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Table of Contents

 

 

United States

Securities and Exchange Commission

Washington, D.C. 20549

 

 

Form 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012

 

¨ 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 333-150925-01

 

 

ATLAS RESOURCES PUBLIC 18-2009 (C) L.P.

(Name of small business issuer in its charter)

 

 

 

Delaware   27-0213766

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

Park Place Corporate Center One

1000 Commerce Drive, 4th Floor

Pittsburgh, PA

  15275
(Address of principal executive offices)   (zip code)

Issuer’s telephone number, including area code: (412)-489-0006

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§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  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “non accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   ¨    Smaller reporting company   x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

 

 

 


Table of Contents

ATLAS RESOURCES PUBLIC 18-2009 (C) L.P.

(A DELAWARE LIMITED PARTNERSHIP)

INDEX TO QUARTERLY REPORT

ON FORM 10-Q

 

         PAGE  

PART I.

  FINANCIAL INFORMATION   

Item 1:

  Financial Statements   
  Balance Sheets as of September 30, 2012 and December 31, 2011      3   
  Statements of Operations for the three and nine months ended September 30, 2012 and 2011      4   
  Statements of Comprehensive (Loss) Income for the three and nine months ended September 30, 2012 and 2011      5   
  Statement of Changes in Partners’ Capital for the nine months ended September 30, 2012      6   
  Statements of Cash Flows for the nine months ended September 30, 2012 and 2011      7   
  Notes to Financial Statements      8   

Item 2:

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      20   

Item 4:

  Controls and Procedures      23   

PART II.

  OTHER INFORMATION   

Item 1:

  Legal Proceedings      24   

Item 6:

  Exhibits      24   

SIGNATURES

     25   

CERTIFICATIONS

  

 

2


Table of Contents

ATLAS RESOURCES PUBLIC 18-2009 (C) L.P.

BALANCE SHEETS

 

     September 30,      December 31,  
     2012      2011  
     (Unaudited)         

ASSETS

     

Current assets:

     

Cash and cash equivalents

   $ 685,900       $ 1,621,800   

Accounts receivable trade-affiliate

     8,875,600         5,152,300   

Accounts receivable monetized gains-affiliate

     2,770,800         4,527,100   

Short-term hedge receivable

     57,100         —     
  

 

 

    

 

 

 

Total current assets

     12,389,400         11,301,200   

Oil and gas properties, net

     168,934,200         180,542,200   

Long-term receivable monetized gains-affiliate

     428,200         2,954,000   

Long-term hedge receivable

     372,300         —     
  

 

 

    

 

 

 
   $ 182,124,100       $ 194,797,400   
  

 

 

    

 

 

 

LIABILITIES AND PARTNERS’ CAPITAL

     

Current liabilities:

     

Accrued liabilities

   $ 123,800       $ 971,100   

Short-term hedge payable

     117,500         —     
  

 

 

    

 

 

 

Total current liabilities

     241,300         971,100   

Asset retirement obligation

     1,926,100         1,855,200   

Long-term hedge payable

     370,800         —     

Partners’ capital:

     

Managing general partner

     17,750,200         15,686,200   

Limited partners (22,928.90 units)

     158,819,900         169,030,600   

Accumulated other comprehensive income

     3,015,800         7,254,300   
  

 

 

    

 

 

 

Total partners’ capital

     179,585,900         191,971,100   
  

 

 

    

 

 

 
   $ 182,124,100       $ 194,797,400   
  

 

 

    

 

 

 

See accompanying notes to financial statements.

 

3


Table of Contents

ATLAS RESOURCES PUBLIC 18-2009 (C) L.P.

STATEMENTS OF OPERATIONS

(Unaudited)

 

     Three Months Ended      Nine Months Ended  
     September 30,      September 30,  
     2012     2011      2012     2011  

REVENUES

         

Natural gas, oil and liquid gas

   $ 10,936,900      $ 7,182,100       $ 19,374,800      $ 25,580,500   

Interest income

     —          400         400        1,400   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total revenues

     10,936,900        7,182,500         19,375,200        25,581,900   

COSTS AND EXPENSES

         

Production

     3,770,500        1,585,000         7,142,500        5,920,400   

Depletion

     8,424,300        3,538,100         15,010,800        12,128,000   

Accretion of asset retirement obligation

     23,600        20,800         70,900        62,600   

General and administrative

     64,000        43,500         157,200        134,700   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total costs and expenses

     12,282,400        5,187,400         22,381,400        18,245,700   
  

 

 

   

 

 

    

 

 

   

 

 

 

Net (loss) income

   $ (1,345,500   $ 1,995,100       $ (3,006,200   $ 7,336,200   
  

 

 

   

 

 

    

 

 

   

 

 

 

Allocation of net (loss) income:

         

Managing general partner

   $ 846,200      $ 833,100       $ 1,139,600      $ 3,279,200   
  

 

 

   

 

 

    

 

 

   

 

 

 

Limited partners

   $ (2,191,700   $ 1,162,000       $ (4,145,800   $ 4,057,000   
  

 

 

   

 

 

    

 

 

   

 

 

 

Net (loss) income per limited partnership unit

   $ (96   $ 51       $ (181   $ 177   
  

 

 

   

 

 

    

 

 

   

 

 

 

See accompanying notes to financial statements.

 

4


Table of Contents

ATLAS RESOURCES PUBLIC #18-2009 (C) L.P.

STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Unaudited)

 

     Three Months Ended     Nine Months Ended  
     September 30,     September 30,  
     2012     2011     2012     2011  

Net (loss) income

   $ (1,345,500   $ 1,995,100      $ (3,006,200   $ 7,336,200   

Other comprehensive (loss):

        

Unrealized holding (loss) gain on hedging contracts

     (747,300     —          (808,700     515,400   

MGP portion of non-cash loss on hedge instruments

     —          —          —          129,200   

Difference in estimated hedge gains receivable

     57,700        (272,300     (180,100     37,100   

Less: reclassification adjustment for gains realized in net (loss) income

     (1,107,800     (1,590,400     (3,249,700     (7,516,000
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive loss

     (1,797,400     (1,862,700     (4,238,500     (6,834,300
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive (loss) income

   $ (3,142,900   $ 132,400      $ (7,244,700   $ 501,900   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

5


Table of Contents

ATLAS RESOURCES PUBLIC 18-2009 (C) L.P.

STATEMENT OF CHANGES IN PARTNERS’ CAPITAL

FOR THE NINE MONTHS ENDED

September 30, 2012

(Unaudited)

 

                 Accumulated        
     Managing           Other        
     General     Limited     Comprehensive        
     Partner     Partners     Income (Loss)     Total  

Balance at January 1, 2012

   $ 15,686,200      $ 169,030,600      $ 7,254,300      $ 191,971,100   

Participation in revenues and expenses:

        

Net production revenues

     2,582,900        9,649,400        —          12,232,300   

Interest

     100        300        —          400   

Depletion

     (1,380,100     (13,630,700     —          (15,010,800

Accretion of asset retirement obligation

     (19,700     (51,200     —          (70,900

General and administrative

     (43,600     (113,600     —          (157,200
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

     1,139,600        (4,145,800     —          (3,006,200

Other comprehensive loss

     —          —          (4,238,500     (4,238,500

Subordination

     (747,300     747,300        —          —     

Asset contributions

     3,409,000        —          —          3,409,000   

Distributions to partners

     (1,737,300     (6,812,200     —          (8,549,500
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2012

   $ 17,750,200      $ 158,819,900      $ 3,015,800      $ 179,585,900   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

6


Table of Contents

ATLAS RESOURCES PUBLIC 18-2009 (C) L.P.

STATEMENTS OF CASH FLOWS

(Unaudited)

 

     Nine Months Ended  
     September 30,  
     2012     2011  

Cash flows from operating activities:

    

Net (loss) income

   $ (3,006,200   $ 7,336,200   

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

    

Depletion

     15,010,800        12,128,000   

Non-cash loss on hedge instruments

     102,500        185,800   

Accretion of asset retirement obligation

     70,900        62,600   

(Increase) decrease in accounts receivable-affiliate

     (3,723,300     3,853,900   

Decrease in accrued liabilities

     (847,300     (352,600
  

 

 

   

 

 

 

Net cash provided by operating activities

     7,607,400        23,213,900   

Cash flows from investing activities:

    

Proceeds from sale of tangible equipment

     6,200        —     
  

 

 

   

 

 

 

Net cash provided by investing activities

     6,200        —     

Cash flows from financing activities:

    

Distributions to partners

     (8,549,500     (23,837,700
  

 

 

   

 

 

 

Net cash used in financing activities

     (8,549,500     (23,837,700
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (935,900     (623,800

Cash and cash equivalents at beginning of period

     1,621,800        3,032,600   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 685,900      $ 2,408,800   
  

 

 

   

 

 

 

Supplemental Schedule of non-cash investing and financing activities:

    

Assets (returned to) contributed by managing general partner:

    

Tangible drilling costs

   $ 2,062,400      $ 141,300   

Lease costs

     (400     300   

Intangible drilling costs

     1,347,000        851,100   
  

 

 

   

 

 

 
   $ 3,409,000      $ 992,700   
  

 

 

   

 

 

 

Distribution to Managing General Partner

   $ —        $ 129,200   
  

 

 

   

 

 

 

See accompanying notes to financial statements.

 

7


Table of Contents

ATLAS RESOURCES PUBLIC #18-2009 (C) L.P.

NOTES TO FINANCIAL STATEMENTS

September 30, 2012

(Unaudited)

NOTE 1—DESCRIPTION OF BUSINESS

Atlas Resources Public #18-2009 (C) L.P. (the “Partnership”) is a Delaware limited partnership, formed on June 9, 2009 with Atlas Resources, LLC serving as its Managing General Partner and Operator (“Atlas Resources” or “the MGP”). Atlas Resources is an indirect subsidiary of Atlas Resource Partners, L.P. (“ARP”) (NYSE: ARP).

On February 17, 2011, Atlas Energy L.P., formerly known as Atlas Pipeline Holdings, L.P. (“Atlas Energy”) (NYSE: ATLS), 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 (the “Transferred Business”).

In March 2012, Atlas Energy contributed to ARP, a newly-formed exploration and production master limited partnership, substantially all of Atlas Energy’s natural gas and oil development and production assets and its partnership management business, including ownership of the MGP. Atlas Energy also distributed an approximate 19.6% limited partner interest in ARP to its unitholders, retaining a 78.4% limited partner interest. Atlas Energy also owns ARP’s general partner, which owns a 2% general partner interest and all of the incentive distribution rights in ARP.

The Partnership has drilled and currently operates wells located in Pennsylvania, Tennessee, Michigan and Indiana. The Partnership has no employees and relies on MGP for management, which in turn, relies on its parent company, Atlas Energy, for administrative services.

The Partnership’s operating cash flows are generated from its wells, which produce natural gas and oil. Produced natural gas and oil is then delivered to market through third-party gas gathering systems. The Partnership does not plan to sell any of our wells and will continue to produce them until they are depleted or become uneconomical to produce, at which time they will be plugged and abandoned or sold. No other wells will be drilled and no additional funds will be required for drilling.

The accompanying financial statements, which are unaudited except that the balance sheet at December 31, 2011 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, 2011. Certain amounts in the prior period financial statements have been reclassified to conform to the current year presentation. The results of operations for the three and nine months ended September 30, 2012 may not necessarily be indicative of the results of operations for the year ended December 31, 2012.

