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EX-31.2 - EXHIBIT 31.2 - Atlas Resources Public #18-2009 (B) L.P.c00940exv31w2.htm
EX-31.1 - EXHIBIT 31.1 - Atlas Resources Public #18-2009 (B) L.P.c00940exv31w1.htm
EX-32.1 - EXHIBIT 32.1 - Atlas Resources Public #18-2009 (B) L.P.c00940exv32w1.htm
EX-32.2 - EXHIBIT 32.2 - Atlas Resources Public #18-2009 (B) L.P.c00940exv32w2.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, 2010
     
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 333-150925-02
ATLAS RESOURCES PUBLIC 18-2009 (B) L.P.
(Name of small business issuer in its charter)
     
Delaware   26-3223040
(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 þ
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 RESOURCES PUBLIC 18-2009 (B) L.P.
(A Delaware Limited Partnership)
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
         
    PAGE  
PART I. FINANCIAL INFORMATION
       
 
       
Item 1: Financial Statements
       
 
       
    3  
 
       
    4  
 
       
    5  
 
       
    6  
 
       
    7-16  
 
       
    16-19  
 
       
    19  
 
       
       
 
       
    19  
 
       
    20  
 
       
    21  
 
       
CERTIFICATIONS
       
 
       
 Exhibit 31.1
 Exhibit 31.2
 Exhibit 32.1
 Exhibit 32.2

 

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ATLAS RESOURCES PUBLIC 18-2009 (B) L.P.
BALANCE SHEETS
                 
    March 31,     December 31,  
    2010     2009  
    (Unaudited)        
ASSETS
               
Current assets:
               
Cash and cash equivalents
  $ 1,500     $ 4,442,800  
Accounts receivable — affiliate
    12,477,800       8,479,500  
Short-term hedge receivable due from affiliate
    8,573,600       5,260,100  
 
           
Total current assets
    21,052,900       18,182,400  
 
               
Oil and gas properties, net
    103,696,300       106,407,800  
Long-term hedge receivable due from affiliate
    7,982,200       4,447,400  
 
           
 
  $ 132,731,400     $ 129,037,600  
 
           
 
               
LIABILITIES AND PARTNERS’ CAPITAL
               
Current liabilities:
               
Accrued liabilities
  $ 684,100     $ 552,800  
Short-term hedge liability due to affiliate
    49,600       64,100  
 
           
Total current liabilities
    733,700       616,900  
 
               
Asset retirement obligation
    437,600       431,100  
Long-term hedge liability due to affiliate
    1,637,900       685,000  
 
               
Partners’ capital:
               
Managing general partner
    10,275,900       10,849,400  
Investors partners (12,278.00 units)
    105,028,900       107,792,400  
Accumulated other comprehensive income
    14,617,400       8,662,800  
 
           
Total partners’ capital
    129,922,200       127,304,600  
 
           
 
  $ 132,731,400     $ 129,037,600  
 
           
The accompanying notes are an integral part of these financial statements.

 

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ATLAS RESOURCES PUBLIC 18-2009 (B) L.P.
STATEMENT OF OPERATIONS
(Unaudited)
         
    Three Months  
    Ended  
    March 31,  
    2010  
REVENUES
       
 
       
Natural gas and oil
  $ 11,166,300  
Interest income
    2,000  
 
     
Total revenues
    11,168,300  
 
       
COSTS AND EXPENSES
       
Production
    2,677,400  
Depletion
    3,918,800  
Accretion of asset retirement obligation
    6,500  
General and administrative
    35,000  
 
     
Total expenses
    6,637,700  
 
     
Net earnings
  $ 4,530,600  
 
     
 
       
Allocation of net earnings (loss):
       
Managing general partner
  $ 2,215,600  
 
     
Investor partners
  $ 2,315,000  
 
     
Net earning per investor partnership unit
  $ 189  
 
     
The accompanying notes are an integral part of these financial statements.

