS OF OPERATIONS
(Unaudited)
                 
    Three Months Ended  
    March 31,  
    2011     2010  
REVENUES
               
Natural gas and oil
  $ 370,500     $ 513,300  
Interest income
    100       100  
 
           
Total revenues
    370,600       513,400  
 
               
COSTS AND EXPENSES
               
Production
    195,500       252,700  
Depletion
    161,900       221,500  
Accretion of asset retirement obligation
    34,000       27,200  
General and administrative
    45,400       43,200  
 
           
Total costs and expenses
    436,800       544,600  
 
           
Net loss
  $ (66,200 )   $ (31,200 )
 
           
 
               
Allocation of net loss:
               
Managing general partner
  $ 4,600     $ 38,900  
 
           
Limited partners
  $ (70,800 )   $ (70,100 )
 
           
Net loss per limited partnership unit
  $ (23 )   $ (23 )
 
           
See accompanying notes to financial statements.

 

4


Table of Contents

ATLAS AMERICA PUBLIC #11-2002 LTD.
STATEMENT OF CHANGES IN PARTNERS’ CAPITAL
FOR THE THREE MONTHS ENDED
March 31, 2011
(Unaudited)
                                 
                    Accumulated        
    Managing             Other        
    General     Limited     Comprehensive        
    Partner     Partners     Income/(Loss)     Total  
 
                               
Balance at January 1, 2011
  $ 4,477,300     $ 2,328,400     $ 433,300     $ 7,239,000  
 
                               
Participation in revenues and expenses:
                               
Net production revenues
    53,600       121,400             175,000  
Interest income
          100             100  
Depletion
    (21,200 )     (140,700 )           (161,900 )
Accretion of asset retirement obligation
    (11,900 )     (22,100 )           (34,000 )
General and administrative
    (15,900 )     (29,500 )           (45,400 )
 
                       
Net income (loss)
    4,600       (70,800 )           (66,200 )
 
                               
Other comprehensive loss
                (23,000 )     (23,000 )
 
                               
Distributions to partners
    (162,900 )     (154,500 )           (317,400 )
 
                       
 
                               
Balance at March 31, 2011
  $ 4,319,000     $ 2,103,100     $ 410,300     $ 6,832,400  
 
                       
See accompanying notes to financial statements.

 

5


Table of Contents

ATLAS AMERICA PUBLIC #11-2002 LTD.
STATEMENTS OF CASH FLOWS
(Unaudited)
                 
    Three Months Ended  
    March 31,  
    2011     2010  
Cash flows from operating activities:
               
Net loss
  $ (66,200 )   $ (31,200 )
Adjustments to reconcile net loss to net cash provided by operating activities:
               
Depletion
    161,900       221,500  
Non-cash loss on derivative value
    18,100       88,100  
Accretion of asset retirement obligation
    34,000       27,200  
Decrease (increase) in accounts receivable — affiliate
    47,400       (7,300 )
Increase (decrease) in accrued liabilities
    200       (6,800 )
 
           
Net cash provided by operating activities
    195,400       291,500  
 
               
Cash flows from financing activities:
               
Distributions to partners
    (237,700 )     (306,300 )
 
           
Net cash used in financing activities
    (237,700 )     (306,300 )
 
           
 
               
Net decrease in cash and cash equivalents
    (42,300 )     (14,800 )
Cash and cash equivalents at beginning of period
    174,400       215,500  
 
           
Cash and cash equivalents at end of period
  $ 132,100     $ 200,700  
 
           
 
               
Supplemental Schedule of non-cash operating and financing activities:
               
 
               
Distribution to managing general partner
  $ 79,700     $  
 
           
See accompanying notes to financial statements.