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, 2011 filed with the Securities and Exchange Commission (“SEC”).

 

8


Table of Contents

ATLAS RESOURCES PUBLIC #18-2009 (C) L.P.

NOTES TO FINANCIAL STATEMENTS (Continued)

September 30, 2012

(Unaudited)

 

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

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 revenues 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.

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 and nine months ended September 30, 2012 and 2011, 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 MGP performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history and the customers’ 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 September 30, 2012 and December 31, 2011, the 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 which generally do not extend the useful life of an asset for two years or more through the replacement of critical components are expensed as incurred. Major renewals and improvements which generally extend the useful life of an asset for two years or more through the replacement of critical components are capitalized.

The Partnership follows the successful efforts method of accounting for oil and gas producing activities. Oil and natural gas liquids (“NGLS”) are converted to gas equivalent basis (“mcfe”) at the rate of one barrel to six mcf of natural gas.

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 cost of developed producing properties. The Partnership recorded depletion expense on natural gas and oil properties of $15,010,800 and $12,128,000 for the nine months ended September 30, 2012 and 2011, respectively.

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.

 

9


Table of Contents

ATLAS RESOURCES PUBLIC #18-2009 (C) L.P.

NOTES TO FINANCIAL STATEMENTS (Continued)

September 30, 2012

(Unaudited)

 

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Oil and Gas Properties (Continued)

The following is a summary of oil and gas properties at the dates indicated:

 

     September 30,     December 31,  
     2012     2011  

Proved properties:

    

Leasehold interests

   $ 3,177,900      $ 3,178,300   

Wells and related equipment

     252,015,000        248,611,800   
  

 

 

   

 

 

 
     255,192,900        251,790,100   

Accumulated depletion and impairment

     (86,258,700     (71,247,900
  

 

 

   

 

 

 

Oil and gas properties, net

   $ 168,934,200      $ 180,542,200   
  

 

 

   

 

 

 

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 of 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, depreciation and amortization and abandonment is less than the estimated expected undiscounted future cash flows. The expected future cash flows are estimated based on the Partnership’s plans to continue to produce and develop proved reserves. Expected future cash flow from the sale of the 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. The Partnership may have to pay additional consideration in the future as a well becomes uneconomic under the terms of the Partnership Agreement in order to recover these reserves. There was no impairment charge recognized during the three and nine months ended September 30, 2012 or during the year ended December 31, 2011.

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 10% 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.

 

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Table of Contents

ATLAS RESOURCES PUBLIC #18-2009 (C) L.P.

NOTES TO FINANCIAL STATEMENTS (Continued)

September 30, 2012

(Unaudited)

 

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Revenue Recognition

The Partnership generally sells natural gas and crude oil at prevailing market prices. Generally, the Partnership’s sales contracts are based on pricing provisions that are tied to a market index, with certain fixed adjustments based on proximity to gathering and transmission lines and the quality of its natural gas. On average, the market index is fixed two business days prior to the commencement of the production month. Revenue and the related accounts receivable are recognized when produced quantities are delivered to a custody transfer point, persuasive evidence of a sales arrangement exists, the rights and responsibility of ownership pass to the purchaser upon delivery, collection of revenue from the sale is reasonably assured and the sales price is fixed or determinable. Revenues from the production of natural gas and crude oil, in which the Partnership has an interest with other producers, are recognized on the basis of its percentage ownership of working interest and/or overriding royalty.

The Partnership accrues unbilled revenue due to timing differences between the delivery of natural gas, NGL's, crude oil and condensate 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 and compression 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 September 30, 2012 and December 31, 2011 of $6,466,900 and $3,525,600, respectively, which were included in accounts receivable trade-affiliate within the Partnership’s balance sheets.

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 derivative contracts accounted for as cash flow hedges.

Recently Adopted Accounting Standards

In October 2012, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2012-04, Technical Corrections and Improvements (“Update 2012-04”). The amendments in this update are presented in two sections – Technical Corrections and Improvements (Section A) and Conforming Amendments Related to Fair Value Measurements (Section B). The amendments in Section A correct differences between source literature and the Accounting Standards Codification (“ASC”), provide clarification of guidance through updating wording, correcting references, or a combination of both, and move guidance from its current location in the ASC to a more appropriate location. The amendments in Section B are intended to conform terminology and clarify certain guidance in various Topics of the ASC to fully reflect the fair value measurement and disclosure requirements of Topic 820. The amendments do not introduce any new fair value measurements and are not intended to result in a change in the application of the requirements in Topic 820 or fundamentally change other principles of U.S. GAAP. The amendments in Update 2012-04 that do not have transition guidance are effective upon issuance and those amendments that are subject to the transition guidance will be effective for fiscal periods beginning after December 15, 2012. The Partnership adopted the requirements of Update 2012-04 on September 30, 2012, and it did not have a material impact on its financial position, results of operations or related disclosures. The Partnership also believes the transition guidance will have no impact on its financial position, results of operations or related disclosures upon its effective date of January 1, 2013.

 

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ATLAS RESOURCES PUBLIC #18-2009 (C) L.P.

NOTES TO FINANCIAL STATEMENTS (Continued)

September 30, 2012

(Unaudited)

 

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Recently Adopted Accounting Standards (Continued)

In August 2012, the FASB issued ASU 2012-03, Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 114, Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB ASU 2010-22 (SEC Update) (“Update 2012-03”). Update 2012-03 codified amendments and corrections to the ASC for various SEC paragraphs pursuant or related to 1) the issuance of Staff Accounting Bulletin (“SAB”) 114; 2) the SEC’s Final Rule, Technical Amendments to Commission Rules and Forms Related to the FASB’s Accounting Standards Codification, Release No. 3350-9250, 34-65052, and IC-29748 August 8, 2011; 3) ASU 2010-22, Accounting for Various Topics—Technical Corrections to SEC Paragraphs (SEC Update); and 4) other various Status Sections. As Update 2012-03 did not provide a required adoption date, the Partnership adopted the requirements of Update 2012-03 on September 30, 2012, and it did not have a material impact on its financial position, results of operations or related disclosures.