 

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ATLAS RESOURCES PUBLIC 18-2009 (B) L.P.
STATEMENT OF CHANGES IN PARTNERS’ CAPITAL
FOR THE THREE MONTHS ENDED
March 31, 2010
(Unaudited)
                                 
                    Accumulated        
    Managing             Other        
    General     Investor     Comprehensive        
    Partner     Partners     Income     Total  
 
                               
Balance at January 1, 2010
  $ 10,849,400     $ 107,792,400     $ 8,662,800     $ 127,304,600  
 
                               
Partners’ capital contributions:
                               
Syndication and offering costs
    33,400                   33,400  
 
                       
Total contributions
    33,400                   33,400  
 
                               
Syndication and offering costs, immediately charged to capital
    (33,400 )                 (33,400 )
 
                       
 
                               
Participation in revenues and expenses:
                               
Net production revenues
    2,546,700       5,942,200             8,488,900  
Interest income
    600       1,400             2,000  
Depletion
    (319,300 )     (3,599,500 )           (3,918,800 )
General and administrative
    (10,500 )     (24,500 )           (35,000 )
Accretion of asset retirement obligation
    (1,900 )     (4,600 )           (6,500 )
 
                       
Net earnings
    2,215,600       2,315,000             4,530,600  
 
                               
Other comprehensive income
                5,954,600       5,954,600  
 
                               
Working interest adjustment
    68,600       1,273,900             1,342,500  
 
                               
Assets returned
    (135,200 )                 (135,200 )
 
                               
Distributions to partners
    (2,722,500 )     (6,352,400 )           (9,074,900 )
 
                       
 
                               
Balance at March 31, 2010
  $ 10,275,900     $ 105,028,900     $ 14,617,400     $ 129,922,200  
 
                       
The accompanying notes are an integral part of these financial statements.

 

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ATLAS RESOURCES PUBLIC 18-2009 (B) L.P.
STATEMENT OF CASH FLOWS
(Unaudited)
         
    Three Months  
    Ended  
    March 31,  
    2010  
Cash flows from operating activities:
       
Net earnings
  $ 4,530,600  
Adjustments to reconcile net earnings to net cash provided by operating activities:
       
Depletion
    3,918,800  
Non cash loss on derivative value
    44,700  
Accretion of asset retirement obligation
    6,500  
Increase in accounts receivable-affiliate
    (3,998,300 )
Increase in accrued liabilities
    131,300  
 
     
Net cash provided by operating activities
    4,633,600  
 
       
Cash flows from financing activities:
       
Distributions to partners
    (9,074,900 )
 
     
Net cash used in financing activities
    (9,074,900 )
 
     
 
       
Net decrease in cash and cash equivalents
    (4,441,300 )
Cash and cash equivalents at beginning of period
    4,442,800  
 
     
Cash and cash equivalents at end of period
  $ 1,500  
 
     
 
       
Supplemental Schedule of non-cash investing and financing activities:
       
 
       
Assets (returned to) contributed by managing general partner:
       
Lease costs
  $ (51,000 )
Tangible drilling costs
    (84,200 )
Syndication and offering costs
    33,400  
 
     
 
  $ (101,800 )
 
     
The accompanying notes are an integral part of these financial statements.

 

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ATLAS RESOURCES PUBLIC 18-2009 (B) L.P.
NOTES TO FINANCIAL STATEMENTS
March 31, 2010
(Unaudited)
NOTE 1 — DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Atlas Resources Public 18-2009 (B) L.P. (the “Partnership”) is a Delaware Limited Partnership which includes Atlas Resources, LLC of Pittsburgh, Pennsylvania, as Managing General Partner (“MGP”) and Operator, and 3,240 Limited Partners or Investor General Partners. The Partnership was formed on January 31, 2009 to drill and operate gas wells located primarily in Pennsylvania, Tennessee, Michigan and Indiana. Partnership operations began April 16, 2009. The Partnership’s first wells were turned on-line in June 9, 2009.
In March 2006, Atlas Resources, Inc. merged into a newly-formed limited liability company, Atlas Resources, LLC, which became an indirect subsidiary of Atlas Energy Resources, LLC, a newly-formed subsidiary of Atlas America, Inc. In December 2006, Atlas America, Inc. contributed substantially all of its natural gas and oil assets and its investment partnership management business to Atlas Energy Resources, LLC. On September 29, 2009 Atlas Energy Resources, LLC and Atlas America, Inc. merged, with Atlas Energy Resources, LLC becoming a wholly owned subsidiary of Atlas America, Inc. In addition, Atlas America, Inc. changed its name to Atlas Energy, Inc, (NASDAQ: ATLS). Atlas Resources, LLC serves as the Partnership’s MGP.
The accompanying financial statements, which are unaudited except that the balance sheet at December 31, 2009, 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 amended Form 10-K/A. 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. These interim financial statements should be read in conjunction with the audited financial statements and notes thereto presented in the Partnership’s amended Annual Report on Form 10-K/A for the year ended December 31, 2009. The results of operations for the three months ended March 31, 2010 may not necessarily be indicative of the results of operation for the year ended December 31, 2010.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 amended Form 10-K/A for the period ended December 31, 2009 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.
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 month’s financial results. Management believes that the operating results presented for the three months ended March 31, 2010 represent actual results in all material respects (see “Revenue Recognition” accounting policy for further description).