 

6


Table of Contents

ATLAS AMERICA PUBLIC #11-2002 LTD.
NOTES TO FINANCIAL STATEMENTS
March 31, 2011
(Unaudited)
NOTE 1 — DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Atlas America Public #11-2002 Ltd. (the “Partnership”) is a Delaware limited partnership formed on June 5, 2002 with Atlas Resources, LLC serving as its Managing General Partner and operator (“Atlas Resources” or “MGP”). Atlas Resources is an indirect subsidiary of Atlas Energy, L.P., formerly Atlas Pipeline Holdings, L.P. (“Atlas Energy”) (NYSE: ATLS). On February 17, 2011, Atlas Energy, a then-majority owned subsidiary of Atlas Energy, Inc. and parent of the general partner of Atlas Pipeline Partners, L.P. (“APL”) (NYSE: APL), completed an acquisition of assets from Atlas Energy, Inc., which included its investment partnership business; its oil and gas exploration, development and production activities conducted in Tennessee, Indiana, and Colorado, certain shallow wells and leases in New York and Ohio, and certain well interests in Pennsylvania and Michigan; and its ownership and management of investments in Lightfoot Capital Partners, L.P. and related entities.
Atlas Resources’ focus is on the development and/or production of natural gas and oil in the Appalachian, Michigan, Illinois, and/or Colorado basin regions of the United States of America. Atlas Resources is also a leading sponsor of and manages tax-advantaged direct investment partnerships, in which it co-invests to finance the exploitation and development of its acreage. Atlas Energy Resource Services, Inc. provides Atlas Resources with the personnel necessary to manage its assets and raise capital.
The accompanying financial statements, which are unaudited except that the balance sheet at December 31, 2010, 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 of America (“U.S. GAAP”) for interim reporting. They do not include all disclosures normally made in financial statements contained in the Form 10-K. These interim 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, 2010. The results of operations for the three months ended March 31, 2011 may not necessarily be indicative of the results of operations for the year ended December 31, 2011.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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. Management has considered for disclosure any material subsequent events through the date the financial statements were issued.
In addition to matters discussed further in this note, the Partnership’s significant accounting policies are detailed in its audited financial statements and notes thereto in the Partnership’s annual report on Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission (“SEC”).
Use of Estimates
Preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities that exist at the date of the Partnership’s financial statements, as well as the reported amounts of revenue and costs and expenses during the reporting periods. The Partnership’s financial statements are based on a number of significant estimates, including the revenue and expense accruals, depletion, asset impairments, fair value of derivative instruments and the probability of forecasted transactions. Actual results could differ from those estimates.

 

7


Table of Contents

ATLAS AMERICA PUBLIC #11-2002 LTD.
NOTES TO FINANCIAL STATEMENTS (Continued)
March 31, 2011
(Unaudited)
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of Estimates (Continued)
The natural gas industry principally conducts its business by processing actual transactions as much 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 months’ financial results. Management believes that the operating results presented for the three months ended March 31, 2011 and 2010 represent actual results in all material respects (see “Revenue Recognition” accounting policy for further description).
Accounts Receivable and Allowance for Possible Losses
In evaluating the need for an allowance for possible losses, the Partnership’s MGP performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current creditworthiness, as determined by review of its customers’ credit information. Credit is extended on an unsecured basis to many of its energy customers. At March 31, 2011 and December 31, 2010, the Partnership’s MGP’s credit evaluation indicated that the Partnership had no need for an allowance for possible losses.
Oil and Gas Properties
Oil and gas properties are stated at cost. Maintenance and repairs are expensed as incurred. Major renewals and improvements that extend the useful lives of property are capitalized. The Partnership follows the successful efforts method of accounting for oil and gas producing activities. Oil is converted to gas equivalent basis (“Mcfe”) at the rate of one barrel equals 6 Mcf.
The Partnership’s depletion expense is determined on a field-by-field basis using the units-of-production method. Depletion rates for lease, 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 developed producing properties. Upon the sale or retirement of a complete field of a proved property, the Partnership eliminates the cost from the property accounts and the resultant gain or loss is reclassified to the Partnership’s statements of operations. Upon the sale of an individual well, the Partnership credits the proceeds to accumulated depreciation and depletion within its balance sheets.
                 