In December 2011, the FASB issued ASU 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 (“Update 2011-12”). The amendments in this update effectively defer the implementation of the changes made in Update 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (“Update 2011-05”), related to the presentation of reclassification adjustments out of accumulated other comprehensive income. Under Update 2011-05 which was issued by the FASB in June 2011, entities are provided the option to present the total of comprehensive income, the components of net income and the components of other comprehensive income in either a single continuous statement of comprehensive income or in two separate but consecutive statements. Under each methodology, an entity is required to present each component of net income along with a total net income, each component of other comprehensive income and a total amount for comprehensive income. Update 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. As a result of Update 2011-12, entities are required to disclose reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect prior to Update 2011-05. All other requirements in Update 2011-05 are not affected by Update 2011-12. These requirements are effective for interim and annual reporting periods beginning after December 15, 2011. Accordingly, entities are not required to comply with presentation requirements of Update 2011-05 related to the disclosure of reclassifications out of accumulated other comprehensive income. The Partnership included separate but consecutive statements of operations and comprehensive income (loss) within this Form 10-Q upon the adoption of these ASUs on January 1, 2012. The adoption had no material impact on the Partnership’s financial condition or results of operations.

In December 2011, the FASB issued ASU 2011-11, Balance Sheet (Topic 210): Disclosure about Offsetting Assets and Liabilities (“Update 2011-11”). The amendments in this update require an entity to disclose both gross and net information about both financial and derivative instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset on the statement of financial position. An entity shall disclose at the end of a reporting period certain quantitative information separately for assets and liabilities that are within the scope of Update 2011-11, as well as provide a description of the rights of setoff associated with an entity’s recognized assets and recognized liabilities subject to an enforceable master netting arrangement or similar agreement. Entities are required to implement the amendments for interim and annual reporting periods beginning after January 1, 2013 and such amendments shall be applied retrospectively for any period presented that begins before the date of initial application. The Partnership has elected to early adopt these requirements and updated its disclosures to meet these requirements effective January 1, 2012. The adoption had no material impact on the Partnership’s financial position or results of operations.

 

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ATLAS RESOURCES PUBLIC #18-2009 (C) L.P.

NOTES TO FINANCIAL STATEMENTS (Continued)

September 30, 2012

(Unaudited)

 

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Recently Adopted Accounting Standards (Continued)

In May 2011, the FASB issued ASU 2011-04, Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“Update 2011-04”). The amendments in Update 2011-04 revise the wording used to describe many of the requirements for measuring fair value and for disclosing information about fair value measurements in U.S. GAAP. For many of the amendments, the guidance is not necessarily intended to result in a change in the application of the requirements in Topic 820; rather it is intended to clarify the intent about the application of existing fair value measurement requirements. Other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. As a result, Update 2011-04 aims to provide common fair value measurement and disclosure requirements in U.S. GAAP and International Financial Reporting Standards. These requirements are effective for interim and annual reporting periods beginning after December 15, 2011. The Partnership updated its disclosures to meet these requirements upon the adoption of Update 2011-04 on January 1, 2012 (See Note 5). The adoption had no material impact on the Partnership’s financial position or results of operations.

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. The Partnership also recognizes a liability for future asset retirement obligations if a reasonable estimate of the fair value of that liability can be made. 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 cost estimates or remaining lives of the wells or if federal or state regulators enact new plugging and abandonment requirements. The associated asset retirement costs from revisions are capitalized as part of the carrying amount of the long-lived asset. 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 well plugging and abandonment costs for the periods indicated is as follows:

 

     Three Months Ended      Nine Months Ended  
     September 30,      September 30,  
     2012      2011      2012      2011  

Asset retirement obligation at beginning of period

   $ 1,902,500       $ 1,433,600       $ 1,855,200       $ 1,391,800   

Accretion expense

     23,600         20,800         70,900         62,600   
  

 

 

    

 

 

    

 

 

    

 

 

 

Asset retirement obligation at end of period

   $ 1,926,100       $ 1,454,400       $ 1,926,100       $ 1,454,400   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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ATLAS RESOURCES PUBLIC #18-2009 (C) L.P.

NOTES TO FINANCIAL STATEMENTS (Continued)

September 30, 2012

(Unaudited)

 

NOTE 4—DERIVATIVE INSTRUMENTS

The MGP, on behalf of the Partnership, uses a number of different derivative instruments, principally swaps, collars and options, in connection with its commodity price risk management activities. The MGP enters into financial instruments to hedge forecasted natural gas, NGL’s, crude oil and condensate sales against the variability in expected future cash flows attributable to changes in market prices. Swap instruments are contractual agreements between counterparties to exchange obligations of money as the underlying natural gas, NGLs, crude oil and condensate are sold. Under commodity-based swap agreements, the MGP 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 the obligation, to receive or pay a fixed price and receive or remit a floating price based on certain indices for the relevant contract period, if the floating price is lower than the fixed price. The put option instrument sets a floor price for commodity sales being hedged. Costless collars are a combination of a purchased put option and a sold call option, in which the premiums net to zero. The costless collar eliminates the initial cost of the purchased put, but places a ceiling price for commodity sales being hedged.

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 was effective in offsetting changes in the forecasted cash flow of the hedged item. If the MGP determines 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 are determined by management of 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 of derivative instruments as accumulated other comprehensive income and reclassifies the portion relating to the Partnership’s commodity derivatives to gas and oil production revenues 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 recognized changes in fair value within gain (loss) on mark-to-market derivatives in its statements of operations as they occur.

