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Atlas Resource Well Results 'Exhilarating,' Outside Influences Painful

Atlas Resource Partners LP (ARP) reached record peak production during the third quarter, with newly acquired Raton and Black Warrior Basin assets representing almost half of the output, the Philadelphia partnership said Wednesday. However, "outside phenomena" could have a negative impact on hitting guidance, the CEO warned.

The Atlas Energy LP unit, created in March 2012, produced 275 MMcfe/d net in 3Q2013.

"Our well results in recent months have been exhilarating," said CEO Edward E. Cohen. "But we are not immune from adverse outside phenomena -- natural disasters, third-party delays in providing infrastructure, reductions in forward strip prices, and so forth. Achieving or exceeding the upper end of our new guidance range of $2.60 in 2014 depends largely on performing in line with or better than analysts' expectations in our operating areas, in syndication achievements and in new growth opportunities. We've often done it before, and I'm confident that we'll do it again."

"Few would have anticipated the scale of our growth during the first 18 months of ARP's existence, a short time during which we have expanded our proved reserves by over 700% while increasing distributions to our unitholders by a peer-leading 40%," said President Matthew A. Jones. "We believe that we will continue to accelerate growth in 2014 and beyond."

There were "favorable results" from an estimated 466 Bcf of proved reserves purchased in July from EP Energy (see Shale Daily, June 11). Several "high-returning" workover opportunities identified in the Raton and Black Warrior basins could be completed in 2014. ARP provided no other details; more is expected when final results are issued Nov. 7.

Between July and September, eight Marcellus Shale horizontal wells were connected in Lycoming County, PA, with total gross output of about 62 MMcf/d. However, total gas revenues were "substantially lower than expected...due to weakness" in pricing on Transcontinental Gas Pipeline (Transco) and Leidy. There have been warnings by federal and independent analysts for months because of pipeline constraints in the region (see Shale Daily, Oct. 10; July 10).

In September ARP also began connecting five wells in the Utica/Point Pleasant formation in Harrison County, OH, whose early results had indicated "higher levels of high-grade condensate than originally expected." ARP already had secured capacity for the production at Blue Racer Midstream LLC's Natrium and Hastings plants, but fate intervened.

A major fire on Sept. 21 at the Natrium processor in Marshall County, WV, forced that plant to shut down and no date has been set for a return to service, according to Dominion, one of Blue Racer's sponsors. The closure forced ARP to shutter the Ohio wells, but it since has been able to send limited volumes to other facilities. ARP also is identifying other third-party capacity to optimize production.

Although the results from the Marcellus wells have been "exceptionally strong," revenues from northeastern Pennsylvania were adversely affected by "substantial, but expected to be temporary, natural gas price disruption on the Transco Leidy Line, and by the recent fire at Dominion's Natrium processing facility," management said.

In Texas, the operator has drilled about 40 wells to date in its Marble Falls play in Jack County, TX, where it has about 75,000 net acres. Other targets are being studied in the Caddo formation, Bend conglomerates and Chappel Reefs.

"Early testing of these formations has yielded initial production rates of 100-300 b/d of oil," ARP said. "Additional 3-D seismic is being undertaken to further develop these formations in conjunction with the Marble Falls."

ARP is hedged, but forward New York Mercantile Exchange (Nymex) strip prices for gas and natural gas liquids (NGL) have been lower in the third and fourth quarters than anticipated. The partnership now expects to distribute 56-57 cents/unit in 3Q2013, and 58-62 cents/unit in 4Q2013. Based on the midpoint of the 4Q2013 guidance, it represents a 25% increase from 4Q2012 distribution.

ARP also updated full-year 2014 per-unit distribution guidance to $2.40-2.60/unit, representing growth of 10-20%, "largely due to a more modest outlook for natural gas and NGL commodity prices between our last guidance and the present time, which are based upon Nymex forward prices." In June, ARP said it expected to distribute $2.50-2.80/unit in 2014 (see Shale Daily, June 11).

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