    March 31,     December 31,  
    2011     2010  
Proved properties:
               
Leasehold interests
  $ 695,700     $ 695,700  
Wells and related equipment
    40,827,100       40,827,100  
 
           
 
    41,522,800       41,522,800  
 
               
Accumulated depletion
    (33,337,200 )     (33,175,300 )
 
           
 
  $ 8,185,600     $ 8,347,500  
 
           

 

8


Table of Contents

ATLAS AMERICA PUBLIC #11-2002 LTD.
NOTES TO FINANCIAL STATEMENTS (Continued)
March 31, 2011
(Unaudited)
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Impairment of Long-Lived Assets
The Partnership reviews its 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 the Partnership’s 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, abandonment is less than the estimated expected undiscounted future cash flows. The expected future cash flows are estimated based on the Partnership’s plans to continue to produce and develop proved reserves. Expected future cash flow from the sale of production of reserves is calculated based on estimated future prices. The Partnership estimates 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 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 cannot predict what reserve revisions may be required in future periods. There was no impairment charge recognized during the three months ended March 31, 2011 and for the year ended December 31, 2010.
Working Interest
The Partnership Agreement establishes that revenues and expenses will be allocated to the MGP and limited partners based on their ratio of capital contributions to total contributions (“working interest”). The MGP is also provided an additional working interest of 7% as provided in the Partnership Agreement. Due to the time necessary to complete drilling operations and accumulate all drilling costs, estimated working interest percentage ownership rates are utilized to allocate revenues and expenses until the wells are completely drilled and turned on-line into production. Once the wells are completed, the final working interest ownership of the partners is determined and any previously allocated revenues and expenses based on the estimated working interest percentage ownership are adjusted to conform to the final working interest percentage ownership.

 

9


Table of Contents

ATLAS AMERICA PUBLIC #11-2002 LTD.
NOTES TO FINANCIAL STATEMENTS (Continued)
March 31, 2011
(Unaudited)
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition
The Partnership generally sells natural gas and crude oil at prevailing market prices. Revenue is 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 and crude oil in which the Partnership has an interest with other producers are recognized on the basis of the Partnership’s percentage ownership of working interest. Generally, the Partnership’s sales contracts are based on pricing provisions that are tied to a market index with certain adjustments based on proximity to gathering and transmission lines and the quality of its natural gas.
The Partnership accrues unbilled revenue due to timing differences between the delivery of natural gas and crude oil and the receipt of a delivery statement. These revenues are recorded based upon volumetric data from the Partnership’s records and management estimates of the related commodity sales and transportation fees which are, in turn, based upon applicable product prices (see “Use of Estimates” accounting policy for further description). The Partnership had unbilled revenues at March 31, 2011 and December 31, 2010 of $191,000 and $231,300, respectively, which are included in accounts receivable — affiliate within the Partnership’s balance sheets.
Recently Adopted Accounting Standards
As of the date of this filing, there are no newly issued accounting standards which impacted the presentation of the attached financial statements that have not already been adopted.
NOTE 3 — ASSET RETIREMENT OBLIGATION
The Partnership recognizes an estimated liability for the plugging and abandonment of its oil and gas wells and related facilities. It also recognizes 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. The Partnership also considers the estimated salvage value in the calculation of depletion.
The estimated liability is based on the MGP’s 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. 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 has no assets legally restricted for purposes of settling asset retirement obligations. Except for its oil and gas properties, the Partnership has determined that there are no other material retirement obligations associated with tangible long-lived assets.
A reconciliation of the Partnership’s liability for plugging and abandonment costs for the periods indicated is as follows:
                 
    Three Months Ended  
    March 31,  
    2011     2010  
Asset retirement obligation at beginning of period
  $ 2,270,300     $ 1,812,100  
Accretion expense
    34,000       27,200  
 