 

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ATLAS RESOURCES PUBLIC 18-2009 (B) L.P.
NOTES TO FINANCIAL STATEMENTS (Continued)
March 31, 2010
(Unaudited)
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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, 2010 and December 31, 2009, the Partnership’s MGP’s credit evaluation indicated that the Partnership has no need for an allowance for possible losses.
Revenue Recognition
The Partnership’s natural gas and oil is sold under various contracts entered into by its MGP. 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 MGP’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 records and estimates of the related commodity sales and transportation and compression fees which are, in turn, based upon applicable product prices. The Partnership had unbilled revenues at March 31, 2010 and December 31, 2009 of $6,601,900 and $6,703,000, respectively, which are included in accounts receivable-affiliate within the Partnership’s Balance Sheets.
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, 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 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.

 

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ATLAS RESOURCES PUBLIC 18-2009 (B) L.P.
NOTES TO FINANCIAL STATEMENTS (Continued)
March 31, 2010
(Unaudited)
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Impairment of Long-Lived Assets (Continued)
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.
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, (“the 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.
Oil and Gas Properties
The Partnership follows the successful-efforts method of accounting for oil and gas producing activities. Oil and gas properties are recorded at cost. Depletion is determined on a field-by-field basis using the units-of-production method for well and related equipment costs 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. In addition, accumulated depletion includes impairment adjustments to reflect the write-down to fair market value of the oil and gas properties. Maintenance and repairs are expensed as incurred. Major renewals and improvements that extend the useful lives of the property are capitalized. The Partnership is required to consider estimated salvage value in the calculation of depletion. Oil and gas properties consist of the following at the dates indicated:
                 
    March 31,     December 31,  
    2010     2009  
Natural gas and oil properties:
               
Proved properties:
               
Leasehold interests
  $ 1,036,800     $ 1,087,800  
Wells and related equipment
    128,292,500       128,395,300  
 
           
 
    129,329,300       129,483,100  
 
               
Accumulated depletion
    (25,633,000 )     (23,075,300 )
 
           
 
  $ 103,696,300     $ 106,407,800  
 
           

 

