S-1/A 1 v367391_s1a.htm AMENDMENT TO FORM S-1

As filed with the Securities and Exchange Commission on February 13, 2014

Registration No. 333-192852

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



 

PRE-EFFECTIVE AMENDMENT NO. 1
TO
Form S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



 

AMERICAN ENERGY CAPITAL PARTNERS, LP

(Exact Name of Registrant as Specified in its Charter)



 

   
Delaware   1311   46-4076419
(State or other jurisdiction of
incorporation or organization)
  (Primary standard industrial
classification code number)
  (I.R.S. Employer
Identification No.)

405 Park Avenue
New York, New York 10022
(212) 415-6500

(Address, including zip code, and telephone number, including area code, of registrants’ principal executive offices)



 

Edward M. Weil, Jr.
Chief Executive Officer and President
American Energy Capital Partners GP, LLC
405 Park Avenue, New York, New York 10022
(212) 415-6500

(Name, address, including zip code, and telephone number, including area code, of agent for service)



 

With a copy to:
Gerald A. Bollinger, Esq.
Kunzman & Bollinger, Inc.
5100 N. Brookline
Suite 600
Oklahoma City, Oklahoma 73112
Telephone: (405) 942-3501
Telecopy: (405) 942-3527



 

Approximate date of commencement of proposed sale of the securities to the public: From time to time after the Registration Statement becomes effective.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. þ

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” 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   (Do not check if a smaller reporting company)   Smaller reporting company þ

CALCULATION OF REGISTRATION FEE

       
Title of Each Class of Securities to be Registered   Amount to be Registered   Proposed Maximum Offering Price Per Unit   Proposed Maximum Aggregate Offering Price(1)   Amount of Registration Fee
Common Units Representing Limited Partner Interests(2)     100,000,000     $ 20.00     $ 2,000,000,000     $ 257,600 (3) 
Total     100,000,000     $ 20.00     $ 2,000,000,000     $ 257,600 (3) 

(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(2) “Common Units” means up to 100,000,000 limited partner interests offered to investors.
(3) Previously paid.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 


 
 

TABLE OF CONTENTS

AMERICAN ENERGY CAPITAL PARTNERS, LP

CROSS REFERENCE SHEET

   
Item of Form S-1   Caption in Prospectus
Item 1.   Forepart of the Registration Statement and Outside Front Cover Page of Prospectus   Front Page of Registration Statement and Outside Front Cover Page of Prospectus
Item 2.   Inside Front and Outside Back Cover Pages of Prospectus   Inside Front and Outside Back Cover Pages of Prospectus
Item 3.   Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges   Summary of the Offering; Risk Factors
Item 4.   Use of Proceeds   Source of Funds and Estimated Use of Offering Proceeds
Item 5.   Determination of Offering Price   Terms of the Offering
Item 6.   Dilution   Risk Factors — Risks Related to an Investment in the Partnership — Your Units may be Diluted
Item 7.   Selling Security Holders   The program does not have any selling security holders.
Item 8.   Plan of Distribution   Plan of Distribution
Item 9.   Description of Securities to be Registered   Summary of the Offering; Terms of the Offering; Summary of Partnership Agreement
Item 10.   Interests of Named Experts and Counsel   Legal Opinions; Experts
Item 11.   Information with respect to the Registrant     
    

(a)

Description of Business

  Proposed Activities; Management
    

(b)

Description of Property

  Proposed Activities
    

(c)

Legal Proceedings

  Litigation
    

(d)

Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters

  The partnership composing the program has no markets in which its units are being traded and they have not yet paid any dividends.
    

(e)

Financial Statements

  Financial Information Concerning the General Partner and the Partnership; Index to Financial Statements
    

(f)

Selected Financial Data

  The partnership has not yet conducted any activities and does not have this information.
    

(g)

Supplementary Financial Information

  The partnership has not yet conducted any activities and does not have this information.
    

(h)

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

  Management’s Discussion and Analysis of Financial Condition, Results of Operations, Liquidity and Capital Resources
    

(i)

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

  There have been no changes in and disagreements with accountants on accounting and financial disclosure.
    

(k)

Directors and Executive Officers

  Management
    

(l)

Executive Compensation

  Management
    

(m)

Security Ownership of Certain Beneficial Owners and Management

  Management
    

(n)

Certain Relationships and Related Transactions

  Compensation; Management; Conflicts of Interest
Item 12.   Disclosure of Commission Position on Indemnification for Securities Act Liabilities   Fiduciary Duty of the General Partner


 
 

TABLE OF CONTENTS

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Subject to Completion, Preliminary Prospectus dated February 13, 2014

AMERICAN ENERGY CAPITAL PARTNERS, LP

An Offering of Common Units Representing Limited Partner Interests
Minimum Offering: 100,000 Common Units
Maximum Offering: 100,000,000 Common Units

American Energy Capital Partners, LP, or the Partnership, is a recently formed Delaware limited partnership that intends to use the proceeds of this offering to acquire, develop, operate, produce and sell working and other interests in producing and non-producing oil and natural gas properties located onshore in the United States. Our primary purposes will be to acquire producing and non-producing oil and gas properties with development potential and to enhance the value of our properties through drilling and other development activities; to make distributions to holders of our outstanding common units; to enable the holders of our common units to invest in oil and gas properties in a tax efficient manner and to liquidate our holdings through a sale of our assets or a listing of our common units on a national securities exchange five to seven years after the initial closing date of this offering and in connection with such a liquidation to distribute the proceeds to our Unitholders. Except as indicated above, we do not intend to apply to list the common units for trading on any securities exchange or on the over-the-counter market.

We are currently offering up to 100,000,000 common units representing limited partner interests, which we refer to as the common units or the Units. We are offering to sell the Units at a price of $20.00 per Unit. Investors must purchase an aggregate minimum of $5,000, or 250 Units. If a minimum of 100,000 common units is not sold on or before            , 2015, which is one year from the effective date of this prospectus, we will terminate this offering and all money received will be promptly refunded to investors without deduction and with interest. We will not charge fees on funds returned if the minimum offering is not reached. The common units are being offered on a best efforts, minimum offering basis through Realty Capital Securities, LLC, or our dealer manager. Until the minimum offering is achieved, all funds we receive from investors will be deposited into an interest-bearing escrow account. The escrow agent is UMB Bank, N.A.

We expect to terminate the offering upon the first to occur of our failure to sell a combination of at least 100,000 Units ($2,000,000) on or before            , 2015, we sell all of the Units offered by this prospectus and            , 201 , which is the two-year anniversary of the effectiveness of this prospectus (subject to extension for up to three months), in order to achieve the maximum offering of 100,000,000 common units.

We are an emerging growth company as that term is used in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and are subject to reduced public company reporting requirements. See “Prospectus Summary” and “Risk Factors.”

Investing in our Units involves a high degree of risk. Before subscribing for Units you should carefully read the discussion of material risks of investing in our Units in “Suitability Standards” and in “Risk Factors”. These risks include the following:

Because we have not yet identified or selected any prospects, this is a “blind pool” offering. This means that you may not be able to evaluate the Partnership’s properties before making your investment decision. In addition, we cannot assure you that we will be able to acquire properties on an economic basis or at all.
We have no prior operating history or established financing sources and will rely on our general partner to conduct our operations. In addition, the general partner has contracted with the Manager, an unrelated third-party, to assist the general partner in conducting our operations. Neither our general partner nor the Manager has any operating history and are both recently formed entities which have no experience operating a public company.
There is no guarantee that distributions will be paid. If distributions are declared and paid, the amount of the distributions paid may decrease or distributions may be eliminated at any time. Due to the risks involved in the ownership of oil and gas properties and drilling oil and gas wells, there is no guarantee of any return on your investment, and you may lose all or a portion of your investment.
There are risks associated with the Partnership’s use of leverage to acquire and develop its properties and meeting ongoing debt service obligations, which could hinder our ability to pay distributions to our investors.
The Partnership’s drilling operations involve the possibility of a total or substantial loss of your investment, because the Partnership may drill nonproductive wells, or dry holes, or wells that are productive, but do not produce enough revenue to return the investment made.
The Partnership’s revenues are directly related to its ability to market the oil and natural gas produced from the wells it drills and oil and natural gas prices are volatile. If oil and natural gas prices decrease, your investment return will decrease.
Because we will depend on our general partner, the Manager and their respective affiliates to conduct our operations, any adverse changes in the financial health of such entities or our relationship with such entities could hinder our operating performance and the return on your investment.
No public market exists for our common units, and a public market for our common units may never exist. As a result, our common units are, and may continue to be, illiquid.
Market conditions and other factors could cause us to delay our liquidity event beyond the seventh anniversary of the initial closing date of this offering. We also cannot assure you that we will be able to achieve a liquidity event.
We established the initial offering price on an arbitrary basis; as a result, the actual value of your investment may be substantially less than what you pay.
There are substantial conflicts among the interests of our investors, our interests and the interests of our general partner, our sponsor, the Manager, our dealer manager and our and their respective affiliates, which could result in decisions that are not in the best interests of our investors.
This is our sponsor’s first oil and gas offering. Our sponsor is the direct or indirect sponsor of twelve other publicly offered investment programs which invest generally in real estate assets.
Our organizational documents permit us to pay distributions from any source, including an unlimited amount from the proceeds of this offering and, subject to certain limitations, from borrowings. Any of these distributions may reduce the amount of capital we ultimately invest to acquire and develop oil and gas properties and other permitted investments and negatively impact the value of your investment, especially if a substantial portion of our distributions are paid from offering proceeds.
Our distributions will be a return of capital until you have received 100% of your investment.
We will pay substantial fees to our general partner, the Manager, and the dealer manager.

The Units will be offered on a “best efforts” “minimum — maximum” basis. This means the participating broker/dealers must sell at least 100,000 Units and receive subscription proceeds of at least $2 million in order for this offering to close, and they must use only their best efforts to sell the remaining Units.

       
  Price To Public(1)   Commissions(2)   Dealer
Manager Fee(2)
  Proceeds to
American Energy
Capital Partners, LP
Total minimum offering   $ 2,000,000     $ 140,000     $ 60,000     $ 1,800,000  
Total maximum offering   $ 2,000,000,000     $ 140,000,000     $ 60,000,000     $ 1,800,000,000  

(1) Units may be sold at a discounted price to certain classes of investors and in connection with the sale of a certain number of Units, as described in “Plan of Distribution.”
(2) Does not include additional fees and expenses of the organization of the Partnership and the offering of Units which will be paid by the Partnership, which are estimated to be $30,000 for the minimum offering and approximately $33,750,000 million for the maximum offering.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

REALTY CAPITAL SECURITIES, LLC — DEALER MANAGER

The date of this prospectus is            , 2014.


 
 

TABLE OF CONTENTS

 
SUITABILITY STANDARDS     5  
In General     5  
General Suitability Requirements for Purchasers of Common Units Representing Limited Partners Interests     6  
Suitability Requirements for Qualified Plans and IRAs     6  
Fiduciary Accounts     6  
Additional Considerations for IRAs, Qualified Plans and Tax-Exempt Organizations     6  
Restrictions Imposed by the USA PATRIOT Act and Related Acts     7  
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS     8  
PROSPECTUS SUMMARY     9  
Our Proposed Business     9  
Our Investment Objectives     9  
The Properties We Intend to Acquire and Develop     9  
Our General Partner     10  
Management Agreement     10  
Risk Factors     11  
Borrowing Policy     14  
Hedging Policy     14  
Distributions     14  
Sale of Properties or Listing of the Common Units     15  
The Offering     16  
Emerging Growth Company     22  
RISK FACTORS     24  
Risks Related to an Investment in the Partnership     24  
Risk Related to Our Management Agreement     33  
Risks Related to Conflicts of Interest     36  
Risks Related to Our Business     39  
Retirement Plan Risks     51  
Federal Income Tax Risks to Unitholders     52  
CONFLICTS OF INTEREST     54  
Conflicts with the General Partner     54  
Conflicts with the Manager     61  
SOURCE OF FUNDS AND ESTIMATED USE OF OFFERING PROCEEDS     64  
Source of Funds     64  
Estimated Use of Offering Proceeds     64  
COMPENSATION     66  
Compensation Related to the Organization of the Partnership and Offering of Units     66  
Compensation Related to the Operation of the Partnership     67  
Compensation Related to the Dissolution and Liquidation of the Partnership     71  
Estimated Partnership Expenses     71  
TERMS OF THE OFFERING     72  
Subscription to the Partnership     72  
Partnership Closings and Escrow     72  
Acceptance of Subscriptions     73  
ARC’S PRIOR ACTIVITIES     74  
Prior Investment Programs     74  
Summary Information     74  
Programs of Our Sponsor     77  

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MANAGEMENT     86  
Directors and Executive Officers of the General Partner     86  
Organizational Diagram and Security Ownership of Beneficial Owners     91  
Ownership of Our General Partner     91  
Dealer Manager     92  
Transfer Agent     94  
Remuneration of Officers and Directors     94  
Code of Business Conduct and Ethics     94  
Transactions with Management and Affiliates     94  
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION, RESULTS OF OPERATIONS, LIQUIDITY AND CAPITAL RESOURCES     96  
PROPOSED ACTIVITIES     97  
Our Investment Objectives     97  
Description of the Properties We Plan to Purchase     97  
Drilling     99  
Infrastructure     99  
Title to Properties     99  
Environmental Review     100  
Insurance     100  
Well Operations     100  
Sale of Oil and Natural Gas Production     101  
Hedging Activities     101  
SUMMARY OF THE MANAGEMENT SERVICES AGREEMENT     103  
AECP Management, LLC     103  
Management of the Manager     103  
Executive Management Team     103  
Management Services Agreement     104  
COMPETITION, MARKETS AND REGULATION     108  
Competition     108  
Seasonal Nature of Business     108  
Environmental, Health and Safety Matters and Regulation     108  
Other Regulation of the Oil and Natural Gas Industry     112  
CAPITAL CONTRIBUTIONS AND DISTRIBUTIONS     115  
Capital Contributions     115  
Distributions     116  
Sale of Properties or Listing of the Common Units     117  
FIDUCIARY DUTY OF THE GENERAL PARTNER     119  
MATERIAL FEDERAL INCOME TAX CONSEQUENCES     122  
Partnership Status     122  
Tax Consequences of Unit Ownership     123  
Tax Treatment of Operations     127  
Disposition of Units     129  
Tax-Exempt Organizations and Other Investors     130  
Administrative Matters     130  
State, Local and Other Tax Considerations     131  
Future Legislative Changes     132  
INVESTMENT BY TAX-EXEMPT ENTITIES AND ERISA CONSIDERATIONS     133  
General     133  
Minimum and Other Distribution Requirements — Plan Liquidity     133  

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Annual or More Frequent Valuation Requirement     134  
Fiduciary Obligations — Prohibited Transactions     134  
Plan Assets — Definition     134  
Plan Assets — Publicly Offered Securities Exception     135  
Plan Assets — Not Significant Investment Exception     135  
Consequences of Holding Plan Assets     136  
Prohibited Transactions     136  
Prohibited Transactions — Consequences     136  
SUMMARY OF THE LIMITED PARTNERSHIP AGREEMENT     137  
Organization and Duration     137  
Purpose     137  
Power of Attorney     137  
Cash Distributions     137  
Capital Contributions     137  
Return of Subscription Proceeds if Funds Are Not Invested in Twelve Months     137  
Voting Rights     138  
Limited Liability of Holders of Common Units     139  
Liability of Our General Partner     139  
Limitations on General Partner Liability as Fiduciary     139  
Issuance of Additional Securities     140  
Amendment of the Partnership Agreement     140  
Merger, Consolidation, Conversion, Sale or Other Disposition of Assets     142  
Dissolution     142  
Liquidation and Distribution of Proceeds     143  
Withdrawal or Removal of the General Partner     143  
Transfer of General Partner Interest     144  
Transfer of Ownership Interests in the General Partner     145  
Meetings; Voting     145  
Status as a Partner     145  
Non-Citizen Assignees; Redemption     145  
Indemnification     146  
Books and Reports     146  
Right to Inspect Our Books and Records     146  
REPORTS TO INVESTORS     147  
TRANSFERABILITY OF INTERESTS     148  
Lack of Liquidity in Investment in Units     148  
Conditions to Becoming a Substitute Partner     148  
Listing of Common Units on a National Securities Exchange     148  
PLAN OF DISTRIBUTION     148  
The Offering     148  
Dealer Manager and Compensation We Will Pay for the Sale of Our Units     148  
Units Purchased by Affiliates and Participating Broker-Dealers     151  
Volume Discounts     151  
Subscription Process     154  
Investments by IRAs and Certain Qualified Plans     154  
Minimum Offering     155  
HOW TO SUBSCRIBE     155  
SALES MATERIAL     156  
LEGAL OPINIONS     156  

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EXPERTS     157  
ADDITIONAL INFORMATION     157  
LITIGATION     157  
PRIVACY POLICY NOTICE     157  
ELECTRONIC DELIVERY OF DOCUMENTS     157  
GLOSSARY     158  
FINANCIAL INFORMATION CONCERNING THE GENERAL PARTNER AND THE PARTNERSHIP     161  
INDEX TO FINANCIAL STATEMENTS     161  
APPENDIX A PRIOR PERFORMANCE TABLES
        
EXHIBITS
        
EXHIBIT A FORM OF FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
        
EXHIBIT B SUBSCRIPTION AGREEMENT
        
EXHIBIT C TRANSFER ON DEATH FORM
        
EXHIBIT D PRIVACY POLICY
        
EXHIBIT E LETTER OF DIRECTION
        
EXHIBIT F NOTICE OF REVOCATION
        

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SUITABILITY STANDARDS

In General

An investment in the Partnership involves significant risk and is suitable only for persons who have adequate financial means, desire a long-term investment and do not need immediate liquidity from their investment. Persons who meet this standard and seek to diversify their personal portfolios with an investment in an oil and natural gas Partnership, which among its benefits may provide portfolio diversification, generate cash distributions, provide tax benefits, and hedge against inflation, and are able to hold their investment for the long-term, are most likely to benefit from an investment in the Partnership. On the other hand, an investment in the Partnership is not appropriate for persons who require immediate liquidity or guaranteed income, or who seek a short-term investment. Notwithstanding these investor suitability standards, potential investors should note that investing in our common units involves a high degree of risk and all the information contained in this prospectus should be considered, including the “Risk Factors” section, in determining whether an investment in our common units is appropriate.

It is the obligation of our general partner, our sponsor and the persons selling the Units to make every reasonable effort to assure that the Units are suitable for you based on your investment objectives and financial situation, regardless of your income or net worth, and that you have the apparent understanding of: the fundamental risks of an investment in the Partnership; the risk that you may lose your entire investment, the lack of liquidity of the Units, the restrictions on transferability of the Units, the background and qualifications of our general partner, and the tax consequences of the investment. Our general partner or each person selling the Units will make this determination on the basis of information it has obtained from you. Relevant information for this purpose will include at least your age, investment objectives, investment experience, income, net worth, financial situation, and other investments, as well as any other pertinent factors. However, you should invest in the Partnership only if you are willing to assume the risk of a speculative, illiquid, and long-term investment.

Generally, you are required to execute your own subscription agreement, and our general partner will not accept any subscription agreement that has been executed by someone other than you. The only exception is in the case of fiduciary accounts if you have given someone else the legal power of attorney to sign on your behalf and you meet all of the conditions in this prospectus.

The decision to accept or reject your subscription will be made by our general partner, in its sole discretion, and is final. Our general partner will not accept your subscription until it has reviewed your apparent qualifications, and the suitability determination must be maintained by our general partner during our term and for at least six years thereafter.

Pennsylvania Investors:  Because the aggregate minimum closing amount of the common units is less than 10% of the maximum closing amount allowed to the Partnership in this offering, you are cautioned to carefully evaluate the Partnership’s ability to fully accomplish its stated objectives and inquire as to the current dollar volume of Partnership subscriptions for its Units. In addition, subscription proceeds received by the Partnership from Pennsylvania investors will be placed into a short-term escrow (120 days or less) until subscriptions for at least 5% of the maximum offering proceeds have been received by the Partnership, which means that subscriptions for at least $100,000,000 have been received by the Partnership from investors, including Pennsylvania investors. If the appropriate minimum has not been met at the end of each escrow period, the Partnership must notify the Pennsylvania investors in writing by certified mail or any other means whereby a receipt of delivery is obtained within 10 calendar days after the end of each escrow period that they have a right to have their investment returned to them. If an investor requests the return of such funds within 10 calendar days after receipt of notification, the Partnership must return such funds within 15 calendar days after receipt of the investor’s request.

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General Suitability Requirements for Purchasers of Common Units Representing Limited Partners Interests

Common units representing limited partner interests may be sold to you if you meet either of the following requirements:

a net worth of not less than $330,000, exclusive of home, home furnishings, and automobiles; or
a net worth of not less than $85,000, exclusive of home, home furnishings, and automobiles, and had during the last tax year gross income of at least $85,000, without regard to an investment in the Partnership.

In addition, if you are a resident of Iowa, Michigan, Missouri, or Pennsylvania, then you must not make an investment in the Partnership which is in excess of 10% of your net worth, exclusive of home, home furnishings and automobiles and if you are a resident of Kentucky, then you must not make an investment in the Partnership which is in excess of 10% of your liquid net worth. Further, if you are a resident of Alabama, New Mexico, Ohio or Oregon you must not make an investment in the Partnership which would, after including any other similar oil and natural gas programs, exceed 10% of your net worth, exclusive of home, home furnishings and automobiles. Finally, if you are a resident of Kansas or Massachusetts, it is recommended by the Office of the Kansas Securities Commissioner and the Massachusetts Securities Division that you should limit your investment in the Partnership and substantially similar programs to no more than 10% of your liquid net worth. Liquid net worth is that portion of your net worth (total assets minus total liabilities) that is comprised of cash, cash equivalents and readily marketable securities. Readily marketable securities may include investments in an Individual Retirement Account, or an IRA, or other retirement plan that can be liquidated within a short time, less any income tax penalties that may apply for early distribution.

California Residents: IT IS UNLAWFUL TO CONSUMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFORE, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER’S RULES.

Suitability Requirements for Qualified Plans and IRAs

An IRA can purchase common units if the IRA owner meets both the basic suitability standard and any relevant standard applicable in the owner’s State of residence. Pension, profit-sharing or stock bonus plans, including Keogh Plans, that meet the requirements of Section 401 of the Code are called qualified plans in this prospectus. Qualified plans that are self-directed may purchase common units if the plan participant meets both the basic suitability standard and any relevant standard applicable in the participant’s State of residence. Qualified plans that are not self-directed may purchase common units if the plan itself meets both the basic suitability standard and any relevant State standard.

Fiduciary Accounts

If there is a sale of common units to a fiduciary account other than an IRA or a qualified plan, such as a trust, both the general suitability standards and any applicable State suitability standards must be met by the beneficiary of the fiduciary account, the fiduciary account itself, or the donor or grantor who directly or indirectly supplies the funds to purchase the Units if the donor or grantor is the fiduciary.

Generally, you are required to execute your own subscription agreement, and our general partner, American Energy Capital Partners GP, LLC, will not accept any subscription agreement that has been executed by someone other than you. The only exception is if you have given someone else the legal power of attorney to sign on your behalf and you meet all of the conditions in this prospectus.

Additional Considerations for IRAs, Qualified Plans and Tax-Exempt Organizations

An investment in the Units will not, in and of itself, create an IRA or qualified plan. To form an IRA, an investor must comply with all applicable provisions of the Internal Revenue Code, or the Code, and the Employee Retirement Income Security Act of 1974, or ERISA. IRAs, qualified plans and tax-exempt organizations should consider the following when deciding whether or not to invest:

most, if not all, income or gain realized will be unrelated business taxable income, or UBTI;

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for IRAs and qualified plans, ownership of the Units may cause a pro rata share of the Partnership’s assets to be considered plan assets for the purposes of ERISA and the excise taxes imposed by the Code;
any entity that is exempt from federal income taxation will be unable to take full advantage of any tax benefits generated by the Partnership; and
charitable remainder trusts that have any UBTI will be subject to an excise tax equal to 100% of such UBTI.

Although the Units may represent suitable investments for some IRAs, qualified plans and tax-exempt organizations, the Units may not be suitable for your plan or organization due to the particular tax rules that apply to your plan or organization. Furthermore, the investor suitability standards represent minimum requirements, and the fact that your plan or organization satisfies them does not mean that an investment would be suitable. You should consult your plan’s tax, financial, legal and other advisors to determine whether this investment would be appropriate for you. See “Risk Factors” and “Material Federal Income Tax Consequences.”

If you are a fiduciary or investment manager of a qualified plan or IRA, or if you are a fiduciary of another tax-exempt organization, you should consider all risks and investment concerns, including those related to tax considerations, in deciding whether this investment is appropriate and economically advantageous for your plan or organization. See “Risk Factors,” “Material Federal Income Tax Consequences” and “Investment by Tax-Exempt Entities and ERISA Considerations.”

Restrictions Imposed by the USA PATRIOT Act and Related Acts

In accordance with the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, as amended, or the USA PATRIOT Act, the common units offered hereby may not be offered, sold, transferred or delivered, directly or indirectly, to any “Prohibited Shareholder,” which means anyone who is:

a “designated national,” “specially designated national,” specially designated global terrorist,” “foreign terrorist organization,” or “blocked person” within the definitions set forth in the Foreign Assets Control Regulations of the U.S. Treasury Department;
acting on behalf of, or an entity owned or controlled by, any government against whom the U.S. maintains economic sanctions or embargoes under the Regulations of the U.S. Treasury Department;
within the scope of Executive Order 13224 — Blocking Property and Prohibiting Transactions with Persons who Commit, Threaten to Commit, or Support Terrorism, effective September 24, 2001;
subject to additional restrictions imposed by the following statutes or regulations, and executive orders issued thereunder: the Trading with the Enemy Act, the Iraq Sanctions Act, the National Emergencies Act, the Antiterrorism and Effective Death Penalty Act of 1998, the International Emergency Economic Powers Act, the United National Participation Act, the International Security and Development Corporation Act, the Nuclear Proliferation Prevent Act of 1994, the Foreign Narcotics Kingpin Designation Act, the Iran and Libya Sanctions Act of 1998, the Cuban Democracy Act, the Cuban Liberty and Democratic Solidarity Act and the Foreign Operations, Export Financing and Related Programs Appropriation Act or any other law of similar import as to any non-U.S. country, as each such act or law has been or may be amended, adjusted, modified or revised from time to time; or
designated or blocked, associated or involved in terrorism, or subject to restrictions under laws, regulations, or executive orders as may apply in the future similar to those set forth above.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. You can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “would,” “could,” “should,” “seeks,” “intends,” “plans,” “projects,” “estimates,” “anticipates,” “predicts” or “potential”, or by the negative of these words and phrases, or by similar words or phrases. You can also identify forward-looking statements by discussions of strategy, plans or intentions. Statements regarding the following subjects may be impacted by a number of risks and uncertainties which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements:

our use of the proceeds of this offering;
our business and investment strategy;
our ability to make investments in a timely manner or on acceptable terms;
current credit market conditions and our ability to obtain long-term financing for our property acquisitions and drilling activities in a timely manner and on terms that are consistent with what we project when we invest in a property;
the effect of general market, oil and gas market, economic and political conditions, including the recent economic slowdown and dislocation in the global credit markets;
our ability to make scheduled payments on our debt obligations;
our ability to generate sufficient cash flows to make distributions to our Unitholders;
the degree and nature of our competition;
the availability of qualified personnel at our general partner, the dealer manager, and the Manager; and
other subjects referenced in this prospectus, including those set forth under the caption “Risk Factors.”