           
Asset retirement obligation at end of period
  $ 2,304,300     $ 1,839,300  
 
           

 

10


Table of Contents

ATLAS AMERICA PUBLIC #11-2002 LTD.
NOTES TO FINANCIAL STATEMENTS (Continued)
March 31, 2011
(Unaudited)
NOTE 4 — COMPREHENSIVE (LOSS) INCOME
Comprehensive (loss) income includes net (loss) income and all other changes in equity of a business during a period from transactions and other events and circumstances from non-owner sources that, under accounting principles generally accepted in the United States of America, have not been recognized in the calculation of net (loss) income. These changes, other than net (loss) income, are referred to as “other comprehensive (loss) income” and, for the Partnership, include changes in the fair value of unsettled derivative contracts accounted for as cash flow hedges. A reconciliation of the Partnership’s comprehensive (loss) income for the periods indicated is as follows:
                 
    Three Months Ended  
    March 31,  
    2011     2010  
Net loss
  $ (66,200 )   $ (31,200 )
Other comprehensive (loss) income:
               
Unrealized holding gain on hedging contracts
    99,500       560,600  
Less: reclassification adjustment for gains realized in net loss
    (122,500 )     (48,300 )
 
           
Total other comprehensive (loss) income
    (23,000 )     512,300  
 
           
Comprehensive (loss) income
  $ (89,200 )   $ 481,100  
 
           
NOTE 5 — DERIVATIVE INSTRUMENTS
The MGP, on behalf of the Partnership, uses a number of different derivative instruments, principally swaps and collars, in connection with its commodity price risk management activities. The MGP enters into financial instruments to hedge the Partnership’s forecasted natural gas and crude oil 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 natural gas and crude oil is sold. Under swap agreements, the Partnership receives or pays a fixed price and receives or remits a floating price based on certain indices for the relevant contract period. Commodity-based option instruments are contractual agreements that grant the right, but not obligation, to purchase or sell natural gas and crude oil at a fixed price for the relevant contract period.
Historically, the MGP has entered into natural gas and crude oil future option contracts and collar contracts on behalf of the Partnership to achieve more predictable cash flows by hedging its exposure to changes in natural gas and oil 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 delivery of natural gas. Crude oil contracts are based on a West Texas Intermediate (“WTI”) index. These contracts have qualified and been designated as cash flow hedges and recorded at their fair values.

 

11


Table of Contents

ATLAS AMERICA PUBLIC #11-2002 LTD.
NOTES TO FINANCIAL STATEMENTS (Continued)
March 31, 2011
(Unaudited)
NOTE 5 — DERIVATIVE INSTRUMENTS (Continued)
The MGP formally documents all relationships between hedging instruments and the items being hedged, including its risk management objective and strategy for undertaking the hedging transactions. This includes matching the commodity derivative contracts to the forecasted transactions. The MGP assesses, 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 MGP will discontinue hedge accounting for the derivative and subsequent changes in the derivative fair value, which is determined by the MGP through the utilization of market data, will be recognized immediately within gain (loss) on mark-to-market derivatives in the Partnership’s statements of operations. For derivatives qualifying as hedges, the Partnership recognizes the effective portion of changes in fair value in partners’ capital as accumulated other comprehensive income and reclassifies the portion relating to commodity derivatives to gas and oil production revenues for the Partnership’s derivatives within the Partnership’s statements of operations as the underlying transactions are settled. For non-qualifying derivatives and for the ineffective portion of qualifying derivatives, the Partnership recognizes changes in fair value within gain (loss) on mark-to-market derivatives in its statements of operations as they occur.
Prior to the acquisition on February 17, 2011 (“the Transferred Business”), ATLS monetized its derivative instruments related to the Transferred Business. The monetized proceeds relate to instruments that were originally put into place to hedge future natural gas and oil production of the Transferred Business, including production generated through its Drilling Partnerships. At March 31, 2011, the Partnership recorded a net receivable from the monetized derivative instruments of $289,600 in accounts receivable-affiliate and $268,700 in long-term receivable-affiliate with the corresponding net unrealized gains in accumulated other comprehensive income on the Partnership’s balance sheets, which will be allocated to natural gas and oil production revenue over the period of the original instruments’ contracts. As a result of the early settlement of natural gas and oil derivative positions and the unrealized gains recognized in income in prior periods due to natural gas and oil property impairments, the Partnership recorded a net deferred gain on its balance sheets in other comprehensive income of $410,300 as of March 31, 2011. Unrealized gains, net of the MGP’s interest, previously recognized into income as a result of prior period impairments were $148,000 for prior periods. The MGP’s portion of the unrealized gains were written off as a result of the Transferred Business. For the three months ended March 31, 2011, the Partnership reclassified $79,700 of unrealized gains previously recognized into income from prior period impairments related to the MGP from a hedge receivable due from affiliate as a distribution to the MGP. As such $79,700 was recorded as a distribution to partners on the statement of changes in partners’ capital. During the period, $21,900 of monetized proceeds were recorded by the Partnership and allocated to the limited partners only. Of the remaining $410,300 of net unrealized gain in accumulated other comprehensive income, the Partnership will reclassify $208,600 of net gains to the Partnership’s statements of operations over the next twelve month period and the remaining $201,700 in later periods.