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ATLAS RESOURCES PUBLIC 18-2009 (B) L.P.
NOTES TO FINANCIAL STATEMENTS (Continued)
March 31, 2010
(Unaudited)
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Oil and Gas Properties (Continued)
The Partnership’s long-lived assets are reviewed for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Long-lived assets are reviewed for potential impairments at the lowest levels for which there are identifiable cash flows. During the year ended December 31, 2009, the Partnership recognized an impairment charge of $17,401,400, net of an offsetting gain in other comprehensive income of $295,600. There was no impairment charges recognized for the three month period ending March 31, 2010.
Upon the sale or retirement of a complete or partial unit of a proved property, the cost is eliminated from the property accounts, and the resultant gain or loss is reclassified to accumulated depletion. Upon the sale of an entire interest where the property had been assessed for impairment, a gain or loss is recognized in the Statement of Operations. As a result of retirements, the Partnership reclassified $18,600 from oil and gas properties, to accumulated depletion for the three months ended March 31, 2010.
Recently Adopted Accounting Standards
In January 2010, the FASB issued Accounting Standards Update 2010-02, “Fair Value Measurement and Disclosures (Topic (820) — Improving Disclosures about Fair Value Measurement” (“Update 2010-06”). Update 2010-06 clarifies and requires new disclosures about the transfer of amounts between Level 1 and Level 2, as well as significant transfers in and out of Level 3. In addition, for Level 2 and Level 3 measurements, Update 2010-06 requires additional disclosure about the valuation technique used or any changes in technique. Update 2010-06 also clarifies that entities must disclose fair value measurements by classes of assets and liabilities, based on the nature and risks of the assets and liabilities. The requirements of Update 2010-06 are effective at the start of a reporting entity’s first fiscal year beginning after December 15, 2009 (January 1, 2010 for the Partnership). The Partnership applied the requirements of Update 2010-06 upon its adoption on January 1, 2010, and it did not have a material impact on its financial position, results of operations or related disclosures.
NOTE 3 — 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 Statement of Operations are payable at $75 per well per month. Administrative costs incurred for the three months ended March 31, 2010 were $10,700.
   
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 and $1,500 per month, for New Albany and Indiana Wells. For all other wells a fee of $392 is charged per will per month, for operating and maintaining the wells. Well supervision fees incurred for the three months ended March 31, 2010 were $144,000.

 

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ATLAS RESOURCES PUBLIC 18-2009 (B) L.P.
NOTES TO FINANCIAL STATEMENTS (Continued)
March 31, 2010
(Unaudited)
NOTE 3 — TRANSACTIONS WITH ATLAS RESOURCES, LLC AND ITS AFFILIATES (Continued)
   
Transportation fees which are included in production expenses in the Partnership’s Statement of Operations are generally payable at 13% of the natural gas sales price. Transportation fees incurred for the three months ended March 31, 2010 were $1,404,700.
   
Assets returned to the MGP which are disclosed on the Partnership’s Statement of Cash Flows as a non-cash activity for the three months ended March 31, 2010 were $135,200.
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 investor partners (February 2010). Since inception of the program, the MGP has not been required to subordinate any of its distributions to its limited partners.
NOTE 4 — COMPREHENSIVE INCOME
Comprehensive income includes net 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, have not been recognized in the calculation of net income. These changes, other than net Income, are referred to as “other comprehensive income” and, for the Partnership, include changes in the fair value of unsettled derivative contracts accounted for as cash flow hedge. A reconciliation of the Partnership’s comprehensive income for the period indicated is as follows:
         
    Three Months  
    Ended  
    March 31,  
    2010  
 
       
Net income
  $ 4,530,600  
Other comprehensive income:
       
Unrealized holding gain on hedging contracts
    8,513,900  
Less: reclassification adjustment for gains realized in net earnings
    (2,559,300 )
 
     
Total other comprehensive income
    5,954,600  
 
     
Comprehensive income
  $ 10,485,200  
 
     
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.

 

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ATLAS RESOURCES PUBLIC 18-2009 (B) L.P.
NOTES TO FINANCIAL STATEMENTS (Continued)
March 31, 2010
(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 Partnership 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 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 will reclassify commodity derivatives to gas and oil production revenues in 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. The following table summarizes the fair value of derivative instruments as of March 31, 2010 and December 31, 2009, as well as the gain or loss on the derivative instruments as of March 31, 2010.
Fair Value of Derivative Instruments:
                                         
    Asset Derivatives     Liability Derivatives  
Derivatives in       Fair Value         Fair Value  
Cash Flow   Balance Sheet   March 31,     December 31,     Balance Sheet   March 31,     December 31,  
Hedging Relationships   Location   2010     2009     Location   2010     2009  
 
                                       
Commodity contracts:
  Current assets   $ 8,573,600     $ 5,260,100     Current liabilities   $ (49,600 )   $ (64,100 )
 
  Long-term assets     7,982,200       4,447,400     Long-term liabilities     (1,637,900 )     (685,000 )
 
                               
 
                                       
Total derivatives
      $ 16,555,800     $ 9,707,500         $ (1,687,500 )   $ (749,100 )
 