At September 30, 2012, the Partnership had a secured hedge facility agreement with a syndicate of banks under which the Partnership will have the ability to enter into derivative contracts to manage its exposure to commodity price movements. The Partnership’s obligations under the facility are secured by mortgages on its oil and gas properties first priority security interests in substantially all of its assets and by a guarantee of the MGP. The MGP will administer the commodity price risk management activity for the Partnership under the secured hedge facility. The secured hedge facility agreement contains covenants that limit the Partnership’s ability to incur indebtedness, grant liens, make loans or investments, make distributions if a default under the secured hedge facility agreement exists or would result from the distribution, merge into or consolidate with other persons, enter into commodity or interest rate swap agreements that do not conform to specified terms or that exceed specified amounts, or engage in certain asset dispositions including a sale of all or substantially all of its assets. As of September 30, 2012 only the Partnership’s natural gas swaps are included in the secured hedge facility.

At September 30, 2012, the Partnership had the following commodity derivatives:

Natural Gas Put Options

 

Production                     
Period Ending           Average      Fair Value  

December 31,

   Volumes      Strike      Asset (2)  
     (mmbtu) (1)      (per mmbtu) (1)         

2012

     124,200       $ 2.800       $ 1,300   

2013

     372,600         3.450         77,800   

2014

     310,500         3.800         107,100   

2015

     248,400         4.000         109,400   

2016

     248,400         4.150         133,800   
        

 

 

 
         $ 429,400   
        

 

 

 

 

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ATLAS RESOURCES PUBLIC #18-2009 (C) L.P.

NOTES TO FINANCIAL STATEMENTS (Continued)

September 30, 2012

(Unaudited)

 

NOTE 4—DERIVATIVE INSTRUMENTS (Continued)

 

Natural Gas Fixed Price Swaps

 

Production

Period Ending

          Average      Fair Value  

December 31,

   Volumes      Fixed Price      (Liability (2)  
     (mmbtu) (1)      (per mmbtu)  (1)         

2012

     —         $ —         $ —     

2013

     1,209,600         3.659         (223,100

2014

     907,200         4.035         (131,100

2015

     756,000         4.224         (108,700

2016

     300,200         4.460         (25,400
        

 

 

 
         $ (488,300
        

 

 

 
        Total Net Liability       $ (58,900
        

 

 

 

 

(1) “Mmbtu” represents million British Thermal Units.
(2) Fair value based on forward NYMEX natural gas prices, as applicable.

The following tables summarize the fair value of the Partnership’s derivative instruments as of September 30, 2012, as well as the gain or loss recognized in the statements of operations for the three and nine months ended September 30, 2012 and 2011:

Fair Value of Derivative Instruments:

 

          Fair Value  

Derivatives in Cash Flow Hedging Relationships

  

Balance Sheet

Location

   September 30,
2012
 

Derivative Commodity Contracts

   Current assets    $ 57,100   
   Long-term assets      372,300   
     

 

 

 
        429,400   
   Current liabilities      (117,500
   Long-term liabilities      (370,800
     

 

 

 
        (488,300
     

 

 

 
   Total    $ (58,900
     

 

 

 

Effects of Derivative Instruments on Statements of Operations:

 

     Three Months Ended      Nine Months Ended  
     September 30,      September 30,  
     2012     2011      2012     2011  

(Loss) gain recognized in accumulated OCI

   $ (747,300   $ —         $ (808,700   $ 515,400   
  

 

 

   

 

 

    

 

 

   

 

 

 

Gain reclassified from accumulated OCI into (loss) income

   $ 1,107,800      $ 1,590,400       $ 3,249,700      $ 7,516,000   
  

 

 

   

 

 

    

 

 

   

 

 

 

 

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ATLAS RESOURCES PUBLIC #18-2009 (C) L.P.

NOTES TO FINANCIAL STATEMENTS (Continued)

September 30, 2012

(Unaudited)

 

NOTE 4—DERIVATIVE INSTRUMENTS (Continued)

 

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 included 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 qualified and were designated as cash flow hedges and recorded at their fair values.

As the underlying prices and terms in the Partnership’s derivative contracts were consistent with the indices used to sell its natural gas and oil, there were no gains or losses recognized during the nine months ended September 30, 2012 and 2011 for hedge ineffectiveness or as a result of the discontinuance of any cash flow hedges.

Monetized Gains

Prior to the sale on February 17, 2011 of the Transferred Business, Atlas Energy, Inc. monetized the derivative instruments related to the Transferred Business. The monetized proceeds related to instruments that were originally put into place to hedge future natural gas and oil production of the Transferred Business, including production generated through drilling partnerships. As of September 30, 2012 and December 31, 2011, the Partnership recorded a net receivable from the monetized derivative instruments of $2,939,800 and $4,527,100 in accounts receivable monetized gains-affiliate, respectively, and $1,009,000 and $2,954,000 in long-term receivable monetized gains-affiliate, respectively, 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 generated over the period of the original instruments’ term. The monetized gains included on the Partnership’s balance sheet are allocable to the limited partners only.

During June 2012, the MGP used the undistributed monetized funds to purchase natural gas put options on behalf of the limited partners of the Partnership only. A premium (“put premium”) was paid to purchase the contracts and will be allocated to natural gas production revenues generated over the contractual term of the purchased hedging instruments. At September 30, 2012, the put premiums were recorded as short-term and long-term payables to affiliate of $169,000 and $580,800, respectively. Furthermore, the put premium liabilities were included in accounts receivable monetized gains-affiliate and long-term receivable monetized gains-affiliate, respectively, in the Partnership’s balance sheet. The put premiums included on the Partnership’s balance sheet are allocable to the limited partners only.

 

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ATLAS RESOURCES PUBLIC #18-2009 (C) L.P.