 

12


Table of Contents

ATLAS AMERICA PUBLIC #11-2002 LTD.
NOTES TO FINANCIAL STATEMENTS (Continued)
March 31, 2011
(Unaudited)
NOTE 5 — DERIVATIVE INSTRUMENTS (Continued)
The following table summarizes the fair value of the Partnership’s derivative instruments as of December 31, 2010, as well as the gain or loss recognized in the statements of operations for the three months ended March 31, 2011 and 2010:
Fair Value of Derivative Instruments:
             
        Fair Value  
    Balance Sheet   December 31,  
Derivatives in Cash Flow Hedging Relationships   Location   2010  
 
           
Derivative Commodity Contracts
  Current Assets   $ 378,500  
 
  Long-Term Assets     370,000  
 
         
 
        748,500  
 
           
 
  Current liabilities     (3,800 )
 
  Long-term liabilities     (65,600 )
 
         
 
        (69,400 )
 
           
 
  Total   $ 679,100  
 
         
Effects of Derivative Instruments on statements of operations:
                                     
    Gain         Gain  
    Recognized in OCI on Derivative         Reclassified from OCI into Loss  
Derivatives in   Three Months Ended     Location of Gain/Loss   Three Months Ended  
Cash Flow   March 31,     March 31,     Reclassified from Accumulated   March 31,     March 31,  
Hedging Relationships   2011     2010     OCI into Income   2011     2010  
 
                                   
Commodity Contracts
  $ 99,500     $ 560,600     Natural Gas and Oil Revenue   $ 122,500     $ 48,300  
 
                           
NOTE 6 — FAIR VALUE OF FINANCIAL INSTRUMENTS
The Partnership has established a hierarchy to measure its financial instruments at fair value which requires it 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— Quoted prices in active markets for identical 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 entities own assumptions about the assumptions that 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 used a fair value methodology to value the assets and liabilities for its outstanding derivative contracts (see Note 5). The Partnership’s commodity derivative contracts were valued 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.

 

13


Table of Contents

ATLAS AMERICA PUBLIC #11-2002 LTD.
NOTES TO FINANCIAL STATEMENTS (Continued)
March 31, 2011
(Unaudited)
NOTE 6 — FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
The Partnership estimates the fair value of asset retirement obligations using Level 3 inputs 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 estimated inflation rates (see Note 3).
NOTE 7 — TRANSACTIONS WITH ATLAS RESOURCES, LLC AND ITS AFFILIATES
The Partnership has entered into the following significant transactions with its MGP and its affiliates as provided under its Partnership Agreement:
   
Administrative costs which are included in general and administrative expenses in the Partnership’s statements of operations are payable at $75 per well per month. Administrative costs incurred for the three months ended March 31, 2011 and 2010 were $27,900 and $31,200, respectively.
   