                               
Effects of Derivative Instruments on Statements of Operations:
                     
    Gain         Gain  
    Recognized in OCI         Reclassified from OCI into  
    on Derivative     Location of Gain   Income  
    (Effective Portion)     Reclassified from   (Effective Portion)  
Derivatives in   Three Months Ended     Accumulated   Three Months Ended  
Cash Flow   March 31,     OCI into Income   March 31,  
Hedging Relationships   2010     (Effective Portion)   2010  
 
                   
Commodity contracts:
  $ 8,513,900     Natural gas and oil revenue   $ 2,559,300  
 
               
At any point in time, such contracts may include regulated New York Mercantile Exchange (“NYMEX”) futures, 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.

 

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ATLAS RESOURCES PUBLIC 18-2009 (B) L.P.
NOTES TO FINANCIAL STATEMENTS (Continued)
March 31, 2010
(Unaudited)
NOTE 5 — DERIVATIVE INSTRUMENTS (Continued)
At March 31, 2010, the Partnership reflected a net hedge asset on our Balance Sheets of $14,868,300, however unrealized gain of $250,900 recognized in income results in a net accumulated other comprehensive income balance of $14,617,400. The unrealized gain of $250,900 is comprised solely from 2009 impairments. Of the remaining $14,617,400, net unrealized gain in accumulated other comprehensive income at March 31, 2010, if the fair values of the instruments remain at current market values, the Partnership will reclassify $8,394,300 of net gains to its Statements of Operations over the next twelve month period as these contracts settle, and $6,223,100 of net gains in later periods. Actual amounts that will be reclassified will vary as a result of future price changes. Ineffective hedge gains or losses are recorded within the Statements of Operations while the hedge contract is open and may increase or decrease until settlement of the contract.
As of March 31, 2010, Atlas Energy had allocated to the Partnership the following natural gas and oil volumes hedged:
Natural Gas Fixed Price Swaps
                         
Production           Average        
Period Ending   Volumes     Fixed Price     Fair Value  
December 31,   (MMbtu)(1)     (per MMbtu)(1)     Asset(2)  
 
                       
2010
    2,216,200     $ 7.35     $ 6,786,600  
2011
    1,644,900       6.69       2,810,400  
2012
    1,244,400       6.85       1,838,200  
2013
    802,400       6.82       687,400  
 
                     
 
                  $ 12,122,600  
 
                     
Natural Gas Costless Collars
                             
Production               Average        
Period Ending   Option   Volumes     Floor & Cap     Fair Value  
December 31,   Type   (MMbtu)(1)     (per MMbtu)(1)     Asset(2)  
 
                           
2010
  Puts purchased     157,600     $ 7.84     $ 643,800  
2010
  Calls sold     157,600       9.01        
2011
  Puts purchased     858,400       6.20       1,284,600  
2011
  Calls sold     858,400       7.28        
2012
  Puts purchased     529,500       6.22       463,500  
2012
  Calls sold     529,500       7.31        
2013
  Puts purchased     635,700       6.23       340,200  
2013
  Calls sold     635,700       7.39        
 
                         
 
                      $ 2,732,100  
 
                         

 

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ATLAS RESOURCES PUBLIC 18-2009 (B) L.P.
NOTES TO FINANCIAL STATEMENTS (Continued)
March 31, 2010
(Unaudited)
NOTE 5 — DERIVATIVE INSTRUMENTS (Continued)
Crude Oil Fixed Price Swaps
                         
Production           Average        
Period Ending   Volumes     Fixed Price     Fair Value  
December 31,   (Bbl)(1)     (per Bbl)(1)     Asset(3)  
 
                       
2010
    700     $ 97.22     $ 8,500  
2011
    700       77.46       1,500  
2012
    500       76.86       500  
2013
    100       77.36       200  
 
                     
 
                  $ 10,700  
 
                     
Crude Oil Costless Collars
                             
Production               Average        
Period Ending   Option   Volumes     Floor & Cap     Fair Value  
December 31,   Type   (Bbl)(1)     (per Bbl)(1)     Asset(3)  
 
                           
2010
  Puts purchased     400     $ 85.00     $ 2,100  
2010
  Calls sold     400       112.55        
2011
  Puts purchased     500       67.22       400  
2011
  Calls sold     500       89.44        
2012
  Puts purchased     300       65.51       300  
2012
  Calls sold     300       91.45        
2013
  Puts purchased     100       65.36       100  
2013
  Calls sold     100       93.44        
 
                         
 
                      $ 2,900  
 
                         
 
                           
 
              Total Net Asset     $ 14,868,300  
 
                         
 
     
(1)  
MMBTU represents million British Thermal Units. Bbl represents barrels.
 