NOTES TO FINANCIAL STATEMENTS (Continued)

September 30, 2012

(Unaudited)

 

NOTE 4—DERIVATIVE INSTRUMENTS (Continued)

 

The following table summarizes the gross fair values of the Partnership’s derivative and affiliate balances, presenting the impact of offsetting the related party assets and liabilities on the Partnership’s balance sheets for the periods indicated:

 

    Gross
Amounts
    Gross
Amounts
    Net Amount of Assets  
    of Recognized     Offset in the     Presented in the  
    Assets     Balance Sheets     Balance Sheets  

Offsetting Derivative Assets

     

As of September 30, 2012

     

Accounts receivable monetized gains-affiliate

  $ 2,939,800      $ (169,000   $ 2,770,800   

Long-term accounts receivable monetized gains-affiliate

    1,009,000        (580,800     428,200   

Short-term hedge swaps

    5,300        (5,300     —     

Long-term hedge swaps

    16,700        (16,700     —     
 

 

 

   

 

 

   

 

 

 

Total

  $ 3,970,800      $ (771,800   $ 3,199,000   
 

 

 

   

 

 

   

 

 

 

As of December 31, 2011

     

Accounts receivable monetized gains-affiliate

  $ 4,527,100      $ —        $ 4,527,100   

Long-term accounts receivable monetized gains-affiliate

    2,954,000        —          2,954,000   
 

 

 

   

 

 

   

 

 

 

Total

  $ 7,481,100      $ —        $ 7,481,100   
 

 

 

   

 

 

   

 

 

 

 

    Gross Amounts     Gross Amounts     Net Amount of Liabilities  
    of Recognized     Offset in the     Presented in the  
    Liabilities     Balance Sheets     Balance Sheets  

Offsetting Derivative Liabilities

     

As of September 30, 2012

     

Put premiums payable-affiliate

  $ (169,000   $ 169,000      $ —     

Long-term put premiums payable-affiliate

    (580,800     580,800        —     

Short-term hedge swaps

    (122,800     5,300        (117,500

Long-term hedge swaps

    (387,500     16,700        (370,800
 

 

 

   

 

 

   

 

 

 

Total

  $ (1,260,100   $ 771,800      $ (488,300
 

 

 

   

 

 

   

 

 

 

As of December 31, 2011

     

Put premiums payable-affiliate

  $ —        $ —        $ —     

Long-term put premiums payable-affiliate

    —          —          —     
 

 

 

   

 

 

   

 

 

 

Total

  $ —        $ —        $ —     
 

 

 

   

 

 

   

 

 

 

 

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ATLAS RESOURCES PUBLIC #18-2009 (C) L.P.

NOTES TO FINANCIAL STATEMENTS (Continued)

September 30, 2012

(Unaudited)

 

NOTE 4—DERIVATIVE INSTRUMENTS (Continued)

 

Accumulated Other Comprehensive Income

As a result of the monetization and the early settlement of natural gas and oil derivative instruments, the put options, swaps, 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 accumulated other comprehensive income of $3,015,800 as of September 30, 2012. Included in other comprehensive income are unrealized gains of $124,300, net of the MGP interest that were recognized into (loss) income as a result of oil and gas property impairments in prior periods. In 2011, the MGP’s portion of the unrealized gains, $129,200, was written-off as part of the terms of the acquisition of the Transferred Business as a non-cash distribution to the MGP. During the current year, $2,914,500 of net gains were recorded by the Partnership and allocated only to the limited partners. Of the remaining $3,015,800 of net unrealized gain in accumulated other comprehensive income, the Partnership will reclassify $2,611,200 of net gains to the Partnership’s statements of operations over the next twelve month period and the remaining $404,600 in later periods.

NOTE 5—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. Observable inputs represent market data obtained from independent sources; whereas, unobservable inputs reflect the Partnership’s own market assumptions, which are used if observable inputs are not reasonably available without undue cost and effort. The hierarchy defines three levels of inputs that may be used to measure fair value:

Level 1– Unadjusted quoted prices in active markets for identical, unrestricted assets and liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability.

Level 3 – Unobservable inputs that reflect the entity’s own assumptions about the assumptions market participants would use in the pricing of the asset or liability and are consequently not based on market activity but rather through particular valuation techniques.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Partnership uses a fair value methodology to value the assets and liabilities for its outstanding derivative contracts (see Note 4). The Partnership’s commodity derivative contracts are 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.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

The Partnership estimates the fair value of asset retirement obligations based on discounted cash flow projections using numerous estimates, assumptions and judgments regarding such factors at the date of establishment of an asset retirement obligation such as: amounts and timing of settlements, the credit-adjusted risk-free rate of the Partnership and estimated inflation rates (see Note 3). There were no additional assets or liabilities that were measured at fair value on a nonrecurring basis for the three and nine months ended September 30, 2012 and 2011.

 

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ATLAS RESOURCES PUBLIC #18-2009 (C) L.P.

NOTES TO FINANCIAL STATEMENTS (Continued)

September 30, 2012

(Unaudited)

 

NOTE 6—CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

The Partnership has entered into the following significant transactions with its MGP and its affiliates as provided under its Partnership Agreement:

 

   

Monthly well supervision fees which are included in production expenses in the Partnership’s statements of operations, are payable at $975 per well per month for Marcellus wells, $1,500 per well per month for New Albany wells, and $600 per well per month for horizontal Antrim Shale wells. For all other wells, a fee of $392 is charged per well per month for operating and maintaining the wells. Well supervision fees incurred for the three and nine months ended September 30, 2012 were $331,200 and $939,500, respectively. Well supervision fees incurred for the three and nine months ended September 30, 2011 were $294,700 and $879,100, respectively.