Monthly well supervision fees which are included in production expenses in the Partnership’s statements of operations are payable at $320 per well per month, for operating and maintaining the wells. Well supervision fees incurred for the three months ended March 31, 2011 and 2010 were $119,000 and $133,400, respectively.
   
Transportation fees which are included in production expenses in the Partnership’s statements of operations are generally payable at 13% of the natural gas sales price. Transportation fees incurred for the three months ended March 31, 2011 and 2010 were $36,600 and $63,000, respectively.
The MGP and its affiliates perform all administrative and management functions for the Partnership including billing revenues and paying expenses. Accounts receivable-affiliate on the Partnership’s balance sheets represents the net production revenues due from the MGP.
Subordination by Managing General Partner
Under the terms of the Partnership Agreement, the MGP may be required to subordinate up to 50% of its share of net production revenues of the Partnership to provide a distribution to the limited partners equal to at least 10% of their agreed subscriptions. Subordination is determined on a cumulative basis, in each of the first five years of Partnership operations, commencing with the first distribution of net revenues to the limited partners (July 2003). Since inception of the Partnership, the MGP has not been required to subordinate any of its revenues to its limited partners.

 

14


Table of Contents

ITEM 2.  
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED)
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. 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.
Management’s Discussion and Analysis should be read in conjunction with our Financial Statements and the Notes to our Financial Statements.
General
We are a Delaware limited partnership, formed on June 5, 2002 with Atlas Resources, LLC serving as our Managing General Partner and operator (“Atlas Resources” or “MGP”). Atlas Resources is an indirect subsidiary of Atlas Energy, L.P., formerly Atlas Pipeline Holdings, L.P. (“Atlas Energy”) (NYSE: ATLS). On February 17, 2011, Atlas Energy, a then-majority owned subsidiary of Atlas Energy, Inc. and parent of the general partner of Atlas Pipeline Partners, L.P. (“APL”) (NYSE: APL), completed an acquisition of assets from Atlas Energy, Inc., which included its investment partnership business; its oil and gas exploration, development and production activities conducted in Tennessee, Indiana, and Colorado, certain shallow wells and leases in New York and Ohio, and certain well interests in Pennsylvania and Michigan; and its ownership and management of investments in Lightfoot Capital Partners, L.P. and related entities.
Atlas Resources’ focus is on the development and/or production of natural gas and oil in the Appalachian, Michigan, Illinois, and/or Colorado basin regions of the United States of America. Atlas Resources is also a leading sponsor of and manages tax-advantaged direct investment partnerships, in which it co-invests to finance the exploitation and development of its acreage. Atlas Energy Resource Services, Inc. provides Atlas Resources with the personnel necessary to manage its assets and raise capital.
We have drilled and currently operate wells located in Pennsylvania and Ohio. We have no employees and rely on our MGP for management, which in turn, relies on its parent company, Atlas Energy Holdings Operating Company, LLC for administrative services.

 

15


Table of Contents

Results of Operations
The following table sets forth information relating to our production revenues, volumes, sales prices, production costs and depletion during the periods indicated:
                 
    Three Months Ended  
    March 31,  
    2011     2010  
Production revenues (in thousands):
               
Gas
  $ 335     $ 481  
Oil
    36       33  
 
           
Total
  $ 371     $ 514  
 
               
Production volumes:
               
Gas (mcf/day) (1)
    634       944  
Oil (bbls/day) (1)
    5       5  
 
           
Total (mcfe/day) (1)
    664       974  
 
               
Average sales prices (2):
               
Gas (per mcf) (1) (3)
  $ 6.16     $ 6.67  
Oil (per bbl) (1) (4)
  $ 88.51     $ 74.53  
 
               
Average production costs:
               
As a percent of revenues
    53 %     49 %
Per mcfe (1)
  $ 3.28     $ 2.88  
 
               
Depletion per mcfe
  $ 2.72     $ 2.52  
 
     
(1)  
“Mcf” represents thousand cubic feet, “mcfe” represents thousand cubic feet equivalent, and “bbls” represents barrels. Bbls are converted to mcfe using the ratio of six mcfs to one bbl.
 