(2)  
Fair value based on forward NYMEX natural gas prices as applicable.
 
(3)  
Fair value based on forward WTI crude oil prices as applicable.
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.

 

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ATLAS RESOURCES PUBLIC 18-2009 (B) L.P.
NOTES TO FINANCIAL STATEMENTS (Continued)
March 31, 2010
(Unaudited)
NOTE 6 — FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
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 uses a fair value methodology to value the assets and liabilities for its outstanding derivative contracts (see Note 5). The Partnership’s 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 at March 31, 2010 and December 31, 2009 were as follows.
                                 
    March 31, 2010     December 31, 2009  
    Level 2     Total     Level 2     Total  
 
                               
Commodity-based derivatives
  $ 14,868,300     $ 14,868,300     $ 8,958,400     $ 8,958,400  
 
                       
Total
  $ 14,868,300     $ 14,868,300     $ 8,958,400     $ 8,958,400  
 
                       
Assets and Liabilities Measured at Fair Value on a Nonrecurring 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: amount and timing of settlements; the risk-free rate of the Partnership; and estimated inflation rates (see Note 7).
The Partnership’s long-lived assets are reviewed for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the carrying value exceeds such undiscounted cash flows, an impairment loss is recognized for the difference between the estimated fair market value and the carrying value of the assets. The fair market value using Level 3 inputs is determined as the present value of future net revenues from the production of proved reserves discounted using an annual discount rate of 12% in 2009 (see Note 2).
NOTE 7 — ASSET RETIREMENT OBLIGATION
The Partnership recognizes an estimated liability for the plugging and abandonment of its oil and gas wells. The associated asset retirement costs are capitalized as part of oil and gas properties. 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 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.

 

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ATLAS RESOURCES PUBLIC 18-2009 (B) L.P.
NOTES TO FINANCIAL STATEMENTS (Continued)
March 31, 2010
(Unaudited)
NOTE 7 — ASSET RETIREMENT OBLIGATION (Continued)
A reconciliation of the Partnership’s liability for plugging and abandonment costs for the period indicated is as follows:
         
    Three Months  
    Ended  
    March 31,  
    2010  
 
       
Asset retirement obligation at beginning of period
  $ 431,100  
Accretion expense
    6,500  
 
     
Asset retirement obligation at end of period
  $ 437,600  
 
     
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 were formed as a Delaware limited partnership on January 31, 2009, with Atlas Resources, LLC as our Managing General Partner, or MGP, to drill natural gas development wells.
In March 2006, Atlas Resources, Inc. merged into a newly-formed limited liability company, Atlas Resources, LLC, which became an indirect subsidiary of Atlas Energy Resources, LLC, a newly-formed subsidiary of Atlas America, Inc. In December 2006, Atlas America, Inc. contributed substantially all of its natural gas and oil assets and its investment partnership management business to Atlas Energy Resources, LLC. On September 29, 2009 Atlas Energy Resources, LLC and Atlas America, Inc. merged, with Atlas Energy Resources, LLC becoming a wholly owned subsidiary of Atlas America, Inc. In addition, Atlas America, Inc. changed its name to Atlas Energy, Inc, (NASDAQ: ATLS). Atlas Resources, LLC serves as the Partnership’s MGP.
Our wells are currently producing natural gas and oil which are our only products. Most of our gas is gathered and delivered to market through Laurel Mountain Midstream, LLC’s gas gathering system, a newly formed joint-venture between Atlas Energy, Inc.’s affiliate Atlas Pipeline Partners L.P. (NYSE: APL) and The Williams Companies Inc. (NYSE: WMB). 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.