The forward-looking statements contained in this prospectus reflect our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. These beliefs, assumptions and expectations are subject to risks and uncertainties and can change as a result of many possible events or factors, not all of which are known to us. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. You should carefully consider these risks before you make an investment decision with respect to our common units.

For more information regarding risks that may cause our actual results to differ materially from any forward-looking statements, see “Risk Factors.” We disclaim any obligation to publicly update or revise any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.

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PROSPECTUS SUMMARY

The following information is a summary about this offering and may not contain all of the detailed information that is important to you. Accordingly, we urge you to read this summary together with all the information contained in this prospectus, including the information under the caption “Risk Factors” on page 24.

We include definitions of certain terms used to describe oil and gas properties and operations under the caption “Glossary” in this prospectus. Additional definitions of terms used in this prospectus are set forth in Section 1.1 of our First Amended and Restated Agreement of Limited Partnership, or our Partnership Agreement, which is included as Exhibit A to this prospectus. As used in this prospectus, the terms “we,” “us,” “our” or the “Partnership” refer to American Energy Capital Partners, LP and our consolidated subsidiaries, unless the context otherwise requires. In addition, the term “general partner” refers to our general partner, American Energy Capital Partners GP, LLC, and the term “Manager” refers to AECP Management, LLC. The term “common units” or “Units” refers to our common units representing limited partner interests. The term “Unitholders” refers to the holders of our common units collectively.

Our Proposed Business

We are a Delaware limited partnership recently formed to acquire, develop, operate, produce and sell working and other interests in producing and non-producing oil and gas properties located onshore in the United States. We will seek to acquire working interests, leasehold interests, royalty interests, overriding royalty interests, production payments and other interests in producing and non-producing oil and gas properties. We have not identified any oil and gas properties we will acquire at this time.

Our Investment Objectives

We were formed to enable investors to invest indirectly through us in oil and gas properties located onshore in the United States. Our primary objectives are:

to acquire producing and non-producing oil and gas properties with development potential, and to enhance the value of our properties through drilling and other development activities;
to make distributions to our Unitholders, which we intend to be at a targeted distribution rate of 6% per annum, non-compounded, on the $20.00 original purchase price per Unit, or a targeted annual distribution rate of $1.20 per Unit, payable monthly commencing with a distribution for the fourth whole month following the initial closing date as discussed in greater detail in “Capital Contributions and Distributions — Distributions”;
beginning five to seven years after the initial closing date, to engage in a liquidity transaction in which we will sell our properties and distribute the net sales proceeds to our partners or list our common units on a national securities exchange; and
to enable our Unitholders to invest in oil and gas properties in a tax efficient manner.

We are the first oil and gas Partnership formed by our general partner and its affiliates. We cannot assure you that we will be able to achieve or maintain our investment objectives. Please read “Prior Activities.”

The Properties We Intend to Acquire and Develop

We intend to target for acquisition producing and non-producing oil and gas properties that we expect will require additional drilling and other development activities to fully develop their potential. When we acquire a property, we will estimate the capital required to develop the property and plan to reserve a portion of our capital contributions, or a portion of any borrowing capacity available to us, to fund all or a portion of these estimated costs of development. We also plan to use our cash flow after the payment of targeted distributions to our Unitholders to further develop our properties during our first five to seven years of operation after the initial closing date.

We do not expect to conduct a material amount of exploration on any non-producing properties we acquire, nor do we intend to acquire gathering systems, pipelines, treatment facilities, processing plants and other infrastructure, except in connection with the oil and gas properties we acquire.

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Our general partner will have the ability to acquire properties and conduct operations that vary from the parameters described in this prospectus. Please read “Fiduciary Duty of the General Partner.”

Our General Partner

American Energy Capital Partners GP, LLC, or our general partner, was recently formed and has no operating history. Our general partner is owned by an entity under common ownership with AR Capital, LLC, or ARC, AR Capital Energy Holdings, LLC, or our sponsor, and will be managed by its officers with certain actions overseen by its directors. See “Management.”

Our executive offices are located at 405 Park Avenue, New York, New York 10022, our telephone number is 212-415-6500 and our website is www.    .com. Information on our website is not part of this prospectus.

Management Agreement

We will enter into a management services agreement, or Management Agreement, with AECP Management, LLC, which we refer to as the Manager, to provide us with management and operating services regarding substantially all aspects of our oil and gas operations. The Manager was formed in July 2013 and its sole member is American Energy Management Services, LLC, an Oklahoma limited liability company, that is indirectly owned by Aubrey K. McClendon and his spouse. Neither we nor our general partner is an affiliate of the Manager.

Under the Management Agreement, the Manager will provide management and other services to us, including the following,

identifying onshore producing and non-producing oil and gas properties that we may consider acquiring, and assisting us in evaluating, contracting for and acquiring these properties and managing the development of these properties;
investigating and evaluating financing alternatives for any property acquisition and the ownership, development and operations of our assets, and any refinancing;
operating, or causing one of its affiliates to operate, on our behalf, any properties in which our interest in the property is sufficient to appoint the operator;
overseeing the operations on properties operated by persons other than the Manager, including recommending whether we should participate in the development of such properties by the operators of the properties;
arranging for the marketing, transportation, storage and sale of all natural gas, natural gas liquids and oil produced from our properties and procuring all supplies, materials and equipment needed in order to perform lease operations;
taking any actions requested by us to prepare and arrange for all or any portion of our assets to be sold or otherwise disposed of or liquidated; and
establishing cash management and risk management, including hedging, programs for us, receiving the revenues from the sale of production from our properties and paying operating expenses and approved capital expenses with respect to our properties.

The Management Agreement provides that we will direct the services provided to us under the Management Agreement, and that the Manager will determine the means or method by which those directions are carried out. The Management Agreement further provides that the Manager will conduct the day-to-day operations of our business as provided in draft budgets that the Manager will prepare and will then submit such draft to us for our review and approval. The Management Agreement also contains a list of activities in which the Manager will not engage without our prior approval.

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Prior to the final termination date of this offering, we will pay the Manager a monthly management fee equal to an annual rate of 3.5% of the sum of:

the capital contributions made by our Unitholders from the initial closing through the final termination date; and
our average outstanding indebtedness during the preceding month for each month through the final termination date.

Following the final termination date, we will pay the Manager and our general partner a monthly management fee equal to an annual rate of 5%, which will be paid four-fifths (that is, at an annual rate of 4%) to the Manager and one-fifth (that is, at an annual rate of 1%) to our general partner, of the sum of:

the capital contributions made by our Unitholders from the initial closing through the final termination date; and
our average outstanding indebtedness during the preceding month. See “Compensation —  Compensation Related to the Operation of the Partnership.”

We will also pay the Manager fees in connection with the acquisition of producing and non-producing oil and gas properties, the disposition of our producing and non-producing oil and gas properties and the financing of our producing and non-producing oil and gas properties. Please see “Compensation.” Although the Manager does not, and will not, own an interest in any oil and gas properties, affiliates of our Manager do own and operate such interests. If we acquire an oil and gas property from an affiliate of our Manager, as provided in the Management Services Agreement, any such acquisition would be at the lesser of such affiliate’s cost of the property and its fair market value.

In addition, pursuant to the Partnership Agreement, if we sell all or substantially all of our assets or our common units become listed on a national securities exchange, AECP Holdings LLC, an affiliate of the Manager that we refer to as Holdings, and our general partner will receive incentive distribution rights that will entitle them to increasing percentages of our distributions to the extent we distribute cash in excess of certain thresholds. Please read “Capital Contributions and Distributions.”

The success of our business will depend in large part on the services to be rendered to us by the Manager under the Management Agreement. For more information regarding the Management Agreement and the Manager, please see “Summary of the Management Services Agreement” and the Management Services Agreement included as Exhibit 10.2 in the Registration Statement on file with the SEC of which this prospectus is a part. Please see “Additional Information.”

Risk Factors

This offering involves numerous risks, including risks related to our ability to identify and acquire oil and gas properties on acceptable terms, operating and environmental risks related to an investment in oil and gas properties, risks related to our structure as a limited partnership and tax risks. You should carefully consider a number of significant risk factors inherent in and affecting the business of the Partnership and this offering, including the following:

Risks Related to an Investment in the Partnership

Because we have not yet identified prospects or properties, you may not be able to evaluate our prospects or properties before making your investment decision. In addition, we cannot assure you that we will be able to acquire prospects or properties on an economic basis or at all.
We have no prior operating history and no established financing sources, and this is the first oil and gas program sponsored by our general partner and its affiliates.
Our use of leverage to acquire and develop our properties creates a risk that we may not be able to meet ongoing debt service obligations.
Our drilling operations involve the possibility of a total or substantial loss of your investment, because we may drill nonproductive wells, or dry holes, or wells that are productive, but do not produce enough revenue to return the investment made.

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Our revenues are directly related to our ability to market the oil and natural gas produced from the wells we acquire and drill and oil and natural gas prices are volatile. If oil and natural gas prices decrease, your investment return will decrease.
Because we depend on our general partner and its affiliates to conduct our operations, and the general partner will rely in part on the Manager to conduct our operations, any adverse changes in their financial health or our relationship with the general partner or Manager could hinder our operating performance and the return on your investment.
The Units are not liquid and your ability to resell your Units will be limited by the absence of a public trading market and substantial transfer restrictions.
Market conditions and other factors could cause us to delay our liquidity event beyond the seventh anniversary of the initial closing date of this offering. We also cannot assure you that we will be able to achieve a liquidity event.
We established the initial offering price of our common units on an arbitrary basis; as a result, the actual value of your investment may be substantially less than what you pay.
There are substantial conflicts among the interests of our investors, our interests and the interests of our general partner, our sponsor, the Manager, our dealer manager and our and their respective affiliates, which could result in decisions that are not in your best interests.
This is ARC’s first oil and gas offering. ARC, an entity under common ownership with our sponsor and general partner, is the direct or indirect sponsor of twelve other publicly offered investment programs which invest generally in real estate assets, which could reduce the amount of time it, our sponsor, our general partner and their respective affiliates spend on us and this offering.
Our organizational documents permit us to pay distributions from any source, including unlimited amounts from offering proceeds, and, subject to certain limitations, borrowings. Any of these distributions may reduce the amount of capital we ultimately invest in properties and other permitted investments and negatively impact the value of your investment, especially if a substantial portion of our distributions are paid from offering proceeds.
Our distributions will be a return of capital until you have received 100% of your investment.
There is a lack of conflict of interest resolution procedures between our general partner and the Manager, on one hand, and you and the other investors on the other hand.
We are obligated to pay substantial fees to our general partner and the Manager in connection with the acquisition, development, financing and sale of oil and gas properties, which may result in our general partner approving riskier activities by us or the Manager recommending riskier activities for approval by our general partner.
We may not have sufficient cash from operations following the establishment of cash reserves and payment of fees and expenses, including cost reimbursements, to our general partner and the Manager, to enable us to make cash distributions to holders of our Units under our cash distribution policy.

Risks Related to Our Management Agreement

We depend on the Manager to provide us services necessary to operate our business. If the Manager is unable or unwilling to provide these services, it would result in disruption in our business, which could have an adverse effect on our ability to make cash distributions to our Unitholders and service our debt obligations.
The Manager, which will manage our business under the Management Agreement, is a newly formed entity with limited operating history.
While the Manager’s business will be limited to serving as our manager pursuant to the Management Agreement and as a manager or in a similar capacity to other oil and gas partnerships or entities that may be formed in the future by or affiliated with ARC, affiliates of our Manager

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engage and will continue to engage in other business activities (including acquiring, owning, operating, developing and selling oil and gas prospects and properties). Engaging in these activities could reduce the time that such affiliates and their management and employees devote to assisting the Manager in performing its obligations under the Management Agreement, which could adversely affect our business and ability to make distributions.
Holders of Units will not have any right to enforce the Management Agreement if a holder of Units were to believe that the Manager has breached the agreement.
Our general partner will rely on the Manager to identify oil and gas properties that we may acquire and we and our general partner do not have any right of first refusal to acquire oil and gas properties held by the Manager in its inventory or other oil and gas properties held by third parties that come to the attention of the Manager.
We may elect to acquire an oil and gas property or prospect from an affiliate of our Manager, but in such case affiliates of our Manager that also own a working or other interest in such property or prospect would not be obligated to offer to sell such interest to us. As a result, such a purchase by us of an interest in a property or prospect could result in a conflict of interest.

Risks Related to Our Business

We intend to use debt to finance a part of our operations. To the extent we incur indebtedness, a portion of our cash flows from operating activities may be used to service our indebtedness and will not be available to pursue our business strategy or to pay cash distributions to our Unitholders, which could decrease the value of your investment if income on, or the value of, the property securing the debt falls.
We plan to rely on drilling development wells to fully develop the properties we acquire. If our drilling is unsuccessful, our cash available for distributions and financial condition will be adversely affected.
If oil, natural gas or other hydrocarbon prices remain depressed for a prolonged period, our cash flows from operations and the value of our assets will decline and we may have to lower our distributions or may not be able to pay distributions at all.
Properties that we buy or develop may not produce oil and natural gas in the amounts or as long as we anticipate, and we may be unable to accurately determine reserve potential, identify liabilities associated with the properties or obtain protection from sellers against such liabilities, which could adversely affect our cash available for distribution.
We may be unable to integrate successfully the operations of our future acquisitions and we may not realize all the anticipated benefits of acquisitions that we make in the future.
We may be unable to compete effectively with larger companies, which may adversely affect our ability to generate sufficient revenue and our ability to pay distributions to our Unitholders and service our debt obligations.
Our business is subject to operational risks that will not be fully insured, which, if they were to occur, could adversely affect our financial condition or results of operations and, as a result, our ability to pay distributions to our Unitholders and service our debt obligations.

Tax Risks to Unitholders

Our tax treatment depends on our status as a Partnership for federal and state income tax purposes. If we were to become subject to entity-level taxation for federal or state income tax purposes, taxes paid would reduce the amount of cash available for distribution.
Changes in the law may reduce your tax benefits from an investment in us.
Your deduction for intangible drilling costs may be limited for purposes of the Alternative Minimum Tax.
Limited partners need passive income to use their Partnership deductions.

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You may be required to pay taxes on income from us even if you do not receive any cash distributions from us.

Please carefully read the information under the caption “Risk Factors — Federal Income Tax Risks to Unitholders” and “Material Federal Income Tax Consequences.”

Borrowing Policy

We expect to receive a term sheet or commitment for a revolving credit facility with a financial institution following the initial closing in this offering. See “Management’s Discussion and Analysis of Financial Condition, Results of Operations, Liquidity and Capital Resources” regarding the anticipated terms of the credit facility. We plan to use borrowings under the credit facility to finance a portion of the purchase price of properties or for subsequent development of our properties. Subject to certain limitations, we may also use borrowings under our credit facility to pay distributions. The credit facility will provide for borrowings up to a borrowing base that will be set by the lenders under the facility, at their discretion, based in part upon the lenders’ valuation of our reserves. Under our Partnership Agreement our borrowings under our credit facility may not exceed an amount equal to 50% of our total capitalization as determined on an annual basis.

Hedging Policy

Prices for oil and natural gas have been volatile and uncertain for many years. To mitigate our exposure to decreases in prices, we plan to enter into financial hedges through contracts such as regulated NYMEX futures, options contracts and over-the-counter swap contracts with qualified counterparties. Under the Management Agreement, the Manager will assist us in implementing our hedging policy for our estimated future production. The percentages of oil and/or natural gas production that we elect to hedge under the hedging policy may change from time to time at the discretion of our general partner, but in no event will we hedge more than 75% of the projected amounts of oil, natural gas or natural gas liquids reasonably expected to be produced from our wells. Please see “Proposed Activities — Hedging Activities.”

Distributions

Our investment objective is to develop the oil and gas properties we acquire and to sell oil, gas and other hydrocarbons produced from our properties, and to sell our properties, in order to make cash distributions to our Unitholders. Commencing with the fourth whole month following the initial closing date, following the end of each month, our general partner will determine the amount of available cash, if any, we have for distribution to our Unitholders. Although our Partnership Agreement does not require that we make regular monthly or quarterly distributions, our general partner intends to distribute on a monthly basis, commencing with the fourth whole month following the initial closing date, to the Unitholders cash equal to a 6.0% annual rate, non-compounded, on the $20.00 original purchase price per Unit, or a targeted annual rate of $1.20 per Unit, which we refer to as the targeted distribution.

The net investment amount for a Unit is defined as $20.00 (regardless of the actual price you pay for your Units), less the amount distributed with respect to such Unit.

All of the distributions you receive from us will be considered a return of capital until you have received 100% of your investment in our Units. In this regard, there is no limitation on the amount of distributions that can be funded from offering proceeds or financing proceeds except that funds will not be advanced or borrowed by us for the purpose of making distributions to you and the other Unitholders if the amount advanced or borrowed would exceed our accrued and received revenues for the previous four quarters, less paid and accrued operating costs with respect to the revenues. If a distribution is not being funded entirely from Partnership revenues, investors residing in Maryland will be provided disclosure that provides the percentage and dollar amount that is being funded from Partnership revenues and the percentage and dollar amount that is being funded by offering proceeds or borrowings.

Our general partner does not intend to cause us to distribute more than the targeted monthly distribution prior to the first to occur of the sale of all or substantially all of our properties and the listing of our common units on a national securities exchange, which our general partner does not anticipate will occur until at least five years after the initial closing of this offering. Instead, our general partner expects to use any excess cash available to us to pay costs to help develop our oil and gas properties.

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Our ability to make distributions will depend on the success of our business, which is subject to numerous risks, and no assurances can be made as to the amount or timing of any distributions that we will be able to make in the future. See “Risk Factors.”

Sale of Properties or Listing of the Common Units

Beginning five to seven years after the initial closing date, we plan either to sell all or substantially all of our properties and distribute to our partners the proceeds of the sale, after payment of liabilities and expenses, or to list the common units for trading on a national securities exchange. An application to list our common units on a national securities exchange may be made by our general partner in its discretion without a vote of our Unitholders. The sale of all or substantially all of our properties, however, will require the consent of both our general partner and the holders of a majority of our Units, voting as a single class.

The decision by the general partner to sell our assets, and our ability to sell our assets, will depend on the following, among other factors, many of which will be beyond the control of our general partner:

the market for oil and gas properties;
the price of oil, gas and other hydrocarbons which our properties produce;
general economic conditions; and
whether we have finished the planned development of the properties we acquire.

The decision by the general partner to apply to list our common units, and the ability of the general partner to list the common units, will depend on a number of factors, some of which will be beyond the control of the general partner, including:

the amount of assets, revenues and earnings that we have at the time of our listing;
the then existing market for oil and gas master limited partnerships; and
the listing standards of the various national securities exchanges, and whether we are able to meet those listing standards.

No assurances can be made that we will be able to sell our assets or list the common units, nor can we provide any assurances as to the amounts we will be able to distribute if we sell assets or as to the price at which our common units will trade if we are able to list them.

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The Offering

Offering    
    A minimum of 100,000 Units and a maximum of 100,000,000 common units. The common units constitute limited partner interests.
Offering period    
    Begins on the date of this prospectus and is expected to end on         , 201 , or two years from the effectiveness of this prospectus, unless this offering is extended by our general partner for a period of up to three months pursuant to a supplement to this prospectus (we refer to         , 201 , or, if the offering is extended, the date set forth in such extension, as the “final termination date”). Our general partner may terminate the offering period at any time prior to the scheduled end of the offering period. If subscriptions are not received and accepted by the general partner for the minimum of 100,000 Units on or before         , 201 , which is one year from the effective date of this prospectus, the offering will be terminated and subscribers will receive a return of their subscription proceeds, with interest. In this regard, however, on or before the initial closing date, our general partner will pay not less than $50,000 for common units at a discounted price as described in “Plan of Distribution,” and it currently intends to purchase additional common units if necessary to ensure that the minimum subscription proceeds of $2,000,000 required to release funds from the escrow account have been received.
Offering price    
    We are offering Units at $20.00 per Unit. Investors purchasing Units must purchase an aggregate minimum of $5,000, or 250 Units. See “Plan of Distribution.”
Description of the Units Offered    
    The common units that we are offering constitute limited partner interests of the Partnership. Assuming that a limited partner does not participate in the control of our business within the meaning of the Delaware Act and that he otherwise acts in conformity with the provisions of the Partnership Agreement, his liability under the Delaware Act will be limited, subject to possible exceptions, to the amount of capital he is obligated to contribute to us for his common units plus his share of any undistributed profits and assets of the Partnership. See “Summary of the Limited Partnership Agreement — Limited Liability of Holders of Common Units.”
Escrow    
    The dealer manager for the offering of Units will deposit and hold an investor’s investment in an interest-bearing escrow account at UMB Bank, N.A. until the first to occur of (i) the minimum offering amount of $2,000,000 has been achieved from the sale by the Partnership of at least 100,000 Units in the offering, (ii) the termination of the offering period by our general partner and (iii) the end of the offering period. See “— Offering period,” above
    Investors who invest prior to our receipt of the minimum offering amount will receive, upon admission into the Partnership, a one-time distribution of interest for the period their funds were held in escrow.

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    On receipt of the minimum offering proceeds, our general partner, on our behalf, will break escrow, transfer the escrowed offering proceeds to our account, which will be a separate account maintained for us, and begin our business activities, including the acquisition and development of producing and non-producing oil and gas properties, including drilling activities. Our funds will not be commingled with funds of any other entity.
    Following the initial closing, we plan to have monthly closings until the earlier of the issuance of 100,000,000 common units and the final termination date.
    Pennsylvania Investors:  Because the aggregate minimum closing amount of the common units is less than 10% of the maximum closing amount allowed to the Partnership in this offering, you are cautioned to carefully evaluate the Partnership’s ability to fully accomplish its stated objectives and inquire as to the current dollar volume of Partnership subscriptions for its Units. In addition, subscription proceeds received by the Partnership from Pennsylvania investors will be placed into a short-term escrow (120 days or less) until subscriptions for at least 5% of the maximum offering proceeds have been received by the Partnership, which means that subscriptions for at least $100,000,000 have been received by the Partnership from investors, including Pennsylvania investors. If the appropriate minimum has not been met at the end of each escrow period, the Partnership must notify the Pennsylvania investors in writing by certified mail or any other means whereby a receipt of delivery is obtained within 10 calendar days after the end of each escrow period that they have a right to have their investment returned to them. If an investor requests the return of such funds within 10 calendar days after receipt of notification, the Partnership must return such funds within 15 calendar days after receipt of the investor’s request.
Commissions and marketing fees    
    Our dealer manager will be paid a dealer manager fee of 3% of the gross proceeds of the offering and a selling commission of 7%, substantially all of which may be reallowed to participating broker-dealers, subject to certain exceptions discussed in “Plan of Distribution.”
General partner contribution    
    On or before the initial closing date, our general partner will pay not less than $50,000 in cash to the Partnership to purchase Units at a discounted price as described in greater detail in “Plan of Distribution,” and our general partner currently intends to purchase additional Units if necessary to ensure that we receive the minimum subscription proceeds of $2,000,000 required to break escrow. Our general partner also paid an additional capital contribution of $20.00 for its general partner interest.
Estimated use of proceeds    
    We must receive minimum offering proceeds of $2,000,000 to break escrow, and the maximum offering proceeds may not exceed $2,000,000,000. Whether we receive only the minimum

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    or the maximum offering proceeds from you and the other investors, the offering proceeds will be used to pay the following:
   

  •  

the costs to acquire oil and gas properties;

   

  •  

the costs to develop, operate and manage our oil and gas properties, including drilling additional oil and gas wells on the properties;

   

  •  

the offering and organization costs, which include sales commissions, the dealer manager fee, the marketing fee and all other costs such as legal, accounting, printing, travel and similar amounts related to the organization of the Partnership and the offering of the Units;

   

  •  

any portion of the management fee payable to the Manager that is not paid with Partnership revenues; and

   

  •  

as described under “Capital Contributions and Distributions”, we plan to make distributions to Unitholders each month, even if we do not have sufficient proceeds from the sale of oil and gas produced from our properties. These distributions will be treated as a return of capital until you have received 100% of your investment in our Units.

Compensation of our general partner, its affiliates and certain non-affiliates    
    Our general partner, its affiliates (including the dealer manager) and non-affiliates will receive fees and compensation from the Partnership. The non-affiliates will include the participating broker-dealers, operators of our oil and gas properties, including the Manager, and Holdings. These fees and compensation will include the following:
   

  •  

The Manager and the general partner will be entitled to receive from us a reimbursement of organizational and offering expenses, including third-party expenses, equal to up to 1.5% of the aggregate gross offering proceeds of this offering. This reimbursement will be allocated two-thirds to our general partner and one-third to the Manager.

   

  •  

The general partner and its affiliates will receive reimbursements for their administrative costs related to the Partnership on a fully accountable basis, based on actual costs and time devoted to the Partnership and its business.

   

  •  

The general partner will receive a credit to its Partnership capital account in an amount equal to its capital contribution to the Partnership, as discussed in “— General partner contribution,” above.

   

  •  

The general partner or an affiliate will have the right to charge a competitive rate of interest on any loan it may make to or on behalf of the Partnership. If the general partner or an affiliate provides equipment, supplies, and other services to the Partnership, then it may do so at competitive industry rates.