(2)  
Average sales prices represent accrual basis pricing after reversing the effect of previously recognized gains resulting from prior period impairment charges.
 
(3)  
Average gas prices are calculated by including in total revenue derivative gains previously recognized into income and dividing by the total volume for the period. Previously recognized derivative gains were $17,100 and $86,300 for the three months ended March 31, 2011 and 2010, respectively. The derivative gains are included in other comprehensive income and resulted from prior period impairment charges.
 
(4)  
Average oil prices are calculated by including in total revenue derivative gains previously recognized into income and dividing by the total volume for the period. Previously recognized derivative gains were $1,000 and $1,800 for the three months ended March 31, 2011 and 2010, respectively. The derivative gains are included in other comprehensive income and resulted from prior period impairment charges.
Natural Gas Revenues. Our natural gas revenues were $334,900 and $480,700 for the three months ended March 31, 2011 and 2010, respectively, a decrease of $145,800 (30%). The $145,800 decrease in natural gas revenues for the three months ended March 31, 2011 as compared to the prior year period was attributable to a $157,700 decrease in production volumes, partially offset by a $11,900 increase in our natural gas sales prices after the effect of financial hedges, which were driven by market conditions. Our production volumes decreased to 634 mcf per day for the three months ended March 31, 2011 from 944 mcf per day for the three months ended March 31, 2010, a decrease of 310 mcf per day (33%). The overall decrease in natural gas production volumes for the three months ended March 31, 2011 as compared to the prior year similar period resulted primarily from the normal decline inherit in the life of the well.

 

16


Table of Contents

Oil Revenues. We drill wells primarily to produce natural gas, rather than oil, but some wells have limited oil production. Our oil revenues were $35,600 and $32,600 for the three months ended March 31, 2011 and 2010, respectively, an increase of $3,000 (9%). The $3,000 increase in oil revenues for the three months ended March 31, 2011 as compared to the prior year similar period was attributable to a $6,400 increase in oil prices after the effect of financial hedges, partially offset by a $3,400 decrease in production volumes. Our production volumes decreased to 4.59 bbls per day for the three months ended March 31, 2011 from 5.12 bbls per day for the three months ended March 31, 2010, a decrease of .53 bbls per day (10%).
Costs and Expenses. Production expenses were $195,500 and $252,700 for the three months ended March 31, 2011 and 2010, respectively, a decrease of $57,200 (23%). The decrease for the three months ended March 31, 2011 as compared to the prior year similar period was primarily attributable to a decrease in transportation fees, which are affected by a decrease in production volumes.
Depletion of oil and gas properties as a percentage of oil and gas revenues were 44% and 43% for the three months ended March 31, 2011 and 2010, respectively. These percentage changes are directly attributable to changes in revenues, oil and gas reserve quantities, product prices, production volumes and changes in the depletable cost basis of our oil and gas properties.
General and administrative expenses for the three months ended March 31, 2011 and 2010, were $45,400 and $43,200, respectively, an increase of $2,200 (5%). These expenses include third-party costs for services as well as the monthly administrative fees charged by our MGP and vary from year to year due to the timing and billing of the costs and services provided to us.
Liquidity and Capital Resources
Cash provided by operating activities decreased $96,100 in the three months ended March 31, 2011 to $195,400 as compared to $291,500 for the three months ended March 31, 2010. This decrease was due to a decrease in net income before depletion and accretion of $87,800 and a decrease in a net non-cash loss on derivative values of $70,000. In addition, the change in accrued liabilities increased operating cash flows by $7,000 and an increase in the change in accounts receivable-affiliate of $54,700 for the three months ended March 31, 2011 compared to the three months ended March 31, 2010.
Cash used in financing activities decreased $68,600 during the three months ended March 31, 2011 to $237,700 from $306,300 for the three months ended March 31, 2010. This decrease was due to a decrease in cash distributions to partners.
Our MGP may withhold funds for future plugging and abandonment costs. Any additional funds, if required, will be obtained from production revenues or borrowings from our MGP or its affiliates, which are not contractually committed to make loans to us. The amount that we may borrow may not at any time exceed 5% of our total subscriptions, and we will not borrow from third-parties.
We believe that our future cash flows from operations and amounts available from borrowings from our MGP or its affiliates, if any, will be adequate to fund our operations.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. On an on-going basis, we evaluate our estimates, including those related to our asset retirement obligations, depletion and certain accrued receivables and liabilities. We base our estimates on historical experience and on various other assumptions that we believe reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. A discussion of our significant accounting policies we have adopted and followed in the preparation of our financial statements is included within “Notes to Financial Statements” in Part I, Item 1, “Financial Statements” in this quarterly report and in our Annual Report on Form 10-K for the year ended December 31, 2010.