 

   

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 and nine months ended September 30, 2012 were $24,700 and $70,200, respectively. Administrative costs incurred for the three and nine months ended September 30, 2011 were $21,900 and $64,900 respectively.

 

   

Transportation fees, which are included in production expenses in the Partnership’s statements of operations, incurred for the three months and nine months ended September 30, 2012 were $1,385,500 and $2,302,000, respectively. Transportation fees incurred for the three and nine months ended September 30, 2011 were $861,800 and $2,994,700, respectively.

 

   

Net assets contributed from the MGP, which are disclosed on the Partnership’s statements of cash flows as a non-cash activity, for the nine months ended September 30, 2012 and 2011, respectively were $3,409,000 and $992,700, respectively.

 

   

The MGP and its affiliates perform all administrative and management functions for the Partnership including billing revenues and paying expenses. “Accounts receivable trade-affiliate” on the Partnership's balance sheets includes 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 so that the limited partners receive a return of at least 10% of their net subscriptions, determined on a cumulative basis, in each of the first five years of Partnership operations, commencing with the first distribution to the limited partners (August 2010) and expiring 60 months from that date. For the nine months ended September 30, 2012, the MGP was required to subordinate $747,300. Therefore, MGP capital was decreased and the limited partners’ capital was increased by $747,300 as shown on the statement of changes in partners’ capital for the nine months ended September 30, 2012.

 

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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.

Overview

The following discussion provides information to assist in understanding our financial condition and results of operations. Our operating cash flows are generated from our wells, which produce primarily natural gas, but also some oil. Our produced natural gas and oil is then delivered to market through affiliated or third-party gas gathering systems. Our ongoing operating and maintenance costs have been and are expected to be fulfilled through revenues from the sale of our natural gas and oil production. We pay our managing general partner (“MGP”), as operator, a monthly well supervision fee, which covers all normal and regularly recurring operating expenses for the production and sale of natural gas and oil such as:

 

   

well tending, routine maintenance and adjustment;

 

   

reading meters, recording production, pumping, maintaining appropriate books and records; and

 

   

preparation of reports for us and government agencies.

The well supervision fees, however, do not include costs and expenses related to the purchase of certain equipment, materials and brine disposal. If these expenses are incurred, we pay cost for third-party services, materials, and a competitive charge for services performed directly by our MGP or its affiliates. Also, beginning one year after each of our wells has been placed into production, our MGP, as operator, may retain $200 per month, per well to cover the estimated future plugging and abandonment costs of the well. As of September 30, 2012, our MGP had not withheld any funds for this purpose.

Markets and Competition

The availability of a ready market for natural gas and oil produced by us, and the price obtained, depends on numerous factors beyond our control, including the extent of domestic production, imports of foreign natural gas and oil, political instability or terrorist acts in oil and gas producing countries and regions, market demand, competition from other energy sources, the effect of federal regulation on the sale of natural gas and oil in interstate commerce, other governmental regulation of the production and transportation of natural gas and oil and the proximity, availability and capacity of pipelines and other required facilities. Our MGP is responsible for selling our production. During 2012 and 2011, we experienced no problems in selling our natural gas and oil. Product availability and price are the principal means of competition in selling natural gas and oil production. While it is impossible to accurately determine our comparative position in the industry, we do not consider our operations to be a significant factor in the industry.

General

Atlas Resources Public #18-2009 (C) L. P. (“we”, “us” or the “Partnership”) is a Delaware limited partnership, formed on June 9, 2009 with Atlas Resources, LLC serving as its Managing General Partner and Operator (“Atlas Resources” or “MGP”). Atlas Resources is an indirect subsidiary of Atlas Resource Partners, L.P. (“ARP”) (NYSE: ARP).

We have drilled and currently operate wells located in Pennsylvania, Tennessee, Michigan and Indiana. We have no employees and rely on our MGP for management, which in turn, relies on its parent company, Atlas Energy, for administrative services.

 

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Our operating cash flows are generated from our wells, which produce natural gas and oil. Our produced natural gas and oil is then delivered to market through third-party gas gathering systems. We do not plan to sell any of our wells and will continue to produce them until they are depleted or become uneconomical to produce, at which time they will be plugged and abandoned or sold. No other wells will be drilled and no additional funds will be required for drilling.

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     Nine Months Ended  
     September 30,     September 30,  
     2012     2011     2012     2011  

Production revenues (in thousands):

        

Gas

   $ 10,937      $ 7,181      $ 19,373      $ 25,577   

Liquid

     —          1        2        3   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 10,937      $ 7,182      $ 19,375      $ 25,580   

Production volumes:

        

Gas (mcf/day) (1)

     34,440        14,499        21,219        16,544   

Liquid (bbl/day) (1)

     —          —          1        1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total (mcfe/day) (1)

     34,440        14,499        21,225        16,550   

Average sales prices: (2)

        

Gas (per mcf) (1) (3)

   $ 3.46      $ 5.42      $ 3.35      $ 5.70   

Liquid (per bbl) (1)

   $ —        $ 19.10      $ 13.69      $ 16.01   

Production costs:

        

As a percent of revenues

     34     22     37     23

Per mcfe (1)

   $ 1.19      $ 1.19      $ 1.23      $ 1.31   

Depletion per mcfe

   $ 2.66      $ 2.65      $ 2.58      $ 2.68   

 

(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. Liquid gallons are converted into bbls by a ratio of 42 gallons per 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 in connection with prior period impairment charges and dividing by the total volume for the period. Previously recognized derivative gains were $33,800 and $44,300 for the three months ended September 30, 2012 and 2011, respectively. Previously recognized derivative gains were $102,500 and $185,700 for the nine months ended September 30, 2012 and 2011, respectively.