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  •  

In conjunction with the acquisition cost of producing or non-producing oil and gas properties (including any properties we may elect to acquire from an affiliate of the Manager), the Manager will be entitled to receive an acquisition fee equal to 2% of the contract price for each property acquired. The Manager will also be entitled to reimbursements of acquisition expenses of up to 1% of the contract price for each property. However, the aggregate amount of the acquisition fee and reimbursement of acquisition expenses may not exceed 3% in total of the contract price for each property acquired.

   

  •  

The Partnership will enter into contracts with third-parties, which may include the Manager and its affiliates, to drill and complete, or plug if necessary, oil and gas wells at a competitive rate, which may not include a “turnkey,” or fixed, price for drilling and completing the wells.

   

  •  

The applicable operator(s) of the Partnership’s properties, including the Manager when it operates the Partnership’s properties: (i) will receive reimbursement at actual cost for all direct expenses incurred by them on behalf of the Partnership, including expenses to gather, transport, process, treat and market the Partnership’s oil and natural gas production; and (ii) may receive well supervisory fees at competitive rates for maintaining and operating the wells during drilling and producing operations, which are in addition to the monthly management fees discussed below.

   

  •  

Pursuant to the Management Services Agreement, the Partnership will pay the Manager a monthly management fee during the period commencing with the initial closing date and extending through the final termination date equal to an annual rate of 3.5% of the sum of: (i) the capital contributions made by the holders of Units to the Partnership from the initial closing through the final termination date; and (ii) the average outstanding indebtedness of the Partnership during the preceding month. Thereafter, the monthly management fee will equal an annual rate of 5%, with 80% of the monthly management fee (that is, an annual rate of 4%) to be paid to the Manager and 20% of the monthly management fee (that is, an annual rate of 1%) to be paid to our general partner. The management fee may be subject to further adjustment with the mutual agreement of our general partner and the Manager, but it will not be increased.

   

  •  

In conjunction with the disposition by the Partnership of its producing and non-producing oil and gas properties and in consideration for the services to be performed by the Manager and our general partner in connection with the disposition of our properties from time to time, the Manager and our general partner will receive reimbursement of their respective costs incurred in connection with such activities, plus a fee equal to 1% of

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    the disposition value, paid as follows: 50% to the Manager; and 50% to our general partner.
   

  •  

In conjunction with the financing by the Partnership of its producing and non-producing oil and gas properties and operations and in consideration for the services to be performed by the Manager and our general partner in connection with the financing by the Partnership of its properties or operations from time to time the Manager and our general partner will receive a financing coordination fee equal to 0.75% of the principal amount of any financing, which will be paid as follows: 0.50% of such fee to the Manager; and 0.25% of such fee to our general partner.

    Please see “Compensation” for more information about the fees the Partnership will pay the general partner, its affiliates and certain non-affiliates, including the Manager.
Conflicts of interest    
    Our general partner and its affiliates may have conflicts of interest in offering the Units and in managing our business. These conflicts may include, among other things:
   

  •  

the lack of arm’s length negotiations in determining the substantial compensation our general partner and its affiliates will receive for the formation and management of our business;

   

  •  

competition with other oil and natural gas partnerships that may be formed by our general partner and its affiliates in the future, including competition for properties to be acquired; and

   

  •  

competition for management’s time and attention with other funds that the general partner and its affiliates may sponsor and/or manage in the future.

    In addition, although the business of the Manager will be limited to serving as the manager pursuant to the Management Services Agreement and in a similar capacity with respect to other oil and gas partnerships or entities that in the future may be formed by or affiliated with ARC, affiliates of the Manager will engage in other business activities, which will include acquiring, owning, operating, developing and selling oil and gas properties for their own account. Engaging in such activities could reduce the time that such affiliates devote to assisting the Manager in managing our business and we will compete for the time and attention of such affiliates with the other activities in which they engage. In addition, it is possible that we could elect at any time or from time to time to acquire oil and gas properties from one or more affiliates of the Manager that such affiliates elect to sell in the future. As provided in the Management Services Agreement, any such acquisition would be at the lesser of such affiliate’s cost of the property or properties or fair market value, but the Manager would be entitled to an acquisition fee in respect of any such acquisition(s) of properties we make from an affiliate of the Manager.
    We have entered into the Management Services Agreement with the Manager to procure for our benefit and the benefit of our

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    investors the oil and gas management and operational expertise of the Manager and its affiliate’s management and employee personnel. The Manager has a large and growing staff of over     oil and gas professionals with extensive experience in the oil and natural gas industry, and the Manager’s professional team has an average of    years of industry experience and includes individuals with expertise in engineering, drilling, operations, geoscience, land finance, accounting, IT, marketing and administration. In addition to the Manager serving as manager for the Partnership pursuant to the Management Services Agreement and possibly for other oil and gas partnership or other entities formed by or affiliated with ARC, affiliates of the Manager provide contract management and operating services to oil and gas partnerships, limited liability companies or other entities, including entities that own and operate oil and gas properties in the Utica Shale and Woodford Shale areas. In addition, their affiliates intend to continue to conduct such activities and to pursue other similar activities with respect to other onshore oil and gas properties in the United States. In addition, Mr. McClendon owns working interests throughout the productive regions of the United States as a result of his participation in the Chesapeake Founders Well Participation Program. If we elect to acquire an oil and gas property or prospect from an affiliate of the Manager as described in the preceding paragraph, none of Mr. McClendon or any other entity managed or controlled by an affiliate of the Manager will have an obligation to offer to sell us any working or other interest it may own in the property or prospect sold to us by such affiliate. While we believe that the benefits we will receive from the Manager’s extensive background, experience and expertise is a material benefit for us and our investors, such ownership by an affiliate of the Manager in a property we acquire (whether or not acquired from an affiliate of the Manager) could result in or constitute a conflict of interest.
    See “Conflicts of Interest” for a more detailed discussion.
Partnership Agreement    
    The relationship between our general partner and our Unitholders is governed by our Partnership Agreement, a copy of which is attached to this prospectus as Exhibit A. Please read “Summary of the Limited Partnership Agreement” and the Partnership Agreement.
Subscriptions    
    Investors must complete a subscription agreement (Exhibit B to this prospectus) in order to purchase Units. By signing the subscription agreement, you will be making the representations and warranties contained in the subscription agreement and will be bound by all of the terms and conditions set forth in the subscription agreement and our Partnership Agreement.
Federal Income Tax Consequences    
    This prospectus contains a discussion of the material federal income tax consequences pertinent to investors, including whether the Partnership will be taxed as a partnership or as a corporation. See “Material Federal Income Tax Consequences” for more information.

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Plan of distribution    
    The initial closing of the offering of Units will be held after we receive and deposit with the escrow agent subscriptions for at least $2,000,000, including subscriptions by our general partner and its affiliates as discussed in “Plan of Distribution.” At that time, subscribers for common units will be admitted as our limited partners. After the initial closing, we intend to hold monthly closings until the offering is terminated.
No market for our Units    
    There is no established market for the Units, and none is expected to develop in the future. Investors in the Units may not be able to sell their Units and should be prepared to hold their Units indefinitely. See “— Listing of the common units,” below.
Listing of the common units    
    The common units have not been approved for quotation or trading on a national securities exchange. However, the general partner will have the right to list the common units on a national securities exchange following the final closing date. In order to be approved for listing, the common units and the Partnership will be required to meet the listing standards of a national securities exchange. No assurances can be made that the common units will be approved for quotation or trading on a national securities exchange.

Emerging Growth Company

The Jumpstart Our Business Startups Act, or the JOBS Act, became law in April 2012. The Partnership is an “emerging growth company” as defined in the JOBS Act, and it is eligible for certain exemptions from, or reduced disclosure obligations relating to, various reporting requirements that usually apply to public companies. These exemptions include, among others, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, any requirements adopted by the Public Company Accounting Oversight Board, or the PCAOB, which require mandatory audit firm rotation or a supplement to the auditor’s report in which the audit must provide additional information about the audit and the issuer’s financial statements, nor with new audit rules adopted by the PCAOB after April 5, 2012, unless the SEC determines otherwise. The Partnership has not yet decided whether to use any or all of the exemptions. If the Partnership decides to use any of these exemptions, some investors may decide its Units are a less attractive investment as a result.

Additionally, under Section 107 of the JOBS Act, an “emerging growth company” is eligible for the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, or the Act, to comply with new or revised accounting standards. This means an “emerging growth company” can delay adopting certain accounting standards until those standards otherwise become applicable to private companies. However, the Partnership is electing to “opt out” of that extended transition period, and therefore will comply with new or revised accounting standards on the dates the standards are required for non-emerging growth companies. Section 107 of the JOBS Act provides that the Partnership’s decision to opt out of the extended transition period for compliance with new or revised accounting standards is irrevocable.

The Partnership could continue to be an “emerging growth company” until the earliest of:

(i) the last day of the first fiscal year in which it has total annual gross revenue of $1 billion or more;
(ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of its Units pursuant to this prospectus and its Registration Statement with the SEC;
(iii) the date that it becomes a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of its Units held by non-affiliates exceeds $700 million, measured as of the last business day of its most recently completed second fiscal quarter; and

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(iv) the date on which it has, during the preceding three-year period, issued more than $1 billon in non-convertible debt.

The Partnership anticipates that it will continue to be an emerging growth company until at least 2015.

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RISK FACTORS

Our Units are inherently different from capital stock of a corporation, although many of the business risks to which we are subject are similar to those that would be faced by a corporation engaged in similar businesses. If any of the following risks were actually to occur, our business, financial condition or results of operations or cash flows could be materially adversely affected.

Risks Related to an Investment in the Partnership

This is a blind pool offering. Because we have not yet identified any prospects or properties, you may not be able to evaluate our prospects or properties before making your investment decision, which makes your investment more speculative. In addition, we cannot assure you that we will be able to acquire prospects or properties on an economic basis or at all.

Because we are, in large part, relying on offering proceeds from you and the other Unitholders to finance the acquisitions of our prospects or properties, we have not yet identified any prospects or properties that we intend to acquire. Thus, you may not have the opportunity to evaluate any of the prospects or properties we select before we acquire them or prior to your investment in our Units. Unlike a business with established properties and an operating history, you may not have an opportunity before purchasing Units to evaluate geophysical, geological, economic or other information regarding the prospects and properties to be selected. Delays are likely in the investment of our offering proceeds because the offering period for our Partnership can extend over a number of months, and no prospects or properties will be acquired until after the initial closing of the offering. If we select a prospect or property for acquisition during the offering period, we will file a prospectus supplement describing the prospect or property and its proposed acquisition. If you subscribe for Units prior to any such supplement, you will not be permitted to withdraw your subscription as a result of any subsequent selection of any prospect or property.

In addition, because we are a new Partnership with no prior operating history or assets, we cannot assure you that we will be able to acquire developed or undeveloped producing and nonproducing oil and gas properties on an economic basis or at all. We face a number of competitive risks related to the acquisition of properties, as described under “— Risks Related to Our Business — We may be unable to compete effectively with larger companies, which may adversely affect our ability to generate sufficient revenue and our ability to pay distributions to holders of our Units and service our debt obligations.” If we are unable to identify and acquire oil and gas properties on an economic basis, or at all, you may lose some or all of your investment, and we may have insufficient cash to pay distributions on our Units and service our debt obligations. Please read “— Risks Related to Our Business” and “Competition, Markets and Regulation.”

We have no prior operating history or established financing sources, this is the first oil and gas program sponsored by our general partner and its affiliates and our general partner’s executive officers have no experience managing public oil and gas companies; and this is the first publicly registered oil and gas program to which the Manager will provide management services.

Because we are a newly formed entity, we face many challenges, including, among other things:

we have no operating history, and accordingly, cannot accurately predict direct or administrative costs that will be associated with our operations;
we do not currently own or operate, and since our formation have not owned or operated, any assets;
we have no established financing sources;
none of the Manager or its affiliates has previously provided management services to a publicly registered oil and gas exploration and production program like the Partnership; and
none of our general partner, ARC or their affiliates have previously sponsored an oil and gas exploration and production program.

These and other factors make it difficult for us to accurately predict many important aspects of our business, including the prices at which we will be able to acquire properties, the costs of our operations and

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our sources of financing. We cannot assure you that we will succeed in achieving our goals, and our failure to do so could cause you to lose all or a significant portion of your investment or prevent us from generating sufficient available cash to be able to pay any distributions to you and the other Unitholders.

Neither our general partner nor the Manager has had any operations prior to the commencement of this offering and our general partner’s executive officers have no experience managing public oil and gas companies. For these reasons, our Unitholders should be especially cautious when drawing conclusions about our future performance and you should not assume that it will be similar to the prior performance of other programs sponsored by the parent of our general partner with respect to real estate or to prior oil and gas operations in which any of the executive officers of the Manager were involved. Our lack of an operating history, our general partner’s lack of prior experience operating a public oil and gas company and our sponsor’s lack of experience in connection with investments of the type to be made by us, significantly increase the risk and uncertainty our Unitholders face in making an investment in our common units.

You should consider our prospects in light of the risks, uncertainties and difficulties frequently encountered by companies that are, like us, in their early stage of development. To be successful in this market, we must, among other things:

identify and acquire oil and gas properties that further our investment strategies;
attract, integrate, motivate and retain qualified personnel to manage our day-to-day operations;
respond to competition for our targeted oil and gas properties as well as for potential investors; and
continue to build and expand our operations structure to support our business.

We cannot guarantee that we will succeed in achieving these goals, and our failure to do so could cause you to lose all or a substantial portion of your investment.

Our distributions to our Unitholders may not be sourced from our cash generated from operations but from offering proceeds or indebtedness, and this will decrease our distributions in the future.

Our general partner intends to cause the Partnership to make distributions to Unitholders commencing with the fourth whole month following the initial closing of the offering. Because we are unlikely to have generated cash from operations or fully invested the proceeds from this offering at that time, our distributions to Unitholders early in our operations are more likely to be sourced from our offering proceeds or borrowings. Distributions to our investors will be deemed a return of capital until our Unitholders have received 100% of their investment in our Units. Investors who acquire Units relatively early in our offering, as compared with later investors, may receive a greater return of offering proceeds as part of the earlier distributions. If investors receive different amounts of returns of offering proceeds as distributions based on when they acquire Units, investors will experience different rates of return on their invested capital and some investors may have a lower tax basis in their Units than other investors. Furthermore, offering proceeds that are returned to investors as part of distributions to them will not be available for investments in oil and gas properties. The payment of distributions from sources other than operating cash flow will decrease the cash available to the Partnership to invest in oil and gas properties. We cannot assure you that you will receive any specific return on your investment. Furthermore, there is no limitation on the amount of distributions that can be funded from offering proceeds or financing proceeds, provided that funds may not be advanced or borrowed for purposes of distributions if the amount of such distributions would exceed the Partnership’s accrued and received revenues for the previous four quarters, less paid and accrued operating costs with respect to the revenues. If a distribution is not being funded entirely from Partnership revenues, investors residing in Maryland will be provided disclosure that provides the percentage and dollar amount that is being funded from Partnership revenues and the percentage and dollar amount that is being funded by offering proceeds or borrowings.

We may not have sufficient cash from operations following the establishment of cash reserves and payment of fees and expenses, including cost reimbursements to our general partner, to enable us to make cash distributions to our Unitholders under our cash distribution policy.

We may not have sufficient available cash each month to enable us to make cash distributions to our Unitholders. The amount of cash we can distribute on our Units principally depends on the amount of cash we generate from our operations, which will fluctuate from month to month based on, among other things:

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our strategy of acquiring oil and gas properties at attractive prices and developing those properties and the success of those properties;
the amount of oil, natural gas and natural gas liquids we produce;
the prices at which we sell our production;
our ability to acquire oil and natural gas properties at economically attractive prices;
our ability to hedge commodity prices at economically attractive prices;
the level of our capital expenditures;
the level of our operating and administrative costs including fees and reimbursements to our general partner and the Manager; and
the level of our interest expense, which depends on the amount of our indebtedness and the interest payable thereon.

In addition, the actual amount of cash we will have available for distribution will depend on other factors, some of which are beyond our control, including:

the amount of cash reserves established by our general partner for the proper conduct of our business and for capital expenditures, which may be substantial;
the cost of acquisitions, operations, infrastructure and drilling;
our debt service requirements and other liabilities;
fluctuations in our working capital needs;
our ability to borrow funds;
the timing and collectability of receivables; and
prevailing economic conditions.

As a result of these and other factors, the amount of cash we distribute to our Unitholders may fluctuate significantly from month to month.

If we are unable to find suitable prospects and properties, we may not be able to achieve our investment objectives or pay distributions.

Our ability to achieve our investment objectives and to pay distributions depends primarily upon our ability to acquire and develop oil and gas properties. Competition from competing entities may reduce the number of suitable investment opportunities offered to us or increase the bargaining power of property owners seeking to sell. Additionally, disruptions and dislocations in the credit markets have materially impacted the cost and availability of debt to finance oil and gas acquisitions, which is a key component of our acquisition strategy. A period in which there is a lack of available debt could result in a further reduction of suitable investment opportunities and create a competitive advantage to other entities that have greater financial resources than we do. During such times, our ability to borrow monies to finance the purchase of, or other activities related to, oil and gas assets will be negatively impacted. In addition, if we pay fees to lock in a favorable interest rate, falling interest rates or other factors could require us to forfeit these fees. If we acquire properties and other investments at higher prices or by using less-than-ideal capital structures, our returns will be lower and the value of our assets may decrease significantly below the amount we paid for the assets.

Also, the more Units we sell in this offering, the greater our challenge will be to invest all of the net offering proceeds on attractive terms. We can give no assurance that we will be successful in identifying or, even if identified, acquiring suitable properties on financially attractive terms or that our objectives will be achieved. If we are unable to identify and acquire suitable properties promptly, we will hold the proceeds from this offering in an interest-bearing account or invest the proceeds in short-term assets. If we continue to be unsuccessful in identifying and acquiring suitable properties, we may ultimately decide to liquidate. In the event we are unable to timely locate suitable properties, we may be unable or limited in our ability to pay distributions and we may not be able to meet our investment objectives.

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We may suffer from delays in locating suitable oil and gas properties, which could limit our ability to make distributions and lower the overall return on your investment.

We rely upon our general partner and the oil and gas professionals affiliated with the Manager to identify suitable investments. To the extent that our general partner and the oil and gas professionals employed by our general partner or the Manager face competing demands on their time at times when we have capital ready for investment, we may face delays in locating suitable properties. Further, the more money we raise in this offering, the more difficult it will be to invest the net offering proceeds promptly and on attractive terms. Therefore, the large size of this offering and the continuing high demand for the types of oil and gas properties we desire to purchase increase the risk of delays in investing our net offering proceeds. Delays we encounter in the selection and acquisition or origination of income-producing properties would likely limit our ability to pay distributions to our Unitholders and lower their overall returns. Further, our oil and gas development activities on a property will typically take months or longer to complete. Therefore, our Unitholders could suffer delays in receiving the cash distributions attributable to those particular properties.

The Units are not liquid and your ability to resell your Units will be limited by the absence of a public trading market and substantial transfer restrictions.

If you invest in the Partnership, then you must assume the risks of an illiquid investment. The Units generally will not be liquid because there is not a readily available market for the sale of Units, and one is not expected to develop. Furthermore, although our Partnership Agreement contains provisions designed to permit the listing of the common units on a national securities exchange, the Partnership does not currently intend to list the common units on any exchange or in the over-the-counter market. See “Transferability of Interests.” Your inability to sell or transfer your Units increases the risk that you could lose some or all of your investment, because if the Partnership is unable to meet its performance goals, you may not have the ability to transfer your Units prior to our winding up and liquidation.

Our general partner will have conflicts of interest with you and the other Unitholders and may favor its own interests to your detriment.

Although our general partner has a fiduciary duty to manage us in a manner that is beneficial to us and our Unitholders, the directors and officers of our general partner have a fiduciary duty to manage our general partner in a manner that is beneficial to our sponsor. See “Management” for additional information. Therefore, conflicts of interest may arise between our sponsor and our general partner, on the one hand, and us and our Unitholders, on the other hand. In resolving these conflicts of interest, our general partner may favor its own interests and the interests of our sponsor over our interests and the interests of our Unitholders. These conflicts include the following situations, among others:

Neither our Partnership Agreement nor any other agreement requires our sponsor to pursue a business strategy that favors us.
Our sponsor is not limited in its ability to compete with us and it may offer business opportunities to parties other than us if it has first determined that the opportunity either:
cannot be pursued by us because of insufficient funds; or
it is not appropriate for us under the existing circumstances.
Our general partner is allowed to take into account the interests of parties other than us, such as our sponsor, in resolving conflicts of interest.
Except in limited circumstances, our general partner has the power and authority to conduct our business without Unitholder approval.
Our general partner determines the amount and timing of asset purchases and sales, borrowings, issuance of additional Partnership securities and the creation, reduction or increase of reserves, each of which can affect the amount of cash that is distributed to our Unitholders.
Our general partner determines which costs incurred by it are reimbursable by us.

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Our Partnership Agreement does not restrict our general partner from causing us to pay it or its affiliates for any services rendered to us or entering into additional contractual arrangements with any of these entities on our behalf.
Our general partner controls the enforcement of the obligations that it and its affiliates owe to us.
Our general partner decides whether to retain separate counsel, accountants or others to perform services for us.

Please read “Conflicts of Interest” and “Fiduciary Duty of the General Partner.”

We may be unable to sell our properties or list the common units on a national securities exchange within our planned timeline or at all.

Beginning five to seven years after the initial closing date, we plan to either sell our properties and distribute the proceeds of the sale, after payment of liabilities and expenses, to our partners or list the common units on a national securities exchange. The decision to sell our properties will be based on a number of factors, including the domestic and foreign supply of and demand for oil, natural gas and other hydrocarbons, commodity prices, demand for oil and natural gas assets in general, the value of our assets, the projected amount of our oil and gas reserves, general economic conditions and other factors that are out of our control. In addition, the ability to list our common units on a national securities exchange will depend on a number of factors, including the state of the U.S. securities markets, our ability to meet the listing requirements of national securities exchanges, securities laws and regulations and other factors. If we are unable to either sell our properties or list the common units on a national securities exchange in accordance with our current plans, you may be unable to sell or otherwise transfer your Units and you may lose some or all of your investment.

Our general partner may make decisions with respect to the cash generated from our operations that may adversely affect our results of operations and financial condition or result in lower or no distributions to you.

If the Partnership were presented with a drilling or other opportunity on its properties, and funding the opportunity would require the Partnership to use cash that it intends to reserve for distributions to its Unitholders or for other purposes approved by our general partner, our general partner may elect to cause us to sell or farmout the opportunity or decline to participate in the opportunity, even if the general partner determines that the opportunity could have a favorable rate of return, so long as the decision is made in good faith. Our general partner is under no obligation to make cash distributions to you and the other Unitholders, and it may decide to use cash to fund acquisitions or operations in lieu of making distributions on the Units. Our Partnership Agreement does not provide for any arrearages for months in which a distribution is not paid to Unitholders. Our general partner’s decisions with respect to our cash may adversely affect our results of operations and financial condition, and may result in lower or no distributions to you and the other Unitholders.

Our Partnership Agreement limits our general partner’s fiduciary duties to our Unitholders and restricts the remedies available to Unitholders for actions taken by our general partner that might otherwise constitute breaches of fiduciary duty.

Our Partnership Agreement contains provisions that reduce the fiduciary standards to which our general partner is held. For example, our Partnership Agreement permits our general partner to:

be indemnified and held harmless as described under “Fiduciary Duty of the General Partner”;
devote only so much of its time as is necessary to manage our affairs;
conduct business with the Partnership in its capacity other than as general partner in certain circumstances;
pursue business opportunities that are consistent with the Partnership’s investment objectives for its own account, but only after the general partner has determined that such opportunity either cannot be pursued by the Partnership because of insufficient funds or because such opportunity is not appropriate for the Partnership under the existing circumstances; and

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manage other entities at the same time as it manages us.

By purchasing a Unit, you and the other Unitholders are bound by the provisions of the Partnership Agreement, including the provisions discussed above.

Compensation and fees paid to our general partner and its affiliates and to the Manager under the Management Agreement regardless of success of the Partnership’s activities will reduce the cash we have available for distribution.

The general partner and its affiliates will receive fees and reimbursement of administrative expenses and direct costs as described in “Compensation,” regardless of the Partnership’s success in acquiring, developing and operating properties. In addition, under the Management Agreement, the Manager will receive fees and reimbursements of costs for providing management, operating and other services to us. See “Compensation.” The fees and reimbursements to be paid to the general partner and to the Manager will reduce the amount of cash we have available to make distributions to investors. With respect to direct costs, the general partner has sole discretion on behalf of the Partnership to select the provider of the services or goods and the provider’s compensation as discussed in “Compensation.” These substantial fees and other payments also increase the risk that our Unitholders will not be able to resell their Units at a profit.

The ability to spread the risks of property acquisitions among a number of properties will be reduced if less than the maximum offering proceeds are received and fewer acquisitions are consummated.

The Partnership must receive minimum offering proceeds of $2,000,000 to break escrow, and the Partnership’s offering proceeds may not exceed $2,000,000,000. There are no other requirements regarding the amount of offering proceeds to be received by the Partnership. Generally, the less offering proceeds received, the fewer properties the Partnership would acquire with the proceeds of this offering, which would decrease the Partnership’s ability to spread the risks of acquisition and development of the Partnership’s properties.

Our expected credit facility will likely have restrictions and financial covenants that restrict our business and financing activities and our ability to pay distributions to our Unitholders.

In connection with the initial closing of this offering, we expect to enter into a revolving credit facility. Currently, we have no commitment from any lender to provide us with any financing arrangement. Also, we anticipate that our credit facility will likely restrict, among other things, our ability to incur debt and pay distributions, and require us to comply with customary financial covenants and specified financial ratios. If market or other economic conditions deteriorate, our ability to comply with these covenants may be impaired. If we violate any provisions of our credit facility that are not timely cured or waived, a significant portion of our indebtedness may become immediately due and payable and we will be prohibited from making distributions to our Unitholders. We might not have, or be able to obtain, sufficient funds to make these accelerated payments. In addition, our obligations under our credit facility are likely to be secured by substantially all of our assets, and if we are unable to repay our indebtedness under our credit facility, the lenders could seek to foreclose on our assets.