 

17


Table of Contents

Subordination by Managing General Partner
Under the terms of the Partnership Agreement, the MGP may be required to subordinate up to 50% of its share of net production revenues of the Partnership to provide a distribution to the limited partners equal to at least 10% of their agreed subscriptions. Subordination is determined on a cumulative basis, in each of the first five years of Partnership operations, commencing with the first distribution of net revenues to the limited partners (July 2003). Since inception of the Partnership, the MGP has not been required to subordinate any of its revenues to its limited partners.
ITEM 4.  
CONTROLS AND PROCEDURES
Evaluation 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 Chairman of the Board of Directors, Chief Executive Officer, President 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 Chairman of the Board of Directors, Chief Executive Officer, President, and Chief Financial Officer, 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 Chairman of the Board of Directors, Chief Executive Officer, President and Chief Financial Officer, concluded that, at March 31, 2011, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There have been no changes in the Partnership’s internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially effect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1.  
LEGAL PROCEEDINGS
The Managing General Partner is not aware of any legal proceedings filed against the Partnership.
Affiliates of the MGP and their subsidiaries are party to various routine legal proceedings arising in the ordinary course of their collective business. The MGP management believes that none of these actions, individually or in the aggregate, will have a material adverse effect on the MGP’s financial condition or results of operations.

 

18


Table of Contents

ITEM 6.  
EXHIBITS
EXHIBIT INDEX
         
Exhibit No.   Description
       
 
  4.0    
Amended and Restated Certificate and Agreement of Limited Partnership for Atlas America Public #11-2002 Ltd. (1)
  10.1    
Drilling and Operating Agreement for Atlas America Public #11-2002 Ltd. (1)
  31.1    
Certification Pursuant to Rule 13a-14/15(d)-14
  31.2    
Certification Pursuant to Rule 13a-14/15(d)-14
  32.1    
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  32.2    
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
     
(1)  
Filed on June 21, 2002 in the Form S-1 Registration Statement dated June 21, 2002, File No. 333-90980

 

19


Table of Contents

SIGNATURES
Pursuant to the requirements of the Securities of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Atlas America Public #11-2002 Ltd.
         
  Atlas Resources, LLC, Managing General Partner
 
 
Date: May 13, 2011  By:   /s/ Freddie M. Kotek    
    Freddie M. Kotek, Chairman of the Board of Directors,   
    Chief Executive Officer and President   
In accordance with the Exchange Act, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
         
Date: May 13, 2011  By:   /s/ Jeffrey C. Simmons    
    Jeffrey C. Simmons, Executive Vice President, Operations   
       
Date: May 13, 2011  By:   /s/ Sean P. McGrath    
    Sean P. McGrath, Chief Financial Officer   

 

20