Natural Gas Revenues. Our natural gas revenues were $10,936,900 and $7,181,500 for the three months ended September 30, 2012 and 2011, respectively, an increase of $3,755,400 (52%). The $3,755,400 increase in natural gas revenues for the three months ended September 30, 2012 as compared to the prior year similar period was attributable to a $9,878,100 increase in production volumes, partially offset by a $6,122,700 decrease in our natural gas sales prices after the effect of financial hedges, which was driven by market conditions. Our production volumes increased to 34,440 mcf per day for the three months ended September 30, 2012 from 14,499 mcf per day for the three months ended September 30, 2011, an increase of 19,941 mcf per day (138%). The increase in production was due to the completion of natural gas wells.

 

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Our natural gas revenues were $19,372,600 and $25,578,000 for the nine months ended September 30, 2012 and 2011, respectively, a decrease of $6,205,400 (24%). The $6,205,400 decrease in natural gas revenues for the nine months ended September 30, 2012 as compared to the prior year similar period was attributable to a $13,553,900 decrease in our natural gas sales prices after the effect of financial hedges, which was driven by market conditions, partially offset by a $7,348,500 increase in production volumes. Our production volumes increased to 21,219 mcf per day for the nine months ended September 30, 2012 from 16,544 mcf per day for the nine months ended September 30, 2011, an increase of 4,675 mcf per day (28%). The increase in production was due to the completion of natural gas wells.

Oil Revenues. We drill wells primarily to produce natural gas, rather than oil, but some wells have limited oil production. We had no oil revenues for the three and nine months ended September 30, 2012 and 2011, respectively.

Natural Gas Liquids Revenue. The majority of our wells produce “dry gas”, which is composed primarily of methane and requires no additional processing before being transported and sold to the purchaser. Some wells, however, produce “wet gas”, which contains larger amounts of ethane and other associated hydrocarbons (i.e. “natural gas liquids”) that must be removed prior to transporting the gas. Once removed, these natural gas liquids are sold to various purchasers. Our natural gas liquids revenues were $2,200, for the nine months ended September 30, 2012. Our natural gas liquids revenues were $600 and $2,500 for the three and nine months ended September 30, 2011.

Costs and Expenses. Production expenses were $3,770,500 and $1,585,000 for the three months ended September 30, 2012 and 2011, respectively, an increase of $2,185,500 (138%). Production expenses were $7,142,500 and $5,920,400 for the nine months ended September 30, 2012 and 2011, respectively, an increase of $1,222,100 (21%). These increases were primarily attributable to an increase in transportation fees and water hauling costs resulting from increased production volumes.

Depletion of oil and gas properties as a percentage of oil and gas revenues was 77% and 49% for the three months ended September 30, 2012 and 2011, respectively; and 77% and 47% for the nine months ended September 30, 2012 and 2011, respectively. These percentage changes are directly attributable to changes in revenues, oil and gas reserve quantities, product prices and production volumes and changes in the depletable cost basis of oil and gas properties.

General and administrative expenses for the three months ended September 30, 2012 and 2011 were $64,000 and $43,500, respectively, an increase of $20,500 (47%). For the nine months ended September 30, 2012 and 2011 these expenses were $157,200 and $134,700, respectively, an increase of $22,500 (17%). These expenses include third-party costs for services as well as the monthly administrative fees charged by our MGP. The increases for the three and nine months ended September 30, 2012 were primarily due to higher third-party costs as compared to the prior year similar period due to more wells being put into production.

Liquidity and Capital Resources

Cash provided by operating activities decreased $15,606,500 in the nine months ended September 30, 2012 to $7,607,400 as compared to $23,213,900 for the nine months ended September 30, 2011. This decrease was due to a decrease in the change in accounts receivable-affiliate of $7,577,200 and a decrease in net income before depletion and accretion of $7,451,300. In addition, there was a decrease in the change in accrued liabilities of $494,700 and a decrease in the change in a net non-cash loss on hedge instruments of $83,300 for the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011.

Cash provided by investing activities was $6,200 during the nine months ended September 30, 2012. This consisted of proceeds from the sale of tangible equipment. There was no cash provided by investing activities during the nine months ended September 30, 2011.

Cash used in financing activities decreased $15,288,200 during the nine months ended September 30, 2012 to $8,549,500 from $23,837,700 for the nine months ended September 30, 2011. This decrease was due to a decrease in cash distributions.

 

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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.

The Partnership is generally limited to the amount of funds generated by the cash flows from our operations, which we believe is adequate to fund future operations and distributions to our partners. Historically, there has been no need to borrow funds from our MGP to fund operations.

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 so that the limited partners receive a return of at least 10% of their net subscriptions, determined on a cumulative basis, in each of the first five years of Partnership operations, commencing with the first distribution to the limited partners (August 2010) and expiring 60 months from that date. For the nine months ended September 30, 2012, the MGP was required to subordinate $747,300. Therefore, MGP capital was decreased and the limited partners’ capital was increased by $747,300 as shown on the statement of changes in partners’ capital for the nine months ended September 30, 2012.

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 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, 2011.

 

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 September 30, 2012, 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.

 

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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 and results of operations.

 

ITEM 6. EXHIBITS

EXHIBIT INDEX

 

Exhibit No.

  

Description

4.0    Amended and Restated Certificate and Agreement of Limited Partnership for Atlas Resources Public #18-2009 (C) L.P. (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    Section 1350 Certification
32.2    Section 1350 Certification
101    Interactive Data File

 

(1) Filed on October 15, 2008 in the Form S-1A Registration Statement dated October 15, 2008, File No. 333-150925-01

 

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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 Resources Public #18-2009 (C) L.P.

 

    ATLAS RESOURCES, LLC, MANAGING GENERAL PARTNER

Date: November 9, 2012

    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: November 9, 2012

   

By:

 

/s/ SEAN P. MCGRATH

      Sean P. McGrath, Chief Financial Officer

 

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