The borrowing base under the credit facility will likely be primarily based on the estimated value of our oil and natural gas properties and our commodity derivative contracts as determined semi-annually by our lenders in their sole discretion. A future decline in commodity prices could result in a redetermination that lowers our borrowing base in the future and, in such case, we could be required to repay any indebtedness in excess of the borrowing base. If we are unable to repay any borrowings in excess of a decreased borrowing base, we would be in default and no longer able to make any distributions to our Unitholders.

Your Units may be diluted.

The equity interests of investors in our Partnership may be diluted. The investors in the Partnership will indirectly benefit from the Partnership’s production revenues from all of its wells in proportion to their respective number of Units, based on the original purchase price of Units issued in the offering regardless of:

the actual price you paid for your Units; or
which properties are acquired with your subscription proceeds.

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Also, some classes of investors, including our general partner and its executive officers and directors and others as described in “Plan of Distribution,” may buy Units at discounted prices because sales commissions and dealer manager fees will not be paid for those sales. Thus, investors who pay discounted prices for their Units may receive higher returns on their investments in the Partnership as compared to investors who pay the entire $20.00 per Unit.

Holders of our Units have limited voting rights and are not entitled to elect or remove the board of directors and officers of our general partner.

Unlike the holders of common stock in a corporation, Unitholders have only limited voting rights on matters affecting our business and, therefore, limited ability to influence management’s decisions regarding our business. Unitholders will not elect our general partner’s officers or the members of its board of directors, and will have no right to remove its officers or board of directors. The board of directors of our general partner is chosen by the owners of our general partner. Please see “Management” and “Summary of the Limited Partnership Agreement — Voting Rights.”

Control of our general partner may be transferred to a third party without Unitholder consent.

Our general partner may transfer its general partner interest to a third party in a merger or in a sale of all or substantially all of its assets without the consent of the Unitholders. Furthermore, our Partnership Agreement does not restrict the ability of the owners of our general partner from transferring all or a portion of their ownership interest in our general partner to a third party. The new owner of our general partner would then be in a position to replace the board of directors and officers of our general partner with their own choices and thereby influence the decisions made by the board of directors and officers in a manner that may not be aligned with the interests of our Unitholders.

Our unitholders’ liability may not be limited if a court finds that unitholder action constitutes control of our business.

A general partner of a limited partnership generally has unlimited liability for the obligations of the limited partnership, except for those contractual obligations of the limited partnership that are expressly made without recourse to the general partner. Our Partnership is organized under Delaware law and we will conduct business in a number of other states. The limitations on the liability of holders of limited partner interests for the obligations of a limited partnership have not been clearly established in some of the other states in which we do business. A unitholder could be liable for our obligations as if it was a general partner if a court or government agency determined that:

we were conducting business in a state but had not complied with that particular state’s limited partnership statute; or
a unitholder’s right to act with other Unitholders to remove or replace the general partner, to approve some amendments to our Partnership Agreement or to take other actions under our Partnership Agreement constitute “control” of our business.

Our unitholders may have liability to repay distributions.

Under certain circumstances, unitholders may have to repay amounts that we wrongfully returned or distributed to them. Under Sections 17-607, 17-303 and 17-804 of the Delaware Revised Uniform Limited Partnership Act, we may not make distributions to Unitholders if the distribution would cause our liabilities to exceed the fair value of our assets. Liabilities to partners on account of their Partnership interests and liabilities that are non-recourse to us are not counted for purposes of determining whether a distribution is permitted. Delaware law provides that for a period of three years from the date of an impermissible distribution, limited partners who received the distribution and who knew at the time of the distribution that it violated Delaware law will be liable to the limited partnership for the distribution amount. Also, a purchaser of common units from a unitholder is liable for the obligations of the transferring limited partner to make contributions to us that are known to the purchaser of the common units at time it became a limited partner and for unknown obligations if the liabilities could be determined from our Partnership Agreement.

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Purchases of Units by our general partner’s directors and executive officers, officers and employees of our dealer manager, other affiliates and Friends in this offering should not influence investment decisions of independent, unaffiliated investors.

Our general partner and its directors and executive officers, and the officers and employees of our dealer manager, other affiliates and Friends may purchase our common units, and any such purchases will be included for purposes of determining whether the minimum of $2,000,000 of shares of common units required to release funds from the escrow account has been sold. “Friends” mean those individuals who have prior business and/or personal relationships with our executive officers, directors or sponsor, including, without limitation, any service provider. In this regard, our general partner will purchase not less than $50,000 of our common units at a discounted purchase price as discussed in greater detail in “Plan of Distribution — Units Purchased by Affiliates and Participating Broker-Dealers,” and our general partner intends to purchase any additional common units necessary to ensure that our minimum required subscription proceeds of $2,000,000 are received. There are no other written or other binding commitments with respect to the acquisition of our common units by these parties, and there can be no assurance as to the amount, if any, of the common units these parties may acquire in the offering. Any common units purchased by our general partner’s directors and executive officers, officers and employees of our dealer manager, and other affiliates or Friends of ours will be purchased for investment purposes only. However, the investment decisions made by any of our general partner’s directors and executive officers, officers and employees of our dealer manager, other affiliates or Friends should not influence your decision to invest in our common units, and you should make your own independent investment decision concerning the risks and benefits of an investment in our common units.

You may be more likely to sustain a loss on your investment because our sponsor may not have as strong an economic incentive to avoid losses as does a sponsor which has made significant equity investment in its company.

The general partner, which is wholly owned by our sponsor, will invest not less than $50,000 in our common units and it contributed $20.00 to us for its general partner interest. If we are unsuccessful in our activities, our general partner will have little exposure to loss in the value of our Units. Without this exposure, our investors may be at a greater risk of loss because our sponsor may have less to lose from a decrease in the value of our Units as would a sponsor that made more significant equity investments in us.

We established the offering price on an arbitrary basis; as a result, the actual value of your investment may be substantially less than what you pay.

Our general partner has arbitrarily determined the offering price of the Units, and the price bears no relationship to our book or asset values, or to any other established criteria for valuing issued or outstanding Units. Because the offering price is not based on any independent valuation, the offering price is not indicative of the proceeds that you would receive on liquidation.

Our ability to implement our investment strategy depends, in part, on the ability of our dealer manager to successfully conduct this offering, which makes an investment in us more speculative.

We have retained our dealer manager, which is owned by an entity under common ownership with our sponsor, to conduct this offering. The success of this offering, and our ability to implement our business strategy, depends on the ability of our dealer manager to build and maintain a network of broker-dealers to sell our common units to their clients. Although our dealer manager has extensive experience distributing real estate investment trusts, this is the first distribution of an oil and gas investment program by our dealer manager. If our dealer manager is not successful in establishing, operating and managing this network of broker-dealers, our ability to raise proceeds through this offering will be limited and we may not have adequate capital to implement our investment strategy. If we are unsuccessful in implementing our investment strategy, you could lose all or a substantial part of your investment.

If our dealer manager terminates its dealer manager relationship with us, our ability to successfully complete this offering and implement our investment strategy would be significantly impaired.

Our dealer manager has the right to terminate its relationship with us if, among other things, any of the following occur: (1) our voluntary or involuntary bankruptcy; (2) we materially change our business, which

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requires the majority vote of our Unitholders; (3) we become subject to a material action, suit, proceeding or investigation that might adversely affect us or the Units; (4) a material breach of the dealer manager agreement by us (which breach has not been cured within the required timeframe); (5) our willful misconduct or a willful or grossly negligent breach of our obligations under the dealer manager agreement; (6) the issuance of a stop order suspending the effectiveness of the registration statement of which this prospectus forms a part by the SEC and not rescinded within 10 business days of its issuance; or (7) the occurrence of any event materially adverse to us and our prospects or our ability to perform our obligations under the dealer manager agreement. If our dealer manager elects to terminate its relationship with us, our ability to complete this offering and implement our investment strategy would be significantly impaired and would increase the likelihood that our Unitholders could lose all or a part of their investment.

If we are unable to raise substantial funds, we will be limited in the number and type of properties we may acquire and the value of your investment in us will fluctuate with the performance of the specific properties we acquire.

This offering is being made on a reasonable best efforts basis, which means the brokers participating in the offering are only required to use their reasonable best efforts to sell our common units and have no firm commitment or obligation to purchase any of the common units. As a result, the amount of proceeds we raise in this offering may be substantially less than the amount we would need to achieve a broadly diversified property portfolio. If we are unable to raise substantially more than the minimum offering amount, we will acquire fewer properties resulting in less diversification in terms of the number of properties owned, the geographic regions in which our properties are located and the types of properties that we acquire. In such event, the likelihood of our profitability being affected by the performance of any one of our properties will increase. Additionally, we are not limited in the number or size of our properties or the percentage of net proceeds we may dedicate to a single property. Your investment in our common units will be subject to greater risk to the extent that we lack a diversified portfolio of properties. In addition, our inability to raise substantial funds would increase our fixed operating expenses as a percentage of gross income, and our financial condition and ability to pay distributions could be adversely affected.

Because we will depend on our general partner and its affiliates to conduct our operations on our properties, and our general partner has engaged the Manager under the Management Services Agreement to assist it in performing such operations, any adverse changes in the financial health of our general partner or the Manager or our relationship with them could hinder our operating performance and the return on our Unitholders’ investments.

We will depend on our general partner and its affiliates, and our general partner will depend in part on the services of the Manager under the Management Services Agreement, and possibly other third party operators, for the day-to-day operations on our properties. In addition, our general partner will be responsible for approving any acquisitions or sale of properties by us. In addition, the Manager and other third party operators will serve as contract operators of our oil and gas properties under operating agreements. Both our general partner and the Manager are recently formed, our general partner has no prior operating history and our Manager has a limited operating history. Our general partner will depend on the fees and other compensation that it receives from us in connection with the purchase, management and sale of properties to conduct its operations. Any adverse changes in the financial condition of the general partner, the Manager or third-party contract operators, including the Manager, or in our relationship with them could hinder its or their ability to successfully manage our operations and our portfolio of properties.

We are an “emerging growth company” under the federal securities laws and will be subject to reduced public company reporting requirements.

In April 2012, President Obama signed into law the Jumpstart Our Business Startups Act, or the JOBS Act. We are an “emerging growth company,” as defined in the JOBS Act, and are eligible to take advantage of certain exemptions from, or reduced disclosure obligations relating to, various reporting requirements that are normally applicable to public companies.

We could remain an “emerging growth company” for up to five years, or until the earliest of (1) the last day of the first fiscal year in which we have total annual gross revenue of $1 billion or more,

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(2) December 31 of the fiscal year that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act (which would occur if the market value of our common units held by non-affiliates exceeds $700 million, measured as of the last business day of our most recently completed second fiscal quarter, and we have been publicly reporting for at least 12 months) or (3) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period. Under the JOBS Act, emerging growth companies are not required to (1) provide an auditor’s attestation report on management’s assessment of the effectiveness of internal control over financial reporting, pursuant to Section 404 of the Sarbanes-Oxley Act, (2) comply with new requirements adopted by the Public Company Accounting Oversight Board, or the PCAOB, which require mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor must provide additional information about the audit and the issuer’s financial statements, (3) comply with new audit rules adopted by the PCAOB after April 5, 2012 (unless the SEC determines otherwise), (4) provide certain disclosures relating to executive compensation generally required for larger public companies or (5) hold shareholder advisory votes on executive compensation. We have not yet made a decision as to whether to take advantage of any or all of the JOBS Act exemptions that are applicable to us. If we do take advantage of any of these exemptions, we do not know if some investors will find our common units less attractive as a result.

Additionally, the JOBS Act provides that an “emerging growth company” may take advantage of an extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies. This means an “emerging growth company” can delay adopting certain accounting standards until the standards are otherwise applicable to private companies. However, we are electing to “opt out” of the extended transition period, and will therefore comply with new or revised accounting standards on the applicable dates on which the adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for compliance with new or revised accounting standards is irrevocable.

Risks Related to Our Management Agreement

We depend on the Manager to provide us services necessary to operate our business. If the Manager is unable or unwilling to provide these services, it would result in disruption in our business, which could have an adverse effect on our ability to make cash distributions to Unitholders and service our debt obligations.

Under the Management Agreement, the Manager has agreed to provide services to us such as land, geoscience, engineering, drilling operations, legal, IT, marketing, acquisition and divestiture, accounting, human resources, office space, and other administrative, technical and executive services. The Manager has also agreed to operate, or oversee the operation by others, of our properties for us. The Manager is not an affiliate of us or our general partner, nor is it an affiliate of ARC or our sponsor. Thus, if the Manager were to become unable or unwilling to provide such services, we would need to develop these services internally or arrange for the services from another service provider. Developing the capabilities internally or retaining another service provider could increase costs, which could have an adverse effect on our ability to make cash distributions to Unitholders and our business, and the services, when developed or retained, may not be of the same quality as provided to us by the Manager.

The Manager, which will manage our business under the Management Agreement, is a newly formed entity with limited operating history.

The Manager is a recently formed entity with limited operating history. The Manager has not acted as a manager of oil and gas properties for other limited partnerships. You should consider the risks associated with reliance on a company that is in the early stages of its development. Further, the Manager is only required to devote such portion of its full productive time to our business as it determines to be necessary to perform its obligations under the Management Agreement. The failure of the Manager to successfully execute its business plan could have an adverse effect on its ability to perform under the Management Agreement, which could adversely affect our business and ability to make distributions.

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Affiliates of the Manager will engage in business activities other than assisting the Manager in performing its obligations under the Management Services Agreement. Engaging in these activities could reduce the time that such affiliates or their employees devote to assisting our Manager on our business, which could adversely affect our business and ability to make distributions.

Although the business of the Manager will be limited to acting as manager pursuant to the Management Services Agreement, affiliates of the Manager plan to engage in the oil and gas business, including the acquisition, exploration, development and operation of oil and gas properties in which we and our Unitholders will have no interest. These activities may be more profitable to the affiliates of the Manager than assisting the Manager in performing its obligations under the Management Services Agreement, and result in the Manager’s affiliates and their employees devoting less time to assisting the Manager in performing its obligations under the Management Services Agreement with respect to our business, which could adversely affect our business and ability to make distributions to our partners.

The Manager will not owe a fiduciary or similar duty to us. Holders of Units will not have any right to enforce the Management Agreement if a holder of Units were to believe that the Manager was in breach of the agreement.

The Management Agreement provides that the Manager will act as a reasonably prudent operator in operating our properties under the Management Agreement. The Manager will not have a fiduciary or similar duty to us or our Unitholders under the Management Agreement or applicable law when it acts under the Management Agreement, except that pursuant to the Management Agreement the Manager will owe us a fiduciary responsibility for the safekeeping and care of all Partnership funds that the Manager possesses or controls and will apply such funds for the exclusive benefit of the Partnership. The prudent operator standard is a standard developed in connection with oil and gas operations, and provides considerable discretion to the Manager in the operation of our properties, and limits our right of recourse for damages caused to us if the Manager acts in accordance with the prudent operator standard. A holder of Units generally will not have the right to cause us to seek to enforce the Management Agreement if the holder of Units believes the Manager has breached the agreement.

We may acquire interests in oil and gas properties in which one or more affiliates of the Manager also own an interest and such affiliate(s) may make decisions with respect to their interests in these properties that are not in our best interest.

We may elect to acquire interests in properties in which one or more affiliates of the Manager also own or acquire an interest. None of the Manager’s affiliates will be under any obligation to us with respect to their interest(s) in these properties and any such affiliate could propose or consent to operations, or sell or farmout their interests in the properties, without taking into consideration our distribution policies, financial resources or whether such action is otherwise consistent with our goals or financial resources.

The Manager may be subject to conflicts of interest in managing our business under the Management Agreement.

Although the Manager’s business will be limited to serving as manager under the Management Agreement and in a similar capacity with respect to other oil and gas partnerships or entities that in the future may be formed by or affiliated with ARC or our sponsor, the Manager may offer to sell us oil and gas properties or other assets that an affiliate of the Manager has elected to offer for sale and in which such affiliate owns an interest. Similarly, an affiliate of the Manager may offer to acquire oil and gas properties or other assets from us that we elect to offer for sale. None of the affiliates of the Manager is or will be under a fiduciary or other duty to offer to buy or sell properties or other assets to us or from us at a fair or market price, although pursuant to the Management Agreement the Manager has agreed that if we elect to acquire any properties from an affiliate of the Manager we will not be required to pay more than the lower of the cost to such affiliate of such property or fair market value. In addition, to the extent we and any affiliate of the Manager have joint ownership or operating interests in the same oil and gas property or prospect, we and such affiliate may disagree about the value of those assets. Our general partner will be required to determine whether we should acquire or sell such properties or other assets. Because our general partner has no in-house technical resources with which to evaluate oil and gas properties and other assets, it intends, but is not

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required to, retain on our behalf technical, legal, land, operational and other consultants to assist it in its determination of whether we should acquire or sell properties or assets from or to any affiliate of the Manager or other third party oil and gas operators. Further, if we acquire an interest in an oil and gas property or prospect in which an affiliate of the Manager owns an interest, then such affiliate will not be under a fiduciary, contractual or other duty to offer to sell us its interest in such property or prospect, which could result in a conflict of interest since such affiliate would benefit from any investment we make in such property or prospect.

Conflicts of interest may arise concerning which properties the Manager will present to us and which properties its affiliates will keep for their own account.

Under the Management Agreement, the Manager has agreed to identify onshore producing and non-producing oil and gas properties, that we may consider acquiring. In this regard, we and our general partner do not have any right of first refusal to acquire properties in the inventory of the Manager’s affiliates or other properties that come to the attention of the Manager and it may be in the advantage of an affiliate of the Manager to keep or acquire a property for its own account or present the property to independent third parties because of the prospective economic benefits, rather than present the property to us for acquisition. For example, because the Management Agreement limits the amount of compensation that may be received by the Manager from us with respect to the properties we acquire, it may be more advantageous for an affiliate of the Manager to acquire and develop the property for its own account or with another third party, since doing so would not be subject to the limitations under the Management Agreement. Also, the drilling of wells on properties we acquire pursuant to the Management Agreement may provide the Manager’s affiliate(s) with offset drilling sites by allowing such affiliate(s) of the Manager to determine, at our expense, the value of adjacent acreage owned by affiliates of the Manager. In this regard, there is no restriction on affiliates of the Manager owning developed or undeveloped acreage throughout the areas where our properties and wells will be situated. In addition, there is no restriction in the Management Agreement or elsewhere on any affiliate of the Manager pursuing business opportunities for its own account. However, the Manager may make available to its affiliates any business opportunity that is consistent with the Partnership’s investment objectives only after the Manager has determined that the opportunity cannot be pursued by the Partnership because the Partnership has insufficient funds for such investment or it is not appropriate for the Partnership under then-existing circumstances.

If conflicts between our interests, on the one hand, and the interests of any affiliate of the Manager for its own account, on the other hand, do arise, then such conflicts may be resolved to the advantage of such affiliate because the Manager has no fiduciary duty to us or our general partner to resolve any such conflict in our favor.

If the Manager acts as operator of the Partnership’s oil and gas properties, it will be entitled to receive overhead payments under the operating agreements, which overhead payments may result in a profit to the Manager.

We expect that all or substantially all of the properties we acquire will be subject to an existing operating agreement negotiated between the operator and other owners of the property. Operating agreements for oil and gas properties generally provide that the operator is entitled to a fixed overhead charge per well operated. The Management Agreement provides that if the Manager operates our property, it will do so under the operating agreement in place when the property is acquired, if any. The Manager will be entitled to receive the overhead charges provided for in operating agreements in place at the time of the acquisition, regardless of amount, and the Partnership will not have the right to negotiate a different overhead charge.

Affiliates of the Manager will continue to own and operate other oil and gas properties and may face competing demands for their time.

Because affiliates of the Manager own and operate, and intend to continue to acquire, own and operate, oil and gas properties, the Manager will face competing demands for the time of such affiliates and their employees to assist the Manager in performing its obligations under the Management Agreement. We intend to rely on the Manager for its prospect origination and operating capabilities, and we may be unable to identify potential property acquisitions for our portfolio without the advice provided by the Manager’s oil and gas

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professionals, which may also serve as employees or advisors to one or more affiliates of the Manager. Additionally, the ongoing operations of our oil and gas properties may be adversely affected by the competing demands for the time of the Manager and its management and employees, who may also serve as managers or employees of an affiliate of the Manager.

Risks Related to Conflicts of Interest

Our sponsor and its affiliates, including our general partner, and the Manager face conflicts of interest caused by their compensation arrangements with us, which could result in actions that are not in the long-term best interests of our Unitholders.

Our general partner and its affiliates and the Manager will receive substantial fees from us. These fees could influence our general partner’s and the Manager’s advice to us as well as their respective judgment with respect to:

the continuation, renewal or enforcement of our agreements with affiliates of our general partner and the Manager, including the partnership agreement, the dealer manager agreement and the management services agreement between our Manager and us;
public offerings of equity by us, which will likely entitle our general partner to increased fees;
sales of our properties to third parties, which will entitle our general partner and the Manager to disposition fees;
acquisitions of properties from third parties and affiliates of the Manager, which will entitle the Manager to acquisition fees;
borrowings to acquire and develop properties, which borrowings will generate financing coordination fees and increase the acquisition fees and management fees payable to our general partner and the Manager;
whether and when we seek to list our Units on a national securities exchange, which listing could entitle our general partner and an affiliate of the Manager to incentive distribution rights in excess of targeted amounts to be established in connection with such listing; and
whether and when we seek to sell all or substantially all of our assets, which will require the consent of both our general partner and a majority in interest of our Unitholders, which sale could entitle our general partner to a participation in net sales proceeds.

The fees our general partner and the Manager will receive in connection with transactions involving the acquisition, financing and development of our properties will not be based on the quality of the services rendered to us. This may influence our general partner and the Manager to approve riskier transactions to us and cause us to acquire properties with more debt and at higher prices.

Because other oil and gas programs sponsored by and offered through our dealer manager may conduct offerings concurrently with our offering, our dealer manager may face potential conflicts of interest arising from competition among us and these other programs for investors and investment capital, and such conflicts may not be resolved in our favor.

ARC, an entity under common ownership with our sponsor, is the sponsor of several non-traded Real Estate Investment Trusts, or REITs, that are raising capital in ongoing public offerings of common stock. Our dealer manager, which is owned by an entity under common ownership with our sponsor, is the dealer manager in a number of ongoing public offerings by non-traded REITs, including some offerings sponsored by ARC or its affiliates. In addition, our sponsor may decide to sponsor future oil and gas investment programs that would seek to raise capital through public offerings conducted concurrently with this offering. As a result, our sponsor and our dealer manager may face conflicts of interest arising from potential competition with these other programs for investors and investment capital. Our sponsor generally seeks to avoid simultaneous public offerings by programs that have a substantially similar mix of investment attributes, including targeted investment types. Nevertheless, there may be periods during which one or more programs sponsored by our sponsor and its affiliates will be raising capital and might compete with us for investment capital. Such

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conflicts may not be resolved in our favor, and you will not have the opportunity to evaluate the manner in which these conflicts of interest are resolved before or after making your investment.

Our sponsor, our general partner, and the oil and gas and other professionals assembled by our general partner, face competing demands relating to their time, and this may cause our operations and our Unitholders’ investments to suffer.

We rely on our general partner for the day-to-day operation of our business and the selection of our oil and gas properties. Our general partner will make major decisions affecting us, and the general partner will rely in part on the services of the Manager to assist the general partner in conducting such operations. Our general partner also will rely on its affiliates to conduct our business. Certain of the principals of our sponsor and our general partner are key executives in other programs sponsored by our sponsor and its affiliates and hold an indirect ownership interest in our general partner. As a result of their interests in other programs sponsored by our sponsor, their obligations to other investors and the fact that they engage in and they will continue to engage in other business activities, these individuals will continue to face conflicts of interest in allocating their time among us and other programs sponsored by our sponsor and its affiliates and other business activities in which they are involved. Should our general partner breach its fiduciary duties to us by inappropriately devoting insufficient time or resources to our business, the returns on our investments, and the value of our Unitholders’ investments, may decline.

Our general partner and the Manager and their respective affiliates face conflicts of interest relating to the incentive fee structure, which could result in actions that are not necessarily in the long-term best interests of our Unitholders.

Under our Partnership Agreement, our general partner will be entitled to fees, distributions and other amounts that are structured in a manner intended to provide it with incentives to perform in our best interests and in the best interests of our Unitholders. In addition, pursuant to the Management Agreement, we have agreed to pay the Manager and its affiliates fees, distributions and other amounts that are structured to provide such entities with an incentive to recommend actions for approval by our general partner that would be in our best interests. However, because they do not maintain a significant equity interest in us and are entitled to receive substantial minimum compensation regardless of performance, the interests of the general partner and the Manager are not wholly aligned with those of our Unitholders. In that regard, they could be motivated to recommend riskier or more speculative properties in order for us to generate the specified levels of performance or sales proceeds that would entitle them to fees. In addition, their entitlement to fees and distributions on the sale of our properties and to participate in sale proceeds could result in them recommending sales of our properties at the earliest possible time at which sales of properties would produce the level of return that would entitle them to compensation relating to the sales, even if continued ownership of those properties might be in our best long-term interest.

The Manager could be subject to conflicts of interest if it serves as the manager of other oil and gas partnerships formed in the future by ARC.

The Manager may serve as the manager or in a similar capacity to other oil and gas partnerships or entities that in the future may be formed by or affiliated with ARC. The obligations required of the Manager with respect to such activities could require that the Manager and its management and employees devote significant time to the businesses and operations of such other entities, as opposed to serving as the manager under the Management Agreement. As a result, the Manager could be subject to conflicts of interest with respect to the amount of time and resources it devotes to performing services on our behalf pursuant to the Management Agreement as opposed to performing services on behalf of any such other oil and gas programs.

Activities conducted by affiliates of the Manager could conflict with our planned activities.

Affiliates of the Manager own, operate, acquire and develop, and intend to continue to own, operate, acquire and develop, oil and gas properties and prospects in onshore productive regions of the United States. Such activities by any affiliate of the Manager could conflict with our actual or planned activities which could adversely affect our financial condition or results of operations.

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There is no separate counsel for us or our general partner and its affiliates, which could result in conflicts of interest, and the conflicts may not be resolved in our favor, which could adversely affect the value of your investment.

Kunzman & Bollinger, Inc. acts as legal counsel to us and also represents our general partner and some of its affiliates. There is a possibility in the future that the interests of the various parties may become adverse and, under the Code of Professional Responsibility of the legal profession, Kunzman & Bollinger, Inc. may be precluded from representing any one or all such parties. If any situation arises in which our interests appear to be in conflict with those of our general partner or its affiliates, additional counsel may be retained by one or more of the parties to assure that their interests are adequately protected. Moreover, should a conflict of interest not be readily apparent, Kunzman & Bollinger, Inc. may inadvertently act in derogation of the interest of the parties which could affect our ability to meet our investment objectives.

American National Stock Transfer, LLC, our affiliated transfer agent, has a limited operating history and a failure by our transfer agent to perform its functions for us effectively may adversely affect our operations.

Our transfer agent is a related party which was recently launched as a new business. The business was formed on November 2, 2012 and has not had any significant operations to date. Beginning on March 1, 2013, our transfer agent began providing certain transfer agency services for programs sponsored directly or indirectly by ARC, an entity under common ownership with our sponsor. Because of its limited experience, there is no assurance that our transfer agent will be able to effectively provide transfer agency and registrar services to us. Furthermore, our transfer agent will be responsible for supervising third-party service providers who may, at times, be responsible for executing certain transfer agency and registrar services. If our transfer agent fails to perform its functions for us effectively, our operations may be adversely affected.

Our dealer manager signed a Letter of Acceptance, Waiver and Consent with FINRA; any further action, proceeding or litigation with respect to the substance of the Letter of Acceptance, Waiver and Consent could adversely affect this offering or the pace at which we raise proceeds.

In April 2013, our dealer manager received notice and a proposed Letter of Acceptance, Waiver and Consent, or AWC, from FINRA, the self-regulatory organization that oversees broker dealers, that certain violations of SEC and FINRA rules, including Rule 10b-9 under the Exchange Act and FINRA Rule 2010, occurred in connection with its activities as a co-dealer manager for a public offering. Without admitting or denying the findings, our dealer manager submitted an AWC, which FINRA accepted on June 4, 2013. In connection with the AWC, our dealer manager consented to the imposition of a censure and a fine of $60,000. To the extent any action would be taken against our dealer manager in connection with the above AWC, our dealer manager could be adversely affected, which could adversely affect our ability to raise capital.

Because our dealer manager is owned by an entity under common ownership with our sponsor, you will not have the benefit of an independent due diligence review of us, which is customarily performed in underwritten offerings; the absence of an independent due diligence review increases the risks and uncertainty you face as a Unitholder.

Our dealer manager is owned by an entity which is under common ownership with our sponsor. Because of this relationship, our dealer manager’s due diligence review and investigation of us and this prospectus cannot be considered to be an independent review. Therefore, you will not have the benefit of an independent review and investigation of this offering of the type normally performed by an unaffiliated, independent underwriter in a public securities offering.

If we are unable to obtain funding for future capital needs, cash distributions to our Unitholders and the value of our properties could decline.

If we need additional capital in the future to improve or maintain our properties or for any other reason, we may have to obtain financing from sources, beyond our funds from operations, such as borrowings. These sources of funding may not be available on attractive terms or at all. If we cannot procure additional funding for capital improvements, our properties may generate lower cash flows or decline in value, or both, which would limit our ability to make distributions to our Unitholders and could reduce the value of your investment.

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Risks Related to Our Business

We plan to drill development wells to fully develop the properties we acquire. If our drilling is unsuccessful, our cash available for distributions and financial condition will be adversely affected.

We plan to acquire oil and gas properties that are not fully developed and require us to engage in drilling development wells to fully exploit the oil and gas reserves attributable to the properties. A development well means a well drilled within the proved area of an oil or natural gas reservoir to the depth of a stratigraphic horizon know to be productive. Our drilling will involve numerous risks, including the risk that we will not encounter commercially productive oil or natural gas reservoirs. We will incur significant expenditures to drill and complete wells, including cost overruns. These expenditures will reduce cash available for distribution to holders of our Units and for servicing our debt obligations. Additionally, current geoscience technology does not allow us to know conclusively, prior to drilling a well, that oil or natural gas is present or will be economically producible from the well. The costs of drilling and completing wells are often uncertain, and it is possible that we will make substantial expenditures on drilling and completing wells including cost overruns, and still not discover reserves in commercially viable quantities.

Our drilling operations may be curtailed, delayed or cancelled as a result of a variety of factors, including:

unexpected drilling conditions;
facility or equipment failure or accidents;
shortages or delays in the availability of drilling rigs and equipment;
adverse weather conditions;
compliance with environmental and governmental requirements;
title problems;
unusual or unexpected geological formations;
pipeline ruptures;
fires, blowouts, craterings and explosions; and
uncontrollable flows of oil or natural gas or well fluids.

If oil, natural gas or other hydrocarbon prices remain depressed for a prolonged period, our cash flows from operations and the value of our assets will decline and we may have to lower our distributions or may not be able to pay distributions at all.

Our revenue, profitability and cash flow depend on the prices for oil, natural gas and other hydrocarbons. The prices we will receive for our production will be volatile and a drop in prices can significantly affect our financial results and adversely affect our ability to maintain our borrowing capacity and to repay indebtedness, all of which can affect our ability to pay distributions to you and our other Unitholders. Changes in oil and gas prices will also have a significant impact on the value of our reserves and on our cash flows. Additionally, oil and natural gas prices may fluctuate widely in response to relatively minor changes in supply and demand, market uncertainty and a variety of additional factors that are beyond our control, such as:

the domestic and foreign supply of and demand for oil, natural gas and other hydrocarbons;
regulations which may prevent or limit the export of oil, natural gas and other hydrocarbons;
the amount of added production from development of unconventional oil and natural gas reserves;
the price and quantity of foreign imports of oil, natural gas and other hydrocarbons;
the level of consumer product demand;
weather conditions;
the value of the U.S dollar relative to the currencies of other countries;

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overall domestic and global economic conditions;
political and economic conditions and events in foreign oil and natural gas producing countries, including embargoes, continued hostilities in the Middle East and other sustained military campaigns, conditions in South America, China and Russia, and acts of terrorism or sabotage;
the ability of members of the Organization of Petroleum Exporting Countries to agree to and maintain oil price and production controls;
technological advances affecting energy production and consumption;
domestic and foreign governmental regulations and taxation;
the impact of energy conservation efforts;
the proximity and capacity of oil, natural gas and other hydrocarbon pipelines and other transportation facilities to our production; and
the price and availability of alternative fuels, such as solar, coal, nuclear and wind energy.

Low oil, natural gas and other hydrocarbon prices will decrease our revenues, and may also reduce the amount of oil, natural gas or other hydrocarbons that we can economically produce. This may result in our having to make substantial downward adjustments to our estimated proved reserves. If this occurs, or if our estimates of development costs increase, production data factors change or drilling results deteriorate, accounting rules may require us to write down, as a non-cash charge to earnings, the carrying value of our oil and natural gas properties for impairments. We are required to perform impairment tests on our assets whenever events or changes in circumstances lead to a reduction of the estimated useful life or estimated future cash flows that would indicate that the carrying amount may not be recoverable or whenever management’s plans change with respect to those assets. We may incur impairment charges in the future, which could have a material adverse effect on our results of operations in the period taken and our ability to borrow funds, which may adversely affect our ability to make cash distributions to our Unitholders and service our debt obligations.

Properties that we buy or develop may not produce as anticipated and we may be unable to determine reserve potential, identify liabilities associated with the properties or obtain protection from sellers against such liabilities, which could adversely affect our cash available for distribution.

Our property acquisitions will require an assessment of recoverable reserves, title, future oil, natural gas and natural gas liquids prices, development and operating costs, potential environmental hazards, potential tax liabilities, and other liabilities and similar factors. We expect that our review efforts and those of the Manager will be focused on the higher valued properties in our acquisitions and will be inherently incomplete because it generally is not feasible to review in depth every individual property involved in each acquisition. Even a detailed review of records and properties may not necessarily reveal existing or potential problems, nor will it permit a buyer to become sufficiently familiar with the properties to assess fully their deficiencies and potential. Inspections may not always be performed on every well, and potential problems, such as ground water contamination and other environmental conditions and deficiencies in the mechanical integrity of equipment are not necessarily observable even when an inspection is undertaken. Any unidentified problems could result in material liabilities and costs that negatively impact our financial conditions and results of operations and our ability to make cash distributions to holders of our Units and service our debt obligations.

Additional potential risks related to acquisitions of oil and gas properties include, among other things:

incorrect assumptions regarding the future prices of oil, natural gas and other hydrocarbons or the future operating or development costs of properties acquired;
incorrect estimates of the reserves and projected development results attributable to a property we acquire;
drilling, completion, operating and other cost overruns;
an inability to integrate successfully the properties we acquire;

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the assumption of liabilities;
limitations on rights to indemnity from the seller; and
the diversion of management’s attention to other business concerns.

We may be unable to integrate successfully the operations of our future acquisitions and we may not realize all the anticipated benefits of acquisitions that we make in the future.

Integration of our property acquisitions will be a complex, time consuming and costly process. Failure to successfully assimilate our future acquisitions could adversely affect our financial condition and results of operations.

Our acquisitions involve numerous risks, including:

operating a significantly larger combined organization and adding operations;
difficulties in the assimilation of the assets and operations of the acquired properties, especially if the assets acquired are in a new geographic area or are not contiguous to our asset base at the time of purchase;
the risk that reserves acquired may not be of the anticipated magnitude or may not be developed as anticipated;
the loss of significant key employees from the acquired properties;
the diversion of management attention of our general partner and the Manager to other business concerns;
the failure to realize expected profitability or growth;
the failure to realize expected synergies and cost savings;
coordinating geographically disparate organizations, systems and facilities; and
coordinating or consolidating corporate and administrative functions.

Further, unexpected costs and challenges may arise whenever acquisitions are consummated, and we may experience unanticipated delays in realizing the benefits of an acquisition.

Our business is subject to operational risks that will not be fully insured and which, if they were to occur, could adversely affect our financial condition or results of operations and, as a result, our ability to pay distributions to holders of our Units and service our debt obligations.

Our business activities are subject to operational risks, including:

damages to equipment caused by adverse weather conditions, including earthquakes, climate change, tornadoes, drought and flooding;
facility or equipment malfunctions;
pipeline ruptures or spills;
fires, blowouts, craterings and explosions;
uncontrollable flows of oil or natural gas or well fluids; and
surface spillage and surface or ground water contamination from petroleum constituents or hydraulic fracturing chemical additives.

Any of these events could adversely affect our ability to conduct operations or cause substantial losses, including personal injury or loss of life, damage to or destruction of property, natural resources and equipment, pollution or other environmental contamination, loss of wells, regulatory penalties, suspension of operations, and attorneys’ fees and other expenses incurred in the prosecution or defense of litigation.

As is customary in the industry, we will maintain insurance against some but not all of these risks. Additionally, we may elect not to obtain insurance if we believe that the cost of available insurance is

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excessive relative to the perceived risks presented. Losses could therefore occur for uninsurable or uninsured risks or in amounts in excess of existing insurance coverage. The occurrence of an event that is not fully covered by insurance could have a material adverse impact on our business activities, financial condition, results of operations and ability to pay distributions to holders of our Units and service our debt obligations.

We may obtain only limited warranties when we purchase a property and would have only limited recourse if we did not identify any issues that lower the value of our property during our due diligence process, which could adversely affect our financial condition and ability to make distributions to you.

The seller of a property often sells the property in its “as is” condition on a “where is” basis and “with all faults,” without any warranties of merchantability or fitness for a particular use or purpose. In addition, purchase agreements may contain only limited warranties, representations and indemnifications that will only survive for a limited period after the closing. The purchase of properties with limited warranties increases the risk that we may lose some or all our invested capital in the property.

Our inability to sell a property when we desire to do so could adversely impact our ability to pay cash distributions to you.

The market for oil and gas properties is affected by many factors, such as general economic conditions, availability of financing, interest rates and other factors, including supply and demand, that are beyond our control. We cannot predict whether we will be able to sell any property for the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We cannot predict the length of time needed to find a willing purchaser and to close the sale of an oil and gas property.

We may not be able to sell our properties at an acceptable price, which may lead to a decrease in the value of our assets.

The value of an oil and gas property to a potential purchaser generally decreases over time as the oil and natural gas from the property is produced and sold, or depleted, which may restrict our ability to sell a property, or if we are able to sell such property, we may not receive a sale price acceptable to us. Many factors that are beyond our control affect the oil and gas market and could affect our ability to sell properties for the price, on the terms or within the time frame that we desire. These factors include general economic conditions, the availability of financing, interest rates, the then current prices for oil and natural gas and the outlook for the same, and other factors, including supply and demand. Because oil and gas investments are relatively illiquid, we have a limited ability to vary our portfolio in response to changes in economic or other conditions. We may be unable to sell our properties at a profit. Our inability to sell properties at the time and on the terms we want could reduce our cash flow and limit our ability to make distributions to our Unitholders and could reduce the value of our Unitholders’ investments. Moreover, in acquiring a property, we may agree to restrictions that inhibit the resale of that property or impose other restrictions. We cannot predict the length of time needed to find a willing purchaser and to close the sale of a property. Our inability to sell a property when we desire to do so may cause us to reduce our selling price for the property. Any delay in our receipt of proceeds, or diminishment of proceeds, from the sale of a property could adversely impact our ability to pay distributions to our Unitholders.

We intend to incur indebtedness to acquire and develop our oil and gas properties, which may increase our business risks, could hinder our ability to pay distributions and could decrease the value of your investment.

We intend to finance a portion of the purchase price of our investments in oil and gas properties by borrowing funds through a credit facility that we expect to obtain through a financial institution following the initial closing of this offering. Currently, however, we have no commitments from any lenders to provide us any credit facility. We anticipate that the credit facility will allow borrowings up to a borrowing base that will be set by the lenders under the facility, at their discretion, based in part on their valuation of our oil and natural gas reserves. Under the Partnership Agreement our overall leverage will not exceed 50% of our total capitalization as determined on an annual basis. To the extent we incur indebtedness and are required to devote a portion of our cash flows from operating activities to service the indebtedness, such cash flows will

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not be available for our use in pursuing our acquisition and development strategy or paying cash distributions to our Unitholders. In addition, we may use borrowings under our credit facility to pay distributions, provided that funds will not be advanced or borrowed by us for the purpose of making distributions to you and the other investors if the amount advanced or borrowed would exceed our accrued and received revenues for the previous four quarters, less paid and accrued operating costs with respect to the revenues. See “Management’s Discussion and Analysis of Financial Condition, Results of Operations, Liquidity and Capital Resources.”

If there is a shortfall between the cash flows from our properties and the cash flows needed to service our indebtedness, then the amount available for distributions to you may be reduced. In addition, high debt levels and the potential that the interest rates charged under our credit facility could increase over time, will increase the risk of loss since defaults on indebtedness secured by our properties may result in lenders initiating foreclosure actions. In this regard, we could lose the properties securing the loan that is in default, thus reducing the value of your investment. For tax purposes, a foreclosure on any of our properties will be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by our oil and gas properties exceeds our tax basis in those properties, we will recognize taxable income on foreclosure, but we would not receive any cash proceeds and cash distributions to you would be adversely affected. The defense of any such claims could be costly and materially impact our financial condition, even absent any adverse determination. If these claims were successful, our ability to meet our obligations to our future creditors, make distributions and finance our operations could be materially and adversely affected.

Increases in interest rates could increase the amount of our debt payments and negatively impact our operating results.

Interest we pay on our debt obligations may reduce cash available for distributions. Variable interest rates under a credit facility could mean that increases in interest rates increase our interest costs, which would reduce our cash flows and our ability to pay distributions to you. If we need to make payments under our credit facility during periods of rising interest rates, we could be required to liquidate one or more of our investments in oil and gas properties at times which may not permit realization of the maximum return on those investments.

Lenders may require us to enter into restrictive covenants relating to our operations, which could limit our ability to pay distributions to you.

When providing financing, a lender may impose restrictions on us that affect our ability to incur additional debt and affect our distribution and operating strategies. Loan documents we enter into may contain covenants that limit our ability to further finance our oil and gas properties and discontinue insurance coverage. These or other limitations may adversely affect our flexibility and our ability to achieve our investment objectives.

Higher interest rates may make it more difficult for us to finance or refinance properties, which could reduce the number of oil and gas properties we can acquire and the amount of cash distributions we can pay to you.

If a credit facility is unavailable on reasonable terms as a result of increased interest rates or other factors, we may not be able to finance the initial purchase of oil and gas properties. We may be unable to refinance or replace a credit facility at appropriate times, which may require us to sell properties on terms that are not advantageous to us, or could result in the foreclosure of the properties. If any of these events occur, our cash flows would be reduced. This, in turn, would reduce cash available for distribution to you and may hinder our ability to raise more capital by issuing securities or by borrowing more money.

Joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on the financial condition of co-venturers and disputes between us and our co-venturers.

We may enter into joint ventures, partnerships and other co-ownership arrangements for the purpose of making investments in oil and gas properties. In that event, we may not be in a position to exercise sole decision-making authority regarding the operations of the joint venture. Investments in joint ventures may,

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under certain circumstances, involve risks not present were a third party not involved, including the possibility that partners or co-venturers might become bankrupt or fail to fund their required capital contributions. Co-venturers may have economic or other business interests or goals that are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our policies or objectives. Such investments may subject us to the potential risk of impasses on decisions, such as a sale, because neither we nor the co-venturer may have full control over the joint venture. In addition, to the extent our participation represents a minority interest, a majority of the participants may be able to take actions which are not in our best interests because of our lack of full control. Disputes between us and co-venturers may result in litigation or arbitration that would increase our expenses and prevent our general partner and the Manager from focusing their time and effort on our business. Consequently, actions by or disputes with co-venturers might result in subjecting properties owned by the joint venture to additional risk. In addition, we may in certain circumstances be liable for the actions of our co-venturers.

If we set aside insufficient capital reserves, we may be required to defer necessary capital expenditures.

If we do not have enough reserves for capital to supply needed funds for capital improvements throughout the life of the investment in a property and there is insufficient cash available from our operations, we may be required to defer necessary improvements to a property, which may cause that property to suffer from a greater risk of a decline in value, or a greater risk of decreased cash flow. If this happens, our results of operations may be negatively impacted.

Uninsured losses relating to oil and gas activities or excessively expensive premiums for insurance coverage could reduce our cash flows and the return on our Unitholders’ investments.

We will attempt to adequately insure all of our oil and gas properties against casualty losses. There are types of losses, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters, that are uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or co-payments. Insurance risks associated with potential acts of terrorism could sharply increase the premiums we pay for coverage against property and casualty claims. Such insurance policies may not be available at reasonable costs, if at all, which could inhibit our ability to finance or refinance our properties. In such instances, we may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses. We may not have adequate, or any, coverage for such losses. Changes in the cost or availability of insurance could expose us to uninsured casualty losses. If any of our properties incurs a casualty loss that is not fully insured, the value of our assets will be reduced by any such uninsured loss, which may reduce the value of our Unitholders’ investments. In addition, other than any working capital reserve or other reserves we may establish, or borrowings, we have no source of funding to repair or reconstruct any uninsured property. Also, to the extent we must pay unexpectedly large amounts for insurance, we could suffer reduced earnings that would result in lower distributions to Unitholders.

Competition with third parties in acquiring oil and gas properties and other investments may reduce our profitability and the return on your investment.

The oil and natural gas industry is intensely competitive, and we will compete with many other entities engaged in oil and gas activities, including individuals, corporations, bank and insurance company investment accounts, oil and gas limited partnerships, and other entities engaged in oil and gas investment activities, many of which have greater resources than we do. Our ability to acquire oil and gas properties in the future will depend on our ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment. Many of our larger competitors not only acquire properties and drill for and produce oil, natural gas and natural gas liquids, they also carry on refining operations and market petroleum and other products on a regional, national or worldwide basis. These companies may be able to pay more for oil and natural gas properties and evaluate, bid for and purchase a greater number of properties than our financial or human resources permit. The oil and natural gas industry has periodically experienced shortages of drilling rigs, equipment, pipe and personnel, which has delayed development drilling and other exploitation activities and has caused significant price increases. Competition has been strong in hiring experienced personnel, particularly in the technical, accounting and financial reporting, tax and land departments. In

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addition, competition is strong for attractive oil and natural gas properties. We may be often outbid by competitors in our attempts to acquire properties. Our inability to compete effectively with larger companies could have a material adverse impact on our business activities, financial condition and results of operations. In addition, the number of entities and the amount of funds competing for suitable investments may increase. Any such increase would result in increased demand for oil and gas properties and therefore increased prices paid for them. If we pay higher prices for properties and other investments, our profitability will be reduced and you may experience a lower return on your investment.

Failure to succeed in new markets may have adverse consequences on our performance.

We may from time to time make acquisitions outside of areas of our primary focus if appropriate opportunities arise. Our experience in our primary areas in owning and operating certain classes of oil and gas property does not ensure that we will be able to operate successfully in other areas, should we choose to enter them. We may be exposed to a variety of risks if we choose to enter new areas, including an inability to evaluate accurately local geological conditions or to identify appropriate acquisition opportunities, or to hire and retain key personnel, and a lack of familiarity with local governmental and permitting procedures. In addition, we may abandon opportunities to enter new areas that we have begun to explore for any reason and may, as a result, fail to recover expenses already incurred.

Our hedging transactions will expose us to counterparty credit risk.

We expect to engage in hedging transactions to reduce, but not eliminate, the effect of volatility in oil, gas and other hydrocarbon prices. Our hedging transactions will expose us to risk of financial loss if a counterparty fails to perform under a derivative contract. Disruptions in the financial markets could lead to sudden changes in a counterparty’s liquidity, which could impair its ability to perform under the terms of the derivative contract. We are unable to predict sudden changes in a counterparty’s creditworthiness or ability to perform. Even if we do accurately predict sudden changes, our ability to negate the risk may be limited depending on market conditions.

During periods of falling commodity prices, such as those that occurred in late 2008 and 2012, our hedge receivable positions could increase, which increases our exposure to loss. If the creditworthiness of our counterparties deteriorates and results in their nonperformance, we could incur a significant loss.

Our hedging activities could result in financial losses or could reduce our net income, which may adversely affect our ability to pay cash distributions to holders of our Units.

To achieve more predictable cash flows and to reduce our exposure to fluctuations in the prices of oil, natural gas and other hydrocarbons, we expect to enter into hedging arrangements for a significant portion of our estimated future production. If we experience a sustained material interruption in our production, we might be forced to satisfy all or a portion of our hedging obligations without the benefit of the cash flows from our sale of the underlying physical commodity, resulting in a substantial diminution of our liquidity.

Our ability to use hedging transactions to protect us from future price declines will depend on oil and natural gas prices at the time we enter into future hedging transactions and our future levels of hedging, which could cause our future net cash flows to be more sensitive to commodity price changes. Additionally, it may not be possible or economic to hedge all of the hydrocarbons we want to hedge because of the lack of a market for such hedges or other reasons. We may hedge certain hydrocarbons we produce by entering into swaps, collars or other contracts covering hydrocarbons we consider to be priced similarly to the hydrocarbons we produce, and we could be subject to losses if the prices for the hydrocarbons we produce do not match the hydrocarbons we contract for.

Our policy will be to hedge a portion, not to exceed 75%, of our near-term estimated production. However, our price hedging strategy and future hedging transactions will be recommended by the Manager under the Management Agreement and will be subject to the approval of our general partner, which is not under an obligation to hedge any of our production. The prices at which we hedge our production will depend on commodity prices at the time we enter into those transactions, which may be substantially higher or lower than current oil, natural gas and other hydrocarbon prices. Accordingly, our price hedging strategy may not protect us from significant declines in oil and natural gas prices received for our future production.

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Conversely, our hedging strategy may limit our ability to realize cash flows from commodity price increases. It is also possible that a substantially larger percentage of our future production will not be hedged as compared with the next few years, which would result in our oil, natural gas and natural gas liquids revenues becoming more sensitive to commodity price changes. Neither our general partner nor the Manager will be liable for any losses we incur as a result of our hedging policy or the implementation of that policy.

The derivatives provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, and related rules adopted and to be adopted by federal regulators could adversely affect our ability to use derivatives to mitigate the commodity price, interest rate and other risks associated with our business.

The Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, has created a new regulatory framework for derivative transactions, or generally referred to as swaps, including oil and gas hedging transactions and interest rate swaps. The Commodity Futures and Trading Commission, or the CFTC, federal banking regulators and the SEC have adopted and continue to adopt rules to implement the new law. Under the new law, parties to swaps of types designated by the CFTC for clearing on a derivatives clearing organization may have to clear those swaps and, in certain instances, execute trades in those swaps on other facilities. We would have to post collateral in connection with any swaps, including commodities swaps, that we must clear. The new law provides an exception from its clearing and trade execution requirements for swaps entered into by persons that are not “financial entities” (as defined in the new law) to hedge or mitigate their commercial risks. We intend to elect that exception for our swaps whenever possible. If we were characterized as a “financial entity,” however, we would be ineligible to elect that exception for the swaps we enter into. In that circumstance our ability to execute our hedging program efficiently could be adversely affected. Even if we are able to take advantage of the exception for persons that are not “financial entities,” the CFTC and banking regulators are in the process of adopting rules that will impose margin requirements for non-cleared swaps and that might require us to post cash or other collateral for such swaps.

Posting of cash collateral for either cleared or non-cleared swaps would reduce our liquidity, including our ability to use our cash for capital and other Partnership expenditures or distributions, and could reduce our ability to execute strategic hedges to reduce commodity price uncertainty and thus protect our cash flows. Even if we are not required to clear our swaps or to post cash or other collateral for all or some of our swaps, our contractual counterparties could pass their costs of complying with the new law on to their customers, including us. Moreover, a Dodd-Frank Act provision may result in one or more of our counterparties spinning-off their derivative operations into separate entities, and those entities may not be as creditworthy as our current counterparties. Current participants in the U.S. derivatives market may exit the market to avoid the new law and regulations. All of the changes in the U.S. derivative market resulting from the new law and regulations might not only increase the costs of operating our hedging program, but could also reduce the availability of some types of swaps that protect against risks we encounter, reduce our ability to monetize or restructure our existing derivative contracts and potentially increase our exposure to less creditworthy counterparties. If, as a result of these factors, we were to reduce our use of swaps to hedge the commodity price, interest rate and other risks we encounter, our results of operations and cash flows may become more volatile and be otherwise adversely affected.

The potentially distressed financial conditions of our hydrocarbon purchasers could have an adverse impact on us in the event these purchasers are unable to pay us for our oil and gas production.

Some of our hydrocarbon purchasers may experience severe financial problems in the future that could have a significant impact on their creditworthiness. We cannot provide assurance that one or more of our financially distressed hydrocarbon purchasers will not default on their obligations to us or that such a default or defaults will not have a material adverse effect on our business, financial position, future results of operations or future cash flows. Furthermore, the bankruptcy of one or more of our hydrocarbon purchasers, or some other similar proceeding or liquidity constraint, might make it unlikely that we would be able to collect all or a significant portion of amounts owed by the distressed entity or entities. In addition, such events might force the purchasers to reduce or curtail their future purchase of our production and services, which could have a material adverse effect on our results of operations and financial condition.

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Our financial condition and results of operations may be materially adversely affected if we incur costs and liabilities due to a failure to comply with environmental regulations or a release of hazardous substances into the environment.

We may incur significant costs and liabilities as a result of environmental requirements applicable to the operation of our wells, gathering systems and other facilities. These costs and liabilities could arise under a wide range of federal, state and local environmental laws and regulations, including, for example:

The Clean Air Act, or the CAA, and comparable state laws and regulations that impose obligations related to emissions of air pollutants;
the Clean Water Act and comparable state laws and regulations that impose obligations related to discharges of pollutants into regulated bodies of water;
the Resource Conservation and Recovery Act, or RCRA, and comparable state laws that impose requirements for the handling and disposal of waste from our facilities;
the Comprehensive Environmental Response, Compensation, and Liability Act, or CERCLA, and comparable state laws that regulate the cleanup of hazardous substances that may have been released at properties currently or previously owned or operated by us or at locations to which we have sent waste for disposal;
the Safe Drinking Water Act and state or local laws and regulations related to underground injection (including hydraulic fracturing);
the Oil Pollution Act, or OPA, which subjects responsible parties to liability for removal costs and damages arising from an oil spill in waters of the U.S.; and
emergency planning and community right to know regulations under Title III of CERCLA and similar state statutes which require that we organize and/or disclose information about hazardous materials used or produced in our operations.

Failure to comply with these laws and regulations, including laws and regulations related to climate change and greenhouse gases, may trigger a variety of administrative, civil and criminal enforcement measures, including the assessment of monetary penalties, the imposition of remedial requirements, and the issuance of orders enjoining future operations. Certain environmental statutes, including CERCLA, OPA and analogous state laws and regulations, impose strict joint and several liability for costs required to clean up and restore sites where hazardous substances or other waste products have been disposed of or otherwise released. More stringent laws and regulations may be adopted in the future. Moreover, it is not uncommon for neighboring landowners and other third-parties to file claims for personal injury and property damage allegedly caused by the release of hazardous substances or other waste products into the environment.

We are subject to complex federal, state, local and other laws and regulations that could adversely affect the cost, manner or feasibility of conducting our operations.

Our exploration, production and transportation operations will be subject to complex and stringent laws and regulations. In order to conduct our operations in compliance with these laws and regulations, we must obtain and maintain numerous permits, approvals and certificates from various federal, state and local governmental authorities. Failure or delay in obtaining and maintaining regulatory approvals or drilling permits could have a material adverse effect on our ability to develop our properties, and receipt of drilling permits with onerous conditions could increase our compliance costs. In addition, regulations regarding resource conservation practices and the protection of correlative rights may affect our operations by limiting the quantity of oil, natural gas and natural gas liquids we may produce and sell.

We are subject to federal, state and local laws and regulations as interpreted and enforced by governmental authorities possessing jurisdiction over various aspects of the exploration, production and transportation of oil, natural gas and natural gas liquids. While the cost of compliance with these laws is not expected to be material to our operations, the possibility exists that new laws, regulations or enforcement policies could be more stringent and significantly increase our compliance costs. If we are not able to recover the resulting costs through insurance or increased revenues, our ability to pay distributions to holders of our

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Units and service our debt obligations could be adversely affected. Please read “Competition, Markets and Regulation — Environmental, Health and Safety Matters and Regulation.” for more information.

Climate change legislation or regulations restricting emissions of greenhouse gases, or GHGs, could result in increased operating costs and reduced demand for the oil, natural gas and natural gas liquids we produce.

The U.S. Environmental Protection Agency, or the EPA, has adopted its so-called “GHG” tailoring rule” regarding greenhouse gases, or GHGs, that will phase in federal requirements for GHG emissions from new sources and modifications of existing sources and federal Title V operating permit requirements for all sources, based on their potential to emit specific quantities of GHGs. These permitting provisions, to the extent applicable to our operations, could require us to implement emission controls or other measures to reduce GHG emissions and we could incur additional costs to satisfy those requirements.

In 2009, the EPA published a final rule requiring the reporting of GHG emissions from specified large GHG emission sources in the United States beginning in 2011 for emissions occurring in 2010. In 2010, the EPA published its amendments to the GHG reporting rule to include onshore and offshore oil and natural gas production facilities and onshore oil and natural gas processing, transmission, storage and distribution facilities, which may include facilities we operate. Reporting of GHG emissions from these facilities was required on an annual basis beginning in 2012 for emissions occurring in 2011. When we acquire producing properties, we will have to evaluate whether our operations trigger these requirements and if so submit our reports.

Congress has previously considered legislation to reduce emissions of GHGs and many states have adopted or have considered measures to reduce GHG emission reduction levels, often involving the planned development of GHG emission inventories and/or cap and trade programs. Most of these cap and trade programs work by requiring major sources of emissions or major producers of fuels to acquire and surrender emission allowances. Federal efforts at a cap and trade program do not appear to be moving forward in Congress. The adoption and implementation of any legislation or regulatory programs imposing reporting obligations on, or limiting emissions of GHGs from, our equipment and operations could require us to incur costs to reduce emissions of GHGs associated with our operations or could adversely affect demand for the oil, natural gas and natural gas liquids that we produce.

Significant physical effects of climate change have the potential to damage our facilities, disrupt our production activities and cause us to incur significant costs in preparing for or responding to those effects.

Climate change could have an effect on the severity of weather (including hurricanes, earthquakes and floods), sea levels, arability of farmland, and water availability and quality. If such effects were to occur, the operations that we plan to engage in may be adversely affected. Potential adverse effects could include damages to our facilities from powerful winds or rising waters in low lying areas, disruption of our production activities either because of climate-related damages to our facilities, less efficient or non-routine operating practices necessitated by climate effects or increased costs for insurance coverages in the aftermath of such effects. Significant physical effects of climate change could also have an indirect effect on our financing and operations by disrupting the transportation or process related services provided by midstream companies, service companies or suppliers with whom we have a business relationship. We may not be able to recover through insurance some or any of the damages, losses or costs that may result from potential physical effects of climate change. Should drought conditions occur, our ability to obtain water in sufficient quality and quantity could be impacted and in turn, our ability to perform hydraulic fracturing operations could be restricted or made more costly.

Federal legislation and state legislative and regulatory initiatives relating to hydraulic fracturing could result in increased costs and additional operating restrictions or delays.

Hydraulic fracturing is an important and common practice that is used to stimulate production of hydrocarbons, particularly natural gas, from dense rock formations. The hydraulic fracturing process involves the injection of a large volume of water, sand and chemicals under pressure into the formation to fracture the surrounding rock and stimulate production. We anticipate that we will routinely use hydraulic fracturing

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techniques in drilling and completing most of the development wells we intend to drill on our properties, depending primarily on the area where the wells are situated and the targeted geological formation. Hydraulic fracturing is typically regulated by state oil and natural gas commissions, but the EPA has asserted federal regulatory authority pursuant to the Safe Drinking Water Act over certain hydraulic fracturing activities involving the use of diesel. In addition, legislation has repeatedly been introduced before Congress to provide for federal regulation of hydraulic fracturing under the Safe Drinking Water Act and to require disclosure of the chemicals used in the fracturing process. At the state and local levels, some jurisdictions have adopted, and others are considering adopting, requirements that could impose more stringent permitting, public disclosure or well construction requirements on hydraulic fracturing activities, as well as bans on hydraulic fracturing activities. In the event that new or more stringent federal, state, or local legal restrictions relating to the hydraulic fracturing process are adopted in areas where we acquire producing properties, we could incur potentially significant added costs to comply with such requirements, experience delays or curtailment in the pursuit of exploration, development, or production activities, and perhaps even be precluded from drilling wells.

In addition, certain governmental reviews are either underway or being proposed that focus on environmental aspects of hydraulic fracturing practices. The White House Council on Environmental Quality is coordinating an administration-wide review of hydraulic fracturing practices, and a committee of the United States House of Representatives has conducted an investigation of hydraulic fracturing practices. The EPA commenced a study of the potential environmental effects of hydraulic fracturing on drinking water and groundwater releasing a progress report in December 2012 with final results expected in 2014. These ongoing or proposed studies, depending on their degree of pursuit and any meaningful results obtained, could spur initiatives to further regulate hydraulic fracturing under the federal Safe Drinking Water Act or other regulatory mechanisms.

Moreover, the EPA has announced that it will develop effluent limitations for the treatment and discharge of wastewater resulting from hydraulic fracturing activities by 2014. Other governmental agencies, including the U.S. Department of Energy and the U.S. Department of the Interior, are evaluating various other aspects of hydraulic fracturing. The Bureau of Land Management has indicated that it will continue with rulemaking to regulate hydraulic fracturing on federal lands and the EPA has announced an initiative to develop regulations governing the disclosure and evaluation of hydraulic fracturing chemicals. If hydraulic fracturing is regulated at the federal level, our fracturing activities could become subject to additional permit requirements or operations restrictions and also to associated permitting delays and potential increases in costs. Restrictions on hydraulic fracturing could reduce the amount of oil and natural gas that we ultimately are able to produce.

We expect to be subject to regulation under New Source Performance Standards, or NSPS, and National Emissions Standards for Hazardous Air Pollutants, or NESHAP programs, which could result in increased operating costs.

In 2012, the EPA issued final rules that subject oil and natural gas production, processing, transmission and storage operations to regulation under the NSPS and the NESHAP programs. The EPA rules include NSPS standards for completions of hydraulically fractured natural gas wells. Before January 1, 2015, these standards require owners/operators to reduce volatile organic compound, or VOC, emissions from natural gas not sent to the gathering line during well completion either by flaring, by using a completion combustion device, or by capturing the natural gas using green completions with a completion combustion device. Beginning January 1, 2015, operators must capture the natural gas and make it available for use or sale, which can be done through the use of green completions. The standards are applicable to newly fractured wells and also existing wells that are refractured. Further, the finalized regulations also establish specific new requirements, effective in 2012, for emissions from compressors, controllers, dehydrators, storage tanks, natural gas processing plants and certain other equipment. The EPA received numerous requests for reconsideration of these rules, and court challenges to the rules were also filed. EPA has expressed an intent to issue some revisions that are likely responsive to some of the requests. For example, in April 2013, the EPA published a proposed amendment related to certain storage vessels. These rules and any revised rules may require the installation of equipment to control emissions on producing properties we acquire.

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We may encounter obstacles to marketing our oil, natural gas and other hydrocarbons, which could adversely impact our revenues.

The marketability of our production will depend in part on the availability and capacity of natural gas gathering systems, pipelines and other transportation facilities that we expect to be owned by third-parties. Transportation space on the gathering systems and pipelines we expect to utilize is occasionally limited or unavailable due to repairs or improvements to facilities or due to space being utilized by other companies that have priority transportation agreements. Our access to transportation options can also be affected by U.S. federal and state regulation of oil and natural gas production and transportation, general economic conditions and changes in supply and demand. The availability of markets are beyond our control. If market factors dramatically change, the impact on our revenues could be substantial and could adversely affect our ability to produce and market oil, natural gas and natural gas liquids, the value of our Units and our ability to pay distributions on our Units and service our debt obligations.

Discovery of previously undetected environmentally hazardous conditions may adversely affect our operating results.

Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property, including oil and gas properties, may be liable for the cost of removal or remediation of hazardous or toxic substances on, under or in the property. The costs of removal or remediation could be substantial. These laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of hazardous or toxic substances. Environmental laws also may impose restrictions on the manner in which property may be used or businesses may be operated, and compliance with these restrictions may require substantial expenditures. Environmental laws provide for sanctions for noncompliance and may be enforced by governmental agencies or, in certain circumstances, by private parties. Certain environmental laws and common law principles could be used to impose liability for release of and exposure to hazardous substances, and third parties may seek recovery from owners or operators of real properties for personal injury or property damage associated with exposure to released hazardous substances.

The costs of defending against claims of environmental liability or of paying personal injury claims could reduce the amounts available for distribution to our Unitholders.

Costs of complying with governmental laws and regulations related to environmental protection and human health and safety may reduce our net income and the cash available for distributions to our Unitholders.

Our operations are subject to federal, state and local laws and regulations relating to protection of the environment and human health. We could be subject to liability in the form of fines, penalties or damages for noncompliance with these laws and regulations. These laws and regulations generally govern wastewater discharges, air emissions, the operation and removal of underground and above-ground storage tanks, the use, storage, treatment, transportation and disposal of solid and hazardous materials, the remediation of contamination associated with the release or disposal of solid and hazardous materials, the presence of toxic building materials, and other health and safety-related concerns.

Some of these laws and regulations may impose joint and several liability on the owners or operators of oil and gas properties for the costs to investigate or remediate contaminated properties, regardless of fault, whether the contamination occurred prior to purchase, or whether the acts causing the contamination were legal. The operations of our properties, the condition of properties at the time we buy them, operations in the vicinity of our properties, such as the presence of existing or plugged wells, or activities of unrelated third parties may affect our properties.

The presence of hazardous substances, or the failure to properly manage or remediate these substances, may hinder our ability to sell or pledge a property as collateral for future borrowings. Environmental laws also may impose liens on a property or restrictions on the manner in which the property may be used or operated, and these restrictions may require substantial expenditures or prevent us or the Manager from operating the property. Some of these laws and regulations have been amended so as to require compliance with new or more stringent standards as of future dates, which may require us to incur material expenditures.

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Future laws, ordinances or regulations may impose material environmental liability. Any material expenditures, fines, penalties, or damages we must pay will reduce our ability to make distributions and may reduce the value of our Unitholders’ investments.

The failure of any bank in which we deposit our funds could reduce the amount of cash we have available to pay distributions and make additional investments.

We intend to diversify our cash and cash equivalents among several banking institutions in an attempt to minimize exposure to any one of these entities. However, the Federal Deposit Insurance Corporation, or FDIC, only insures amounts up to $250,000 per depositor per insured bank. We expect to have cash and cash equivalents and restricted cash deposited in certain financial institutions in excess of federally insured levels. If any of the banking institutions in which we have deposited funds ultimately fails, we may lose our deposits over $250,000. The loss of our deposits could reduce the amount of cash we have available to distribute or invest and could result in a decline in the value of our Unitholders’ investments.

Retirement Plan Risks

If the fiduciary of an employee pension benefit plan subject to ERISA (such as a profit-sharing, Section 401(k) or pension plan) or any other retirement plan or account fails to meet the fiduciary and other standards under ERISA or the Code as a result of an investment in our Units, the fiduciary could be subject to criminal and civil penalties.

There are special considerations that apply to employee benefit plans subject to ERISA (such as profit-sharing, Section 401(k) or pension plans) and other retirement plans or accounts subject to Section 4975 of the Code (such as an IRA) that are investing in our common units. Fiduciaries investing the assets of such a plan or account in our common units should satisfy themselves that:

the investment is consistent with their fiduciary obligations under ERISA and the Code;
the investment is made in accordance with the documents and instruments governing the plan or IRA, including the plan’s or account’s investment policy;
the investment satisfies the prudence and diversification requirements of Sections 404(a)(1)(B) and 404(a)(1)(C) of ERISA and other applicable provisions of ERISA and the Code;
the investment will not impair the liquidity of the plan or IRA;
the investment will not produce an unacceptable amount of “unrelated business taxable income” for the plan or IRA;
the value of the assets of the plan can be established annually in accordance with ERISA requirements and applicable provisions of the plan or IRA; and
the investment will not constitute a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code.

With respect to the annual valuation requirements described above, we expect to provide an estimated value for our common units prepared by a third party valuation expert annually. From the commencement of this offering until 18 months have passed without a sale in this offering of our common units, we expect to use the gross offering price of a common unit in this offering as the per common unit estimated value. This estimated value is not likely to reflect the proceeds you would receive on our liquidation or on the sale of your common units, if your common units could be sold. Accordingly, we can make no assurances that the estimated value will satisfy the applicable annual valuation requirements under ERISA and the Code. The Department of Labor or the IRS may determine that a plan fiduciary or an IRA custodian is required to take further steps to determine the value of our common units. In the absence of an appropriate determination of value, a plan fiduciary or an IRA custodian may be subject to damages, penalties or other sanctions.

Failure to satisfy the fiduciary standards of conduct and other applicable requirements of ERISA and the Code may result in the imposition of civil and criminal penalties and could subject the fiduciary to equitable remedies. In addition, if an investment in our common units constitutes a non-exempt prohibited transaction under ERISA or the Code, the fiduciary or IRA owner who authorized or directed the investment may be

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subject to the imposition of excise taxes with respect to the amount invested. In the case of a non-exempt prohibited transaction involving an IRA owner, the IRA may be disqualified and all of the assets of the IRA may be deemed distributed and subject to tax.

Prospective investors with investment discretion over the assets of an IRA, employee benefit plan or other retirement plan or arrangement that is covered by ERISA or Section 4975 of the Code should carefully review the information in the section of this prospectus entitled “Investment by Tax-Exempt Entities and ERISA Considerations” and consult their own legal and tax advisors on these matters.

If you invest in our common units through an IRA or other retirement plan, you may be limited in your ability to withdraw required minimum distributions.

If you establish an IRA or other retirement plan through which you invest in our common units, federal law may require you to withdraw required minimum distributions, or RMDs, from the plan in the future. We have substantial restrictions on your ability to sell your common units. As a result, you may not be able to sell your common units at a time in which you need liquidity to satisfy the RMD requirements under your IRA or other retirement plan. Even if you are able to sell your common units, the sale may be at a price less than the price at which the common units were initially purchased. If you fail to withdraw RMDs from your IRA or other retirement plan, you may be subject to certain tax penalties.

Federal Income Tax Risks to Unitholders

Our tax treatment depends on our status as a partnership for federal and state income tax purposes. If we were to become subject to entity-level taxation for federal or state income tax purposes, taxes paid would reduce the amount of cash available for distribution.

Although the anticipated tax benefits of an investment in us depend largely on our treatment as a partnership for federal income tax purposes, we have not requested, and do not plan to request, a ruling from the IRS on this or any other tax matter that affects us. In this regard, current law may change so as to cause us to be treated as a corporation for U.S. federal income tax purposes or otherwise subject us to entity-level taxation. Also, because of widespread state budget deficits, several states are evaluating ways to subject partnerships to entity-level taxation through the imposition of state income, franchise or other forms of taxation.

If we were treated as a corporation for federal income tax purposes, distributions to you and the other investors would generally be taxed as corporate distributions, and in addition to U.S. federal income tax, we would likely also pay state income tax at varying rates. Accordingly, if an income tax or other entity-level tax is imposed on us, our cash available for distribution to you and the other investors could be reduced. Also, in that event, no income, gain, loss, deduction or credit would flow from the Partnership to you or the other Unitholders.

Changes in the law may reduce your tax benefits from an investment in us.

Your tax benefits from an investment in us may be affected by changes in the tax laws. For example, President Obama’s administration has previously proposed, among other tax changes, the repeal of certain oil and gas tax benefits, including the repeal of the percentage depletion allowance, repeal of the election to expense intangible drilling costs in the year incurred (including your option to amortize intangible drilling costs over a 60 month period), repeal of the passive activity exception for working interests, repeal of the domestic manufacturing tax deduction for oil and gas companies; and an increase in the amortization period for geological and geophysical costs of independent producers. These proposals may or may not be enacted into law. Also, other changes in the tax laws could be made that would reduce your tax benefits from an investment in the Partnership.

Your deduction for intangible drilling costs may be limited for purposes of the Alternative Minimum Tax.

Under current tax law, your alternative minimum taxable income in the year in which you invest in the Partnership cannot be reduced by more than 40% by your share of the Partnership’s deduction for intangible drilling costs.

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Limited partners need passive income to use their Partnership deductions.

If you are investing as an individual, your share of our deduction for intangible drilling costs will be a passive deduction that cannot be used to offset “active” income, such as salary and bonuses, or portfolio income, such as dividends and interest income. Thus, you may not have enough passive income from us or net passive income from your other passive activities, if any, in a taxable year to offset a portion or all of your passive deductions from your Partnership investment. However, any unused passive loss, including from your deduction for intangible drilling costs, may be carried forward indefinitely by you to offset your passive income in subsequent taxable years.

You may be required to pay taxes on income from us even if you do not receive any cash distributions from us.

Because holders of our Units will be treated as partners to whom we will allocate taxable income, which could be different in amount than the amount of cash we distribute, you will be required to pay any federal income taxes and, in some cases, state and local income taxes, on your share of our taxable income even if you receive no cash distributions from us. Also, in any taxable year you may not receive cash distributions from us equal to your share of our taxable income or even equal to your tax liability that results from that income.

Tax gain or loss on disposition of your Units could be more or less than expected.

If you sell your Units, you will recognize a gain or loss equal to the difference between the amount realized and your tax basis in those Units. Prior distributions to you in excess of the total net taxable income you were allocated for a Unit, which decreased your tax basis in that Unit, will, in effect, become taxable income to you if the Unit is sold at a price greater than your tax basis in that Unit, even if the price is less than your original cost. Also, a substantial portion of the amount realized may be ordinary income. In addition, if you sell your Units, you may incur a tax liability in excess of the amount of cash you receive from the sale.

Tax exempt entities and foreign persons face unique tax issues from owning Units that may result in adverse tax consequences to them.

Investment in Units by tax-exempt entities, such as IRAs, other retirement plans and non-U.S. persons raises issues unique to them. For example, most, if not substantially all, of our income allocated to organizations that are exempt from federal income tax, including IRAs and other retirement plans, will be unrelated business taxable income and will be taxable to them. Similarly, most, if not substantially all, of our income allocable to non-U.S. persons will constitute effectively connected U.S. trade or business income, and non-U.S. persons will be required to file U.S. federal tax returns and pay tax on their share of our taxable income.

The sale or exchange of 50% or more of our capital and profits interests during any twelve-month period will result in the termination of the Partnership for U.S. federal income tax purposes.

We will be considered to have terminated for U.S. federal income tax purposes if there is a sale or exchange of 50% or more of the total interests in our capital and profits within a twelve-month period. For example, an exchange of 50% of our capital and profits could occur if, in any twelve-month period, holders of our Units sell at least 50% of the interests in our capital and profits. Our termination would, among other things, result in the closing of our taxable year for all our Unitholders and could result in a deferral of certain deductions allowable in computing our taxable income.

Holders of Units may be subject to state and local taxes and tax return filing requirements in states where they do not live as a result of investing in our Units.

In addition to federal income taxes, you will likely be subject to other taxes, including state and local taxes, unincorporated business taxes and estate, inheritance or intangible taxes that are imposed by the various jurisdictions in which we do business or own property, even if you do not live in any of those jurisdictions. You will likely be required to file state and local income tax returns and pay state and local income taxes in some or all of these jurisdictions. Further, you may be subject to penalties for failure to comply with those requirements.

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CONFLICTS OF INTEREST

Conflicts with the General Partner

In General

Conflicts of interest commonly arise in oil and natural gas partnerships that have non-industry investors because transactions are often entered into between affiliates without arms’ length negotiation. Your interests and those of our general partner and its affiliates may be inconsistent in some respects or in certain instances, and the general partner’s actions may not be the most advantageous to you. Our general partner believes that the following discussion describes the material conflicts of interest that may arise for the general partner and its affiliates in the course of the Partnership. Other transactions or dealings may arise in the future between the general partner and its affiliates, on the one hand, and you and the other Unitholders, on the other hand, in the course of managing the Partnership. For some of the conflicts of interest, but not all, our Partnership Agreement imposes certain restrictions on the general partner that are designed to reduce, but may not eliminate, the conflict of interest. Other than these limitations, our general partner has no procedures to resolve a conflict of interest and under the terms of the Partnership Agreement the general partner may resolve the conflict of interest in its sole discretion and best interest.

Furthermore, our general partner relies on ARC, its affiliates and entities under common ownership with ARC for management and administrative functions. Neither the Partnership Agreement nor any other agreement requires ARC to pursue a future business strategy that favors the Partnership. The representatives of ARC, including ARC’s board of directors and management and their affiliates, have a fiduciary duty to make decisions in the best interests of their respective equityholders. Because our general partner is allowed to take into account the interests of parties other than the Partnership, such as ARC and its affiliates, a conflict of interest may arise. However, this conflict of interest is not allowed to limit the general partner’s fiduciary duty to us.

Conflicts Regarding Transactions with the General Partner and its Affiliates

Although the general partner believes that the compensation and reimbursement that it and its affiliates will receive in connection with the formation and management of the Partnership are reasonable, the compensation has been determined solely by the general partner and did not result from negotiations with any unaffiliated third party dealing at arms’ length. Please see “Compensation.”

When the general partner or any affiliate provides services or equipment to the Partnership, the Partnership Agreement provides that their fees must be competitive with the fees charged by unaffiliated third-parties in the same geographic area engaged in similar businesses. Also, before the general partner or any affiliate may receive competitive fees for providing services or equipment to the Partnership, they must be engaged, independently of the Partnership, and as an ordinary and ongoing business, in rendering the services or selling or leasing the equipment and supplies to a substantial extent to other persons in the oil and natural gas industry in addition to the Partnership. If the general partner or the affiliate is not engaged in such a business, then the compensation must be the lesser of its cost or the competitive rate that could be obtained in the area.

Any services not otherwise described in this prospectus or the Partnership Agreement for which the general partner or an affiliate is to be compensated by the Partnership must be set forth in a written contract that describes the services to be rendered and the compensation to be paid. In this regard, the general partner may not benefit by interpositioning itself between the Partnership and the actual provider of drilling contractor and operator services, nor may it profit by drilling in contravention of its fiduciary obligations to the Partnership. The compensation paid by the Partnership to the general partner or its affiliates for additional services to the Partnership under these contracts, if any, will be reported to you in the Partnership’s annual and semiannual reports, and a copy of the contract will be provided to you on request.

Conflicts Regarding Tax Matters Partner

The general partner will serve as the Partnership’s tax matters partner and will have broad authority to act on behalf of you and the other Unitholders in any administrative or judicial proceeding involving the IRS or other tax authorities, and this authority may involve conflicts of interest including, for example, whether or

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not to expend Partnership funds to contest a proposed adjustment by the IRS, if any, that would decrease the amount of the Partnership’s deductions for intangible drilling costs, which are allocated 100% to you and the other Unitholders.

Conflicts Regarding Other Activities of the General Partner and Its Affiliates

The general partner will be required to devote to the Partnership the time and attention that the general partner considers necessary for the proper management of the Partnership’s activities. However, the general partner and its affiliates intend to sponsor and manage additional oil and gas partnerships, which may be concurrent with this offering or in the future, and engage in other oil and gas activities, including drilling and acquiring producing and non-producing properties either for their own account or on behalf of other partnerships, joint ventures, corporations or other entities in which they may have an interest. This creates a continuing conflict of interest in allocating management time, services and other activities among the Partnership and the general partner’s other activities.

The general partner will determine the allocation of its management time, services, and other functions on an as-needed basis consistent with its fiduciary duties among the Partnership and its other partnerships, affiliates and activities. Thus, the competition for the time and services of the general partner and its affiliates could result in insufficient attention to the management and operation of the Partnership.

Subject to its fiduciary duties, the general partner and its affiliates will not be restricted from participating in other businesses or activities, even if these other businesses or activities compete with the Partnership’s activities and operate in the same area as the Partnership. However, the general partner and its affiliates may pursue business opportunities for their own account that are consistent with the investment objectives of the Partnership only after they have determined that the opportunity either:

cannot be pursued by the Partnership because of insufficient funds; or
it is not appropriate for the Partnership under the existing circumstances.

Conflicts Involving the Acquisition of Leases

The Partnership Agreement gives the general partner the authority to cause the Partnership to acquire undivided interests in producing and non-producing oil and natural gas properties, and to participate with other parties in the conduct of its drilling and other development operations on those properties. Conflicts of interest may arise concerning which properties will be acquired by the Partnership and which properties will be acquired by the general partner and its affiliates for their own account or for other affiliated partnerships, third-party programs or joint ventures. It may be in the general partner’s or its affiliates’ advantage to have the Partnership bear the costs and risks of acquiring a particular property rather than another affiliate or itself. Conversely, the general partner and its affiliates may elect to acquire a property for their own account because of the prospective economic benefits. For example, it may be more advantageous for the general partner and its affiliates to acquire a well for their own account so that their operation of the property will not be subject to the limitations under the Partnership Agreement. Some of these potential conflicts of interest will be increased if the general partner allocates properties to the Partnership and itself or its affiliates for their own account, or to another affiliated partnership, at the same time. Also, a conflict of interest is created with you and the other Unitholders by the general partner’s right to cause the Partnership to enter into a farmout with the general partner or its affiliates.

The prospects and properties acquired by the Partnership will be limited and the general partner or its affiliates or an affiliate of the Manager may retain all lease acreage and drilling rights surrounding the prospects and properties. As a result, the general partner anticipates that the wells drilled by the Partnership to develop its properties will provide the general partner and its affiliates or such an affiliate of the Manager with additional drill sites on adjacent acreage by allowing them to determine, at the Partnership’s expense, the value of adjacent acreage and other geological formations, zones, areas, reservoirs, etc. in which the Partnership will not have any interest. In this regard, the general partner and its affiliates, or an affiliate of the Manager, own, or may own, acreage throughout the area where the Partnership’s properties are situated.

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If the general partner and its affiliates must provide properties to two or more partnerships at the same time, the general partner will attempt to ensure that each partnership is treated fairly on a basis consistent with:

the funds available to the partnerships; and
the time limitations on the investment of funds for the partnerships.

Also, the Partnership Agreement gives the general partner the authority to cause the Partnership to acquire less than 100% of the ownership interests in oil and gas properties, and to participate with other parties, including other oil and gas limited partnerships subsequently sponsored by the general partner or its affiliates, in the development on those properties. If conflicts of interest between the Partnership and the general partner and its affiliates arise, then the general partner may be unable to resolve those conflicts to the maximum advantage of the Partnership, because the general partner and its affiliates must deal fairly with the investors in all of their oil and gas limited partnerships, in addition to the equity owners in itself and its affiliates.

Although our general partner currently anticipates that all of our prospects and properties will be acquired from independent third-parties, possibly including affiliates of the Manager as discussed above, the guidelines set forth below and in “— Procedures to Reduce Conflicts of Interest,” have been established by the general partner to resolve any conflicts that may arise in the event any prospects or properties are acquired from, or sold or otherwise disposed of to the general partner or its affiliates. However, with respect “— Transfers at Cost,” “— Equal Proportionate Interest,” “— Subsequently Enlarging Prospect” and “— Transfer of Less than the General Partner’s and its Affiliates’ Entire Interest” below, there is an exception in the Partnership Agreement for another program in which the interest of our general partner is substantially similar to or less than its interest in the Partnership.

Transfers at Cost.  Although we have no current plans to acquire any leases from our general partner or its affiliates, any leases acquired by the Partnership from the general partner will be acquired at the cost of the lease, unless the general partner has a reason to believe that cost is materially more than the fair market value of the property. If the general partner believes that cost is materially more than fair market value, then the price may not exceed fair market value. A determination of fair market value must be supported by an appraisal from an independent expert and maintained in the Partnership’s records for at least six years.

Equal Proportionate Interest.  If the general partner sells or transfers an oil and gas interest to the Partnership, it must, at the same time, sell or transfer to the Partnership an equal proportionate interest in all of its other property in the same prospect.

The term “prospect” generally means an area which is believed to contain commercially productive quantities of natural gas or oil. See the Partnership Agreement for the complete definition of a “prospect.” However, a prospect will be limited to the minimum area permitted by state law or local practice, whichever is applicable, if the following two conditions are met:

the well is being drilled to a geological feature which contains proved reserves as defined below; and
the limitation protects the well against drainage.

Proved reserves, generally, are those quantities of oil and natural gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible, from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations. See the Partnership Agreement for the complete definition of “Proved Reserves.”

Subsequently Enlarging Prospect.  In areas where the prospect is not limited as provided in “— Equal Proportionate Interest” above and the area constituting the Partnership’s prospect is subsequently enlarged based on geological information which is later acquired, there is the following special provision:

if the prospect is enlarged to cover any area where our general partner owns a separate property interest and the Partnership activities were material in establishing the existence of proved undeveloped reserves which are attributable to the separate property interest, then the separate

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property interest or a portion thereof must be sold to the Partnership in accordance with “— Transfers at Cost” and “— Equal Proportionate Interest,” above, and “— Transfer of Less than the General Partner’s and its Affiliates’ Entire Interest,” below.

Transfer of Less than the General Partner’s and its Affiliates’ Entire Interest.  If the general partner sells or transfers to the Partnership less than all of its ownership in any prospect, then it must comply with the following conditions:

the retained interest must be a proportionate working interest;
the general partner’s obligations and the Partnership’s obligations must be substantially the same after the sale of the interest by the general partner or its affiliates; and
the general partner’s revenue interest must not exceed the amount proportionate to its retained working interest.

For example, if the general partner transfers 50% of its working interest in a prospect to the Partnership and retains a 50% working interest, then the Partnership will not pay any of the costs associated with the general partner’s retained working interest as a part of the transfer. This limitation does not prevent the general partner and its affiliates from subsequently dealing with their retained working interest as they may choose with unaffiliated parties. For example, the general partner may sell its retained working interest to a third party for a profit.

Limitations on Activities of the General Partner and its Affiliates on Leases Acquired by the Partnership.  For a five year period after the final closing of the Partnership, if the general partner proposes to acquire an interest from an unaffiliated person in a prospect in which the Partnership owns an interest or in a prospect in which the Partnership’s interest has been terminated without compensation within one year before the proposed acquisition, then the following conditions apply:

if the general partner does not currently own property in the prospect separately from the Partnership, then the general partner may not buy an interest in the prospect; and
if the general partner currently owns a proportionate interest in the prospect separately from the Partnership, then the interest to be acquired must be divided in the same proportion between the general partner and the Partnership as the other property in the prospect. However, if the Partnership does not have sufficient cash or financing available on economic terms to buy the additional interest, then the general partner is also prohibited from buying the additional interest.

Limitations on Sale of Developed and Undeveloped Properties to the General Partner.  The general partner and its affiliates, other than an affiliated limited partnership as set forth below, may not purchase developed or — undeveloped properties or receive a farmout from the Partnership other than at the higher of cost or fair market value. However, when a well is plugged and abandoned, the Partnership’s lease rights may be assigned by the Partnership to the general partner in return for a cash payment, farmout, overriding royalty interest or other interest in the prospect as determined by the general partner, in its discretion, consistent with its fiduciary duty to the Partnership. Farmouts to the general partner and its affiliates also must comply with the conditions set forth below under “Farmouts.” The Partnership will not farmout any property to the Manager.

The general partner and its affiliates, other than an affiliated income program, may not purchase any producing oil or natural gas property from the Partnership unless:

the sale is in connection with the liquidation of the Partnership; or
the general partner’s or the third-party operator’s well supervision fees for the well have exceeded the net revenues of the well, determined without regard to the well supervision fees for the well, for a period of at least three consecutive months.

In both cases, the sale must be at fair market value supported by an appraisal of an independent expert selected by the general partner. The appraisal of the property must be maintained in the Partnership’s records for at least six years.

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Transfer of Leases Between Affiliated Limited Partnerships.  The Partnership may joint venture in the drilling of wells with affiliated drilling limited partnerships formed in the future by our sponsor or its affiliates. In this regard, the transfer of an undeveloped lease from the Partnership to an affiliated drilling limited Partnership must be made at fair market value if the undeveloped lease has been held by the Partnership for more than two years. Otherwise, the transfer may be made at cost if the general partner deems it to be in the best interest of the Partnership.

An affiliated income program may purchase a producing natural gas and oil property from the Partnership at any time at:

fair market value as supported by an appraisal from an independent expert if the property has been held by the Partnership for more than six months or there have been significant expenditures made in connection with the property; or
cost as adjusted for intervening operations if the general partner deems it to be in the best interest of the Partnership.

However, these prohibitions do not apply to joint ventures or farmouts among the Partnership and affiliated limited partnerships, provided that:

the respective obligations and revenue sharing of all parties to the transaction are substantially the same; and
the compensation arrangement or any other interest or right of either the general partner or its affiliates is the same in each affiliated limited partnership or if different, the aggregate compensation of the general partner or the affiliate is reduced to reflect the lower compensation arrangement.

Leases Will Be Acquired Only for Stated Purpose of the Partnership.  The Partnership must acquire only properties that are reasonably expected to meet its stated purposes. Also, no leases may be acquired for the purpose of a subsequent sale, farmout or other disposition unless the acquisition is made after a well has been drilled to a depth sufficient to indicate that the acquisition would be in the Partnership’s best interest.

Farmout.  A “farmout” is an agreement whereby the owner of the leasehold or working interest agrees to assign his interest in certain specific acreage to the assignees, retaining some interest such as an overriding royalty interest, an oil and gas payment, offset acreage or other type of interest, subject to the drilling of one or more specific wells or other performance as a condition of the assignment. Our general partner may not assign the working interest in a prospect to the Partnership for the purpose of a subsequent farmout, sale or other disposition, nor may the general partner enter into a farmout to avoid paying its share of the costs, if any, of drilling a well on the lease or prospect.

The Partnership may farmout an undeveloped lease or well activity to the general partner, its affiliates or an unaffiliated third party only if the general partner, exercising the standard of a prudent operator (which standard is typically the standard to which the operator of oil and gas properties is subject under the joint operating agreement among working interest owners in an oil and gas property and is a standard that is generally interpreted to mean that the persons subject to same must act in good faith and competently and in good faith manage and administer the subject properties, but it does not impose a fiduciary duty on such operator which, if imposed, would require such fiduciary to act for the exclusive benefit of the beneficiaries and in the utmost good faith and free of conflict of interest),” determines that:

the Partnership lacks the funds to complete the oil and gas operations on the lease or well and cannot obtain suitable financing;
drilling on the lease or the intended well activity would concentrate excessive funds in one location, creating undue risks to the Partnership;
the leases or well activity have been downgraded by events occurring after assignment to the Partnership so that development of the leases or well activity would not be desirable; or
the best interests of the Partnership would be served.

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If we farmout a lease or well activity, the general partner must retain on behalf of the Partnership the economic interests and concessions a reasonably prudent oil and gas operator would or could retain under the circumstances prevailing at the time, consistent with industry practices. If a farmout is made to the general partner or its affiliates there is a conflict of interest since the general partner will represent both the Partnership and itself or an affiliate. We will not farmout any property to the Manager. Although the conflict of interest may be resolved to the general partner’s benefit, the general partner must still retain on behalf of the Partnership the economic interests and concessions as a reasonably prudent oil and gas operator would or could retain under the circumstances prevailing at the time, consistent with industry practices. While the standard of reasonably prudent operator is below the fiduciary standard, which under applicable law is generally the highest standard of utmost good faith and loyalty imposed upon the fiduciary, the standard of reasonably prudent operator is generally interpreted to mean that the persons subject to same must act in good faith and competently and in good faith manage and administer the subject properties.

Conflicts Between Investors and the General Partner as an Investor

Any subscription for Units by the general partner, its officers, directors, or affiliates in the Partnership will dilute the voting rights of the Unitholders and there may be a conflict of interest with respect to certain matters. The general partner and its officers, directors and affiliates, however, are prohibited from voting with respect to certain matters as described in “Summary of the Limited Partnership Agreement — Voting Rights.”

Lack of Independent Underwriter and Due Diligence Investigation

The terms of this offering, the Partnership Agreement, and the drilling and operating agreement were determined by the general partner without arms’ length negotiations. Unlike an underwritten offering, wherein the underwriters would have been represented by separate legal counsel to negotiate more favorable terms for Unitholders in this offering and the related transactions, the Unitholders in this offering have not been separately represented by legal counsel.

Also, there was not an extensive in-depth “due diligence” investigation of the existing and proposed business activities of the Partnership and the general partner that would be provided by independent underwriters. Our dealer manager is affiliated with our general partner and our dealer manager’s due diligence examination concerning this offering cannot be considered to be independent or as comprehensive as a due diligence examination that would have been conducted by an independent underwriter.

Procedures to Reduce Conflicts of Interest

In addition to the procedures set forth in “— Conflicts Involving the Acquisition of Leases,” the general partner and its affiliates will comply with the following procedures in the Partnership Agreement to reduce some of the conflicts of interest with the Unitholders. The general partner does not have any other conflict of interest resolution procedures. Thus, conflicts of interest between the general partner and the Unitholders may not necessarily be resolved in your best interests.

Fair and Reasonable.  The general partner may not sell, transfer, or convey any property to, or purchase any property from, the Partnership except pursuant to transactions that are fair and reasonable, nor take any action with respect to the assets or property of the Partnership which does not primarily benefit the Partnership.

No Compensating Balances.  The general partner may not use the Partnership’s funds as a compensating balance for its own benefit. Thus, the Partnership’s funds may not be used to satisfy any deposit requirements imposed by a bank or other financial institution on the general partner for its own limited liability company purposes.

Future Production.  The general partner may not commit the future production of a Partnership well exclusively for the general partner’s own benefit.

Disclosure.  Any agreement or arrangement that binds the Partnership must be fully disclosed in this prospectus.

No Loans from the Partnership.  The Partnership may not loan money to the general partner or its affiliates or to the Manager or its affiliates.

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No Rebates.  The general partner may not participate in any business arrangements which would circumvent its fiduciary duties or the guidelines described herein including receiving rebates or give-ups.

Sale of Assets.  The sale of all or substantially all of the assets of the Partnership may only be made with the consent of the holders of a majority of the outstanding Units, voting as a single class.

Participation in Other Partnerships.  If the Partnership participates in other partnerships or joint ventures, then the terms of the arrangements must not circumvent any of the requirements contained in the Partnership Agreement, including the following:

there may be no duplication or increase in organization and offering expenses, the general partner’s compensation, Partnership expenses, or other fees and costs;
there may be no substantive change in the fiduciary and contractual relationship between the general partner and you and the other Unitholders; and
there may be no diminishment in your voting rights.

Investments.  The Partnership’s funds may not be invested in the securities of another person except in the following instances:

investments in working interests made in the ordinary course of the Partnership’s business;
temporary investments in income-producing short-term highly liquid investments, in which there is appropriate safety of principal, such as U.S. Treasury Bills;
multi-tier arrangements meeting the requirements listed above under “— Participation in Other Partnerships”;
investments involving less than 5% of the total subscription proceeds of the Partnership that are a necessary and incidental part of a property acquisition transaction; and
investments in entities established solely to limit the Partnership’s liabilities associated with the ownership or operation of property or equipment, provided that duplicative fees and expenses are prohibited.

Safekeeping of Funds.  The Partnership’s funds may not be commingled with the funds of any other entity and our general partner may not employ, or permit another to employ, the funds or assets of the Partnership in any manner except for the exclusive benefit of the Partnership. Our general partner has a fiduciary responsibility for the safekeeping and use of all funds and assets of the Partnership whether or not in our general partner’s possession or control.

Advance Payments.  Advance payments by the Partnership to the general partner and its affiliates are prohibited except when advance payments are required to secure the tax benefits of prepaid intangible drilling costs and for a business purpose.

Policy of Treating All Wells Equitably in a Geographic Area.  Under the Partnership Agreement, all benefits and liabilities from marketing and hedging arrangements or other relationships affecting a property of the general partner or its affiliates and the Partnership must be fairly and equitably apportioned according to the respective interests of each party in the property.

Policy Regarding Roll-Ups

It is possible at some indeterminate time in the future that the Partnership may become involved in a roll-up. In general, a roll-up means a transaction involving the acquisition, merger, conversion, or consolidation of the Partnership with or into another partnership, corporation or other entity, and the issuance of securities by the roll-up entity to you and the other investors. A roll-up will also include any change in the rights, preferences, and privileges of you and the other investors in the Partnership. These changes could include the following:

increasing the compensation of the general partner;
amending your voting rights;

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changing the Partnership’s fundamental investment objectives; or
materially altering the Partnership’s duration.

If a roll-up should occur in the future, the Partnership Agreement provides various policies which include the following:

an independent expert must appraise all Partnership assets and you must receive a summary of the appraisal;
if you vote “no” on the roll-up proposal, then you will be offered a choice of:
accepting the securities of the roll-up entity; or
one of the following:
remaining a partner in the Partnership and preserving your Units in the Partnership on the same terms and conditions as existed previously; or
receiving cash in an amount equal to your pro-rata share of the appraised value of the Partnership’s net assets; and
the Partnership will not participate in a proposed roll-up:
unless approved by Unitholders whose Units equal a majority of the total Units;
which would result in the diminishment of your voting rights under the roll-up entity’s chartering agreement;
which includes provisions which would operate to materially impede or frustrate the accumulation of shares by you of the securities of the roll-up entity;
in which your right of access to the records of the roll-up entity would be less than those provided by the Partnership Agreement; or
in which any of the transaction costs would be borne by the Partnership if the proposed roll-up is not approved by Unitholders whose Units equal a majority of the total Units.

Conflicts with the Manager

The obligations of the Manager with respect to our operations and assets will be as set forth in the Management Agreement. The Management Agreement provides that the Manager will act as a reasonably prudent operator in operating our properties under the Management Agreement. The Manager will not have a fiduciary or similar duty to us or our Unitholders when it acts under the Management Agreement, except that the Manager will have a fiduciary responsibility for the safekeeping and use of all Partnership funds in its possession or control. The reasonably prudent operator standard is a standard developed in connection with oil and gas operations, and provides considerable discretion to the Manager in the operation of our properties, and limits our right of recourse for damages caused to us if the Manager acts in accordance with the prudent operator standard. A Unitholder generally will not have the right to cause us to seek to enforce the Management Agreement if the Unitholder believes the Manager has breached the agreement.

In addition, we may acquire interests in properties in which an affiliate of the Manager also owns or acquires an interest. Affiliates of the Manager will not be under any obligation to us with respect to their interest in these properties. An affiliate of the Manager could propose or consent to operations, or sell or farm-out its interests in the properties, without taking into consideration our distribution policies, financial resources or whether such action is otherwise consistent with our goals or financial resources. Although the possibility of such conflicts of interest between the Partnership and affiliates of the Manager exist with respect to potential ownership by each of an interest in the same property or prospect, we have engaged the Manager because of the extensive oil and gas experience, expertise and business of the Manager and its affiliates. Further, we believe that despite the possibility of such conflicts, we and our investors will benefit from the performance by the Manager of its obligations under the Management Agreement.

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Furthermore, the Manager may offer to sell us oil and gas properties or other assets in which one or more affiliates of the Manager owns an interest or its affiliates may offer to acquire oil and gas properties or other assets from us. The Manager is under no fiduciary, contractual or other duty to require any of its affiliates to offer to buy or sell properties or other assets to us or from us at a fair or market price, although pursuant to the Management Agreement the Manager has agreed that if we elect to acquire any properties from an affiliate of the Manager we will not be required to pay more than the lower of the cost to such affiliates of such property or fair market value. In addition, to the extent we and any affiliate of the Manager have joint ownership or operating interests in oil and gas assets, we and such affiliate of the Manager may disagree about the value of those assets. Our general partner will be required to determine whether we should acquire or sell such properties or other assets. Because our general partner has no in-house technical resources with which to evaluate oil and gas properties and other assets, the general partner may, but is not required to, retain on our behalf technical, legal, land, operational and other consultants to assist the general partner in its determination of whether to acquire or sell properties or assets from or to any affiliate of the Manager. The Manager would be entitled to an acquisition fee or disposition fee from us in respect of any acquisitions we make from or dispositions we make to an affiliate of the Manager.

Conflicts Regarding Other Activities of the Manager and Its Affiliates

The Manager will be required to devote to the Partnership only such portion of its full productive time and attention as the Manager considers necessary to perform its obligations under the Management Agreement. In addition to serving as our manager under the Management Agreement, the Manager may serve as a manager or in a similar capacity to other oil and gas partnerships or entities that may be formed in the future by or affiliated with ARC. In addition, affiliates of the Manager engage, and will continue to engage, in other business activities (including acquiring, owning, operating, developing, marketing and selling producing and non-producing oil and gas properties and prospects). In this regard, affiliates of the Manager engage, and intend to continue to engage, in oil and gas operations and activities that are consistent with the investment objectives of the Partnership and will not be restricted from continuing such activities. This could result in a conflict of interest between activities of the Partnership and those of affiliates of the Manager if they pursue the same oil and gas property or prospect. These activities will create a continuing conflict of interest in allocating time, services and other activities between performing services for the Partnership pursuant to the Management Agreement and the Manager’s and such affiliates’ other activities.

The Manager will determine the allocation of its and its affiliates’ management time, services and other functions on an as-needed basis consistent with its obligations to the Partnership under the Management Agreement. Thus, the competition for the time and services of the Manager and its affiliates could result in insufficient attention to the management and operation of the Partnership pursuant to the Management Agreement.

The Manager’s activities will be limited to serving as our manager under the Management Agreement and as a manager or in a similar capacity to other oil and gas partnerships or entities that may be formed in the future by or affiliated with ARC. Subject to the Management Agreement, none of the affiliates of the Manager will be restricted from participating in other businesses or activities, even if these other businesses or activities compete with the Partnership’s activities and operate in the same area as the Partnership. However, the Manager may make available to its affiliates business opportunities for their account that are consistent with the investment objectives of the Partnership only after the Manager has determined that any such opportunity available to the Manager either:

cannot be pursued by the Partnership because of insufficient funds; or
it is not appropriate for the Partnership under the existing circumstances.

Conflicts Involving the Acquisition of Leases

The Partnership Agreement gives the general partner the authority to cause the Partnership to acquire undivided interests in producing and non-producing oil and natural gas properties, and to participate with other parties in the conduct of its drilling and other development operations on those properties. Because affiliates of the Manager also engage in activities consistent with the investment objectives of the Partnership,

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conflicts of interest may arise concerning which properties will be acquired by the Partnership and which properties will be acquired by an affiliate for its own account or for other affiliated partnerships, third-party programs or joint ventures.

The prospects and properties acquired by the Partnership will be limited and one or more affiliates of the Manager may own an interest in lease acreage and drilling rights surrounding a Partnership prospect or property. As a result, wells that may be drilled by the Partnership to develop such properties would provide the affiliates of the Manager with additional drill sites on adjacent acreage by allowing them to determine, at the Partnership’s expense, the value of adjacent acreage and other geological formations, zones, areas, reservoirs, etc. in which the Partnership will not have any interest. In this regard, affiliates of the Manager own, or may own, acreage throughout the area where the Partnership’s properties are situated.

In addition, although the business of the Manager will be limited to serving as the manager pursuant to the Management Agreement and in a similar capacity with respect to other oil and gas partnerships or entities that in the future may be formed by or affiliated with ARC or our sponsor, affiliates of the Manager will engage in other business activities, which will include acquiring, owning, operating, developing and selling oil and gas properties for their account. Engaging in such activities could reduce the time that such affiliates devote to assisting the Manager in managing our business and we will compete for the time and attention of such affiliates with the other activities in which they engage. In addition, it is possible that we could elect at any time or from time to time to acquire oil and gas properties from one or more affiliates of the Manager that such affiliates elect to sell in the future, but as provided in the Management Agreement any such acquisition would be at the lesser of such affiliate’s cost of the property or properties or fair market value. The Manager would be entitled to an acquisition fee in respect of any such acquisition(s) of properties we make from an affiliate of the Manager.

Farmout

We will not farmout any property to the Manager. We may farmout an undeveloped lease or well activity to an affiliate of the Manager only if our general partner, exercising the standard of a prudent operator (which standard is typically the standard to which the operator of oil and gas properties is subject under the joint operating agreement among working interest owners in an oil and gas property and is a standard that is generally interpreted to mean that the persons subject to same must act in good faith and competently and in good faith manage and administer the subject properties, but it does not impose a fiduciary duty on such operator which, if imposed, would require such fiduciary to act for the exclusive benefit of the beneficiaries and in the utmost good faith and free of conflict of interest), determines that:

the Partnership lacks the funds to complete the oil and gas operations on the lease or well and cannot obtain suitable financing;
drilling on the lease or the intended well activity would concentrate excessive funds in one location, creating undue risks to the Partnership;
the leases or well activity have been downgraded by events occurring after assignment to the Partnership so that development of the leases or well activity would not be desirable; or
the best interests of the Partnership would be served.

If we farmout a lease or well activity to an affiliate of the Manager, the general partner must retain on behalf of the Partnership the economic interests and concessions a reasonably prudent oil and gas operator would or could retain under the circumstances prevailing at the time, consistent with industry practices.

Safekeeping of Funds

The Manager may not commingle any of the Partnership’s funds that are in the Manager’s possession or control with the funds of any other entity. In addition, the Manager may not employ, or permit another to employ, the funds in any manner except for the exclusive benefit of the Partnership. The Manager has a fiduciary responsibility for the safekeeping and use of all Partnership funds in its possession or control.

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SOURCE OF FUNDS AND ESTIMATED USE OF OFFERING PROCEEDS

Source of Funds

We must receive minimum offering proceeds of $2,000,000 to break escrow, and the maximum offering proceeds may not exceed $2,000,000,000. There are no other requirements regarding our size. On completion of the offering of Units, our source of funds will be as follows:

the gross offering proceeds, which will be $2,000,000 if the minimum number of common units are sold and $2,000,000,000 if the maximum number of common units are sold; and
borrowings under a credit facility we expect to enter into in connection with the initial closing.

In this regard, on or before the initial closing date our general partner will purchase not less than $50,000 of Units at a discounted price as described in “Plan of Distribution.” Our general partner also intends to purchase additional Units to the extent, if any, additional Units must be sold in order to achieve the minimum required subscription proceeds of $2,000,000.

The net offering proceeds available to us for investment from capital contributions are not expected to be less than approximately $1.77 million if 100,000 Units are sold, less than approximately $663.75 million if 37,500,000 Units are sold and less than approximately $1.77 billion if 100,000,000 Units are sold. Such amounts include the gross offering proceeds (net of commissions and marketing fees and estimated offering and organization costs of $230,000 if the minimum offering is achieved, $86,250,000 if our first year target of selling $750.0 million in Units is achieved, and approximately $230,000,000 if the maximum offering is achieved). We anticipate that the credit facility we intend to establish after our initial closing will provide for borrowings up to a borrowing base that will be set by the lenders under the facility, at their discretion, based in part on the lenders’ valuation of our oil and gas reserves. As of the date of this prospectus, however, no lender has issued a commitment to provide any credit facility to us. Prior to any listing of our common equity on a national securities exchange, we expect that our leverage ratio will not exceed 50% as determined on an annual basis. Notwithstanding, this limitation will not affect our ability to enter into agreements and financial instruments relating to hedging up to 75% of our oil and natural gas production and pledging up to 100% of our assets and reserves in connection therewith. Our repayment of any borrowings would be from our production revenues and would reduce or delay our cash distributions to you and the other investors.

If our general partner loans money to us, which it is not required to do, then:

the interest charged to us must not exceed our general partner’s interest cost or the interest that would be charged to us, without reference to the general partner’s financial abilities or guarantees by unrelated lenders, on comparable loans for the same purpose; and
the general partner may not receive points or other financing charges or fees, although the actual amount of the charges incurred from third-party lenders may be reimbursed to the general partner.

Estimated Use of Offering Proceeds

The gross offering proceeds will be used by us to pay the following:

the possible payment of distributions as described under “Capital Contributions and Distributions”;
the acquisition costs of our prospects and properties;
the costs of developing and operating our oil and gas properties, including drilling new wells;
the management fee payable to the Manager under the Management Agreement and to our general partner under the Partnership Agreement and the other compensation payable to the Manager and our general partner as described in “Compensation”; and
the offering and organization costs of this offering.

Our general partner intends to target the sale of $750.0 million in Units for the first year following the effectiveness of this prospectus and the remaining balance for the second year following the effectiveness of this prospectus. We cannot assure you that these targets will be achieved. In addition, to the extent that we receive subscriptions for greater than $750.0 million for the first year following the effectiveness of this

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prospectus, we will accept such subscriptions subject to the investor meeting the requirements described under “Suitability Standards” and “Subscriptions.” We will not, however, accept subscriptions above the maximum offering size of 100,000,000 common units.

Offering and organization costs are composed of the dealer manager fee, selling commissions, the marketing fee and costs such as legal, accounting, SEC and FINRA registration fees, printing and similar costs related to the organization of the Partnership and the offering of the common units.

Substantially all of the gross offering proceeds available to the Partnership will be expended for the following purposes and in the following manner:

Estimated Use of Proceeds
Dollars in Thousands

           
  Minimum
Offering
  %   Target for
First Year
Following
Effectiveness
  %   Maximum
Offering
  %
Gross Proceeds   $ 2,000       100.00     $ 750,000       100.00     $ 2,000,000       100.00  
Offering and organization costs:
                                                     
Selling commissions   $ 140       7.00     $ 52,500       7.00     $ 157,500       7.00  
Dealer manager fee   $ 60       3.00     $ 22,500       3.00     $ 67,500       3.00  
Estimated reimbursement to general partner for fees and expenses related to organization and offering(1)   $ 20       1.00     $ 7,500       1.00     $ 22,500       1.00  
Estimated reimbursement to Manager for fees and expenses related to organization and offering(1)   $ 10       0.50     $ 3,750       0.50     $ 11,250       0.50  
Amounts available for investment, management fees, acquisition fees, disposition fees, financing coordination fees and distributions to Unitholders(1)(2)   $ 1,770       88.50     $ 663,750       88.50     $ 1,770,000       88.50  

(1) Assumes no debt is outstanding. We may use capital contributions to pay the management fees, acquisition fees, disposition fees and financing coordination fees to our general partner and the Manager and to make distributions to Unitholders. If a distribution to Unitholders is not funded entirely from Partnership revenues, investors residing in Maryland will be provided disclosure that provides the percentage and dollar amount that is funded from Partnership revenues and the percentage and dollar amount of such distribution that is funded by offering proceeds or borrowings. See “Proposed Activities” for a more detailed discussion of our investment objectives and “Compensation” for a more detailed discussion of the fees we will pay our general partner, the Manager and their respective affiliates.
(2) We will pay the Manager a monthly management fee during the period commencing with the initial closing date and extending through the final termination date equal to an annual rate of 3.5% of the sum of: (i) the capital contributions made by the holders of Units to us from the initial closing through the final termination date; and (ii) our average outstanding indebtedness during the preceding month. Thereafter, the monthly management fee will equal an annual rate of 5%, with 80% of the monthly management fee (that is, an annual rate of 4%) to be paid to the Manager and 20% of the monthly management fee (that is, an annual rate of 1%) to be paid to our general partner. See “Compensation” for a more detailed discussion of the management fee.

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COMPENSATION

The following table summarizes the compensation to be paid to our general partner and the other persons listed below. The amount of each item of compensation will depend on how many properties are acquired by the Partnership.

Compensation Related to the Organization of the Partnership and Offering of Units

   
Type of Compensation   Method of Compensation   Estimated Dollar Amount
Selling commissions — paid in cash to Realty Capital Securities, LLC, an affiliate of our general partner, as dealer manager of the offering, which is then reallowed in full to participating broker-dealers   7% of the gross offering proceeds   Because sales commissions are based on the aggregate offering proceeds, the total amount of sales commissions cannot be determined until this offering is complete.
          Sales commissions of $140,000 will be paid if the minimum of 100,000 common units is sold in the offering, and sales commissions of $140,000,000 will be paid if the maximum of 100,000,000 common units is sold in the offering.
Dealer Manager fees — paid in cash to our dealer manager, an affiliate of our general partner, as dealer manager of the offering   3% of the gross offering proceeds   Because dealer manager fees are based on the aggregate offering proceeds, the total amount of dealer manager fees cannot be determined until this offering is complete.
          Dealer manager fees of $60,000 will be paid if the minimum of 100,000 common units is sold in the offering, and dealer manager fees of $60,000,000 will be paid if the maximum of 100,000,000 common units is sold in the offering.
Organization and Offering Expenses (reimbursable to the general partner, its affiliates and the Manager)   Any expenses relating to the offering and the formation and financing of the Partnership, including legal costs paid by the general partner or the Manager, filing fees and similar costs, up to a maximum of 1.5% of the gross offering proceeds   Minimum offering amount: $30,000
  
Maximum offering amount: $30,000,000

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Compensation Related to the Operation of the Partnership

   
Type of Compensation   Method of Compensation   Estimated Dollar Amount
Acquisition fee and expenses — payable in cash to the Manager   In conjunction with the acquisition cost of producing and non-producing oil and gas properties and in consideration for the services to be performed by the Manager in connection with the identification, evaluation and acquisition of oil and gas properties by the Partnership from time to time, the Manager will be entitled to receive an acquisition fee equal to 2% of the contract price (including when paid any carried interest or deferred payment consideration) for each property acquired. The Manager will also be entitled to reimbursements of acquisition expenses up to 1% of the contract price for each property acquired, with the aggregate amount of the acquisition fee and reimbursement of acquisition expenses not to exceed 3% of the contract price for each property acquired.   The acquisition fee and expenses will depend on the contract price of properties acquired and expenses incurred in connection with such acquisition, and therefore cannot be estimated at this time.
  
Assuming, for example, that 85% of the gross offering proceeds is used to acquire oil and gas properties, which is the gross offering proceeds reduced by organization and offering expenses, the management fee, acquisition fees and expenses of $51,000 will be paid if the minimum of 100,000 common units is sold in the offering, and acquisition fees and expenses of $51,000,000 will be paid if the maximum of 100,000,000 common units is sold in the offering. See “Source of Funds and Estimated Use of Offering Proceeds.”
Monthly management fee (period between initial closing and the final termination date) — payable in cash to the Manager   Commencing with a payment for the month of the initial closing, and for each month thereafter through the final termination date, the Partnership will pay the Manager a monthly management fee equal to an annual rate of 3.5% of the sum of:   Because the monthly management fee will be based on the total amount of capital contributions made by our Unitholders and the average outstanding indebtedness of the Partnership, it cannot be estimated at this time.
    

  •  

the gross proceeds from the sale of Units from the initial closing through the final termination date; and

    

  •  

the average outstanding indebtedness of the Partnership during the preceding month for each month through the final termination date.

 

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Type of Compensation   Method of Compensation   Estimated Dollar Amount
Monthly management fee (period following the final termination date) — payable in cash to the general partner and the Manager   For each month beginning with the first month following the month during which the final termination date occurs, the Partnership will pay a monthly management fee equal to an annual rate of 5% of the sum of:   Because the monthly management fee will be based on the total amount of capital contributions made by our Unitholders and the average outstanding indebtedness of the Partnership, it cannot be estimated at this time.
    

  •  

the gross proceeds from the sale of Units by the Partnership; and

    

  •  

the average outstanding indebtedness of the Partnership during the preceding month.

     This monthly management fee will be paid four-fifths to the Manager (that is, at an annual rate of 4%) and one-fifth to the general partner (that is, at an annual rate of 1%).     
Reimbursement of direct general and administrative costs — payable in cash to the Manager   The Partnership will reimburse the Manager for direct general and administrative costs incurred on behalf of the Partnership (including costs and expenses incurred identifying and evaluating oil and gas properties for potential acquisition or disposition by the Partnership that are not so acquired or disposed of) and its reasonably allocated overhead expenses (excluding salary, benefits, compensation and remuneration of the Manager’s controlling persons).   Cannot be estimated at this time.
Reimbursement of administrative costs and expenses — payable in cash to the general partner   The Partnership will reimburse the general partner on a monthly basis for its allocable portion of administrative costs and third-party expenses the general partner incurs or payments the general partner makes on behalf of the Partnership. Administrative costs include all customary and routine expenses incurred by the general partner for the conduct of Partnership administration, including legal, finance, accounting, secretarial, travel, office rent, telephone, data processing and other items of a similar nature. Administrative costs do not include any organization and offering expenses incurred by the general partner and its affiliates. Administrative costs and other charges for goods and services must be fully supportable as to the necessity thereof and the reasonableness of the amount charged. Administrative costs will be allocated to the general partner based on the percentage of time the relevant personnel dedicate to the Partnership and actual costs charged to the Partnerships.   Cannot be estimated at this time.

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Type of Compensation   Method of Compensation   Estimated Dollar Amount
Disposition fee — payable in cash to the Manager and the general partner   In conjunction with the disposition by the Partnership of its producing and non-producing oil and gas properties and in consideration for the services to be performed by the Manager and the general partner in connection with the disposition of Partnership properties from time to time, the Manager and the general partner will receive reimbursement of their respective costs incurred in connection with such activities, plus a fee equal to 1% of the contract sales piece (including when paid any deferred payment or “earn out” amounts), which will be paid
one-half to each of the Manager and the general partner.
  Cannot be estimated at this time.
Financing coordination fee — payable in cash to the Manager and the general partner   In conjunction with the financing by the Partnership of its producing and non-producing oil and gas properties and operations (other than the offering described in this prospectus, but including the Partnership’s initial revolving credit facility) and in consideration for the services to be performed by the general partner and the Manager in connection therewith, the general partner and the Manager will receive a financing coordination fee equal to an aggregate of 0.75% of the principal amount of any financing (as the Partnership draws it down if it is not 100% funded in a single closing), which will be paid two-thirds to the Manager and one-third to the general partner.   The financing coordination fees will depend on the amount of borrowings authorized under the Partnership’s revolving credit facility which, in turn, will depend primarily on the amount of offering proceeds received and the value of the Partnership’s oil and gas properties at the time the Partnership seeks the financing or as of any borrowing base redetermination date. Notwithstanding, unless and until the common units are listed on a national securities exchange the Partnership will not exceed a 50% leverage ratio as determined on an annual basis. For example, the financing coordination fees would not exceed $7,500 if the minimum 100,000 common units is sold in the offering and $1,000,000 was borrowed under the credit facility or $7,500,000 if the maximum of 100,000,000 common units is sold in the offering and $1,000,000,000 was borrowed under the credit facility.

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Type of Compensation   Method of Compensation   Estimated Dollar Amount
Incentive Distributions — issued
in the form of incentive distribution rights to the general partner and Holdings
  On the initial closing date, we will issue incentive distribution rights to the general partner and AECP Holdings, LLC, an affiliate of the Manager, which we refer to as Holdings. The incentive distribution rights will be issued 50% to the general partner and 50% to Holdings.   Cannot be estimated at this time.
     Upon a sale of all or substantially all of our properties, the incentive distribution rights will entitle each of our general partner and Holdings, as holders of the incentive distribution rights, to receive a one-time incentive performance payment in cash equal to 12.5% each of the aggregate sale price of our properties net of expenses and of the payment of all our debts and obligations, minus the excess, if any, of:     
    

  •  

$20.00 per outstanding Unit (the original purchase price per Unit), less

    
    

  •  

the amount previously distributed after the final termination date of this offering on the outstanding Units as described under “Capital Contributions and Distributions — Distributions.”

    
     If the common units become publicly traded on a national securities exchange, we expect to adopt a distribution policy that will require us to establish a minimum quarterly distribution and make quarterly distributions of available cash.     

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Compensation Related to the Dissolution and Liquidation of the Partnership

Other than distributions to the general partner and Holdings with respect to the incentive distribution rights, no additional compensation or other amounts will be paid to the general partner, the Manager, Holdings, the dealer manager or their respective affiliates.

Estimated Partnership Expenses

Our general partner estimates that direct costs and administrative costs allocable to the Partnership for the first twelve months of operations will be approximately $0.4 million if the minimum of 100,000 Units is sold in the offering (representing 17.8% of the Partnership’s capital), and approximately $4.4 million if the maximum of 100,000,000 Units is sold in the offering (representing 0.2% of the Partnership’s capital). Our general partner estimates that the components of such allocable amounts will be as follows:

     
  Minimum Offering Proceeds   Target Offering of $750,000,000 Year Ending December 31, 2014   Maximum Offering Proceeds
Administrative Costs
                          
Legal   $ 10,000     $ 700,000     $ 1,400,000  
Accounting     20,000       250,000       350,000  
Geological     10,000       375,000       750,000  
Secretarial     0       50,000       75,000  
Travel     5,000       30,000       60,000  
Office Rent     24,000       24,000       24,000  
Telephone     2,000       2,000       2,000  
Data Processing     0       25,000       50,000  
Total Administrative Costs   $ 71,000     $ 1,456,000     $ 2,711,000  
Direct Costs
                          
External Legal     100,000       175,000       350,000  
Audit Fees     100,000       175,000       350,000  
Tax     50,000       100,000       200,000  
Independent Engineering Reports     10,000       375,000       750,000  
Outside Computer Services     25,000       25,000       25,000  
Total Direct Costs   $ 285,000     $ 850,000     $ 1,675,000  
TOTAL DIRECT AND ADMINISTRATIVE COSTS   $ 356,000     $ 2,306,000     $ 4,386,000  

Direct costs must be billed directly to and paid by the Partnership to the extent practicable.

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TERMS OF THE OFFERING

Subscription to the Partnership

We were formed to offer for sale a minimum of 100,000 Units for gross proceeds of $2,000,000 and a maximum of 100,000,000 Units for gross proceeds of $2,000,000,000. We are offering Units representing limited partner interests at a price of $20.00 per unit until the final termination date, as described below. Also, some classes of investors, including our general partner and its executive officers and directors and others as described in “Plan of Distribution,” may buy Units at discounted prices because sales commissions and dealer manager fees will not be paid for those sales. Thus, investors who pay discounted prices for their Units may receive higher returns on their investments in the Partnership as compared to investors who pay the entire $20.00 per Unit.

The offering period will terminate on the earliest of (i) the sale of 100,000,000 Units, (ii)         , 201  (the two-year anniversary following the effectiveness of this prospectus unless extended by our general partner, but not past         , 201 , which is three months following the two-year anniversary of the effectiveness of this prospectus) and (iii) the failure to receive the minimum subscriptions on or before         , 2015, which is one year from the effective date of this prospectus. If subscriptions for the minimum subscription are not received and accepted by the general partner prior to         , 2015, each investor’s subscription will be returned along with any interest earned and the offering will not be closed. See “— Partnership Closings and Escrow,” below. The general partner may terminate the offering at any time.

Partnership Closings and Escrow

You and the other investors should make your checks for Units payable to “UMB Bank, N.A., Escrow Agent for American Energy Capital Partners, LP” and give your check to your broker/dealer for submission to the dealer manager and escrow agent. Offering proceeds for the Partnership will be held in a separate interest bearing escrow account at the Escrow Agent until the Partnership has received offering proceeds of at least $2,000,000 within the time frame required above in “ — Subscription to the Partnership,” excluding the subscription price discounts described in “Plan of Distribution” and any subscriptions by Pennsylvania investors, but including any subscriptions by the general partner and its affiliates, or all subscriptions will be returned along with interest earned, if any. Please see “— Pennsylvania Investors,” below. Investors who invest prior to the minimum offering being achieved will receive, upon admission to the Partnership, a one-time distribution of interest for the period their funds were held in escrow. During the Partnership’s escrow period, its offering proceeds will be invested only in institutional investments comprised of, or secured by, securities of the United States government. After the funds are transferred to the Partnership account and before they are used in Partnership operations, they may be temporarily invested in income producing short-term, highly liquid investments, in which there is appropriate safety of principal, such as U.S. Treasury Bills. If the general partner determines that the Partnership may be deemed to be an investment company under the Investment Company Act of 1940, then the Partnership will take steps necessary to avoid being deemed such an investment company.

On receipt of the minimum offering proceeds and written instructions to the escrow agent from the general partner and the dealer manager, the general partner, on behalf of the Partnership, will break escrow and transfer the escrowed offering proceeds (other than any accrued interest) to the Partnership’s account, which will be a separate account maintained for the Partnership, and begin operations for the Partnership. The Partnership’s funds will not be commingled with the funds of any other entity. If the minimum offering proceeds are not received by the offering termination date, then the offering proceeds deposited in the escrow account will be promptly returned to you and the other subscribers in the Partnership with interest and without deduction for any fees. In this regard, on or before the initial closing date, our general partner will purchase not less than $50,000 of Units at a discounted price as described in “Plan of Distribution.” Our general partner also intends to purchase additional Units to the extent, if any, additional Units need to be sold to achieve the minimum required subscription proceeds of $2,000,000.

Pennsylvania Investors:  Because the aggregate minimum closing amount of the Units is less than 10% of the maximum closing amount allowed to the Partnership in this offering, you are cautioned to carefully evaluate the Partnership’s ability to fully accomplish its stated objectives and inquire as to the current dollar volume of Partnership subscriptions for its Units. In addition, subscription proceeds received by the

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Partnership from Pennsylvania investors will be placed into a short-term escrow (120 days or less) until subscriptions for at least 5% of the maximum offering proceeds have been received by the Partnership, which means that subscriptions for at least $100,000,000 have been received by the Partnership from investors, including Pennsylvania investors. If the appropriate minimum has not been met at the end of each escrow period, the Partnership must notify the Pennsylvania investors in writing by certified mail or any other means whereby a receipt of delivery is obtained within 10 calendar days after the end of each escrow period that they have a right to have their investment returned to them. If an investor requests the return of such funds within 10 calendar days after receipt of notification, the Partnership must return such funds within 15 calendar days after receipt of the investor’s request.

Acceptance of Subscriptions

Your execution of the subscription agreement constitutes your offer to buy Units in the Partnership and to hold the offer open until either:

your subscription is accepted or rejected by the general partner; or
you withdraw your offer.

To withdraw your subscription agreement, you must give written notice to the general partner before your subscription agreement is accepted by the general partner.

Also, the general partner will:

not complete a sale of Units to you until at least five business days after the date you receive a final prospectus; and
send you a confirmation of purchase.

Subject to the foregoing, your subscription agreement will be accepted or rejected by the Partnership within 30 days of its receipt. The general partner’s acceptance of your subscription is discretionary, and the general partner may reject your subscription for any reason without incurring any liability to you for this decision. If your subscription is rejected, then all of your funds will be promptly returned to you together with any interest earned on your subscription proceeds and without deduction for any fees.

When you will be admitted to the Partnership as a partner depends on whether your subscription is accepted before or after the Partnership breaks escrow. If your subscription is accepted:

before breaking escrow, then you will be admitted to the Partnership not later than 15 days after the release from escrow of the investors’ subscription proceeds to the Partnership; or
after breaking escrow, then you will be admitted to the Partnership not later than the last day of the calendar month in which your subscription was accepted by the Partnership.

Your execution of the subscription agreement and the general partner’s acceptance also constitutes your:

execution of the Partnership Agreement and acceptance of its terms and conditions as a limited partner; and
grant of a special power of attorney to the general partner to file amended certificates of limited partnership and governmental reports, and perform certain other actions on behalf of you and the other Unitholders as partners of the Partnership.

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ARC’S PRIOR ACTIVITIES

Because our sponsor was recently formed and this is the first oil and gas limited partnership it has sponsored, the following tables reflect certain historical data with respect to previous real estate programs managed or sponsored by ARC, an entity under common ownership with our sponsor.

Prior Investment Programs

The Partnership is the first oil and gas program sponsored by our sponsor, ARC and their affiliates. Prior to this offering, ARC has only sponsored the real estate investment programs described below. The information presented in this section represents the historical experience of the real estate programs managed or sponsored over the last ten years by Messrs. Nicholas S. Schorsch and William M. Kahane, the principals of our sponsor. Investors should not assume that they will experience returns, if any, comparable to those experienced by investors in such prior real estate programs. The prior performance of real estate investment programs sponsored by affiliates of Messrs. Schorsch and Kahane may not be indicative of our future results. For an additional description of this risk, see “Risk Factors — Risks Related to an Investment in the Partnership.” The information summarized below is current as of December 31, 2012 (unless specifically stated otherwise) and is set forth in greater detail in the Prior Performance Tables included in Appendix A to this prospectus. In addition, we will provide upon request to us and without charge, a copy of the most recent Annual Report on Form 10-K filed with the SEC by any public program within the last 24 months, and for a reasonable fee, a copy of the exhibits filed with such report.

We intend to conduct this offering in conjunction with future offerings by one or more public and private oil and gas and real estate entities sponsored by our sponsor, ARC and their affiliates. To the extent that such entities have the same or similar investment strategies or objectives as ours, such entities may be in competition with us for the investments we make. See the section entitled “Conflicts of Interest” in this prospectus for additional information.

Summary Information

From August 2007 (inception of the first public program) to December 31, 2012, public programs sponsored by affiliates of ARC, which include, American Realty Capital Trust, Inc., or ARCT, American Realty Capital New York Recovery REIT, Inc., or NYRR, Phillips Edison — ARC Shopping Center REIT Inc., or PE-ARC, American Realty Capital Healthcare Trust, Inc., or ARC HT, American Realty Capital — Retail Centers of America, Inc., or ARC RCA, American Realty Capital Daily Net Asset Value Trust, Inc., or ARC DNAV, American Realty Capital Trust III, Inc., or ARCT III, American Realty Capital Properties, Inc., or ARCP, American Realty Capital Healthcare Trust II, Inc., or ARC HT II, American Realty Capital Trust IV, Inc., or ARCT IV, and American Realty Capital Global Trust, Inc., or ARC Global, and the programs consolidated into ARCT, which were ARC Income Properties II, LLC and all of the Section 1031 Exchange Programs described below, had raised $4.7 billion from 70,663 investors in public offerings and an additional $37.5 million from 205 investors in a private offering by ARC Income Properties II, LLC and 45 investors in private offerings by the Section 1031 Exchange Programs. The public programs purchased 49 properties with an aggregate purchase price of $5.5 billion, including acquisition fees, in 47 states and U.S. territories and one property in the United Kingdom.

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The following table details the percentage of properties by state based on purchase price:

 
State/Possession   Purchase
Price
Alabama     1.2 % 
Arizona     2.8 % 
Arkansas     1.4 % 
California     3.9 % 
Colorado     0.5 % 
Connecticut     0.1 % 
Florida     2.6 % 
Georgia     3.8 % 
Idaho     0.2 % 
Illinois     6.9 % 
Indiana     0.7 % 
Iowa     1.2 % 
Kansas     1.7 % 
Kentucky     2.6 % 
Louisiana     1.3 % 
Maine     0.3 % 
Maryland     2.5 % 
Massachusetts     1.3 % 
Michigan     3.6 % 
Minnesota     0.7 % 
Mississippi     0.6 % 
Missouri     4.6 % 
Montana     0.3 % 
Nebraska     1.2 % 
Nevada     2.2 % 
New Hampshire     0.5 % 
New Jersey     1.8 % 
New Mexico     