 

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Results of Operations
Partnership operations began April 16, 2009. The Partnership’s first wells were turned on-line in June 9, 2009, therefore no comparative data is available for the three months ended March 31, 2009.
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,  
    2010  
 
       
Production revenues (in thousands):
       
Gas
  $ 10,886  
Oil
    170  
Liquid
    110  
 
     
Total
  $ 11,166  
 
       
Production volumes:
       
Gas (mcf/day) (1)
    18,730  
Oil (bbls/day) (1)
    37  
Liquid (bbl/day) (1)
    25  
 
     
Total (mcfe/day) (1)
    19,102  
 
       
Average sales prices: (2)
       
Gas (per mcf) (1) (3)
  $ 6.48  
Oil (per bbl) (1) (4)
  $ 50.66  
Liquid (per bbl) (1)
  $ 48.76  
 
       
Average production costs:
       
As a percent of revenues
    24 %
Per mcfe (1)
  $ 1.57  
 
       
Depletion per mcfe
  $ 2.30  
 
     
(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 and dividing by the total volume for the period. Previously recognized derivative gains were $44,600 for the three months ended March 31, 2010. 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 $100 for the three months ended March 31, 2010. The derivative gains are included in other comprehensive income and resulted from prior period impairment charges.

 

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Natural Gas Revenues. Our natural gas revenues were $10,886,100 for the three months ended March 31, 2010. We expect that our natural gas revenues will increase over the next year.
Oil Revenues. We drill wells primarily to produce natural gas, rather than oil, but some wells have limited oil production. Our oil revenues were $170,000 for the three months ended March 31, 2010.
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 $110,200 for the three months ended March 31, 2010.
Expenses. Production expenses were $2,677,400 for the three months ended March 31, 2010.
Depletion of oil and gas properties as a percentage of oil and gas revenues were 35% for the three months ended March 31, 2010.
General and administrative expenses were $35,000 for the three months ended March 31, 2010. These expenses include third-party costs, audit, tax and other outside 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 was $4,633,600 in the three months ended March 31, 2010. This was due to net earnings before depletion and accretion of $8,455,900 and a net non-cash loss on derivative values of $44,700, partially offset by the change in accounts receivable-affiliate that decreased operating cash flows by $3,998,300.
Cash used in investing activities was $9,074,900 during the three months ended March 31, 2010. This was entirely due to 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 amended Annual Report on Form 10-K/A for the year ended December 31, 2009.

 

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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 investor partners (February 2010). Since inception of the program, the MGP has not been required to subordinate any of its distributions 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, 2010, our disclosure controls and procedures were not effective due to a material weakness in the controls, as evidenced by the restatement of our December 31, 2009 financial statements due to the errors in such financial statements.

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. However, we plan to implement a number of planned procedures designed to remediate the material weakness. These procedures include: (1) additional oversight of the impairment calculations; (2) additional management reviews of the impairment calculations; and (3) additional electronic analysis. These planned procedures will be implemented in the quarter ended June 30, 2010.
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.

 

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ITEM 6.  
EXHIBITS
EXHIBIT INDEX
         
Exhibit No.   Description
       
 
  4.0    
Amended and Restated Certificate and Agreement of Limited Partnership for Public 18-2009 (B) L.P. (1)
  10.1    
Drilling and Operating Agreement for Atlas America Public 18-2009 (B) 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    
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 October 15, 2008 in the Form S-1A Registration Statement dated October 15, 2008, File No. 333-150925-02

 

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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 (B) L.P.
         
  Atlas Resources, LLC, Managing General Partner
 
 
Date: May 21, 2010  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 21, 2010  By:   /s/ Freddie M. Kotek    
    Freddie M. Kotek, Chairman of the Board of Directors,    
    Chief Executive Officer and President   
     
Date: May 21, 2010  By:   /s/ Matthew A. Jones    
    Matthew A. Jones, Chief Financial Officer   
       
Date: May 21, 2010  By:   /s/ Sean P. McGrath    
    Sean P. McGrath, Chief Accounting Officer   
       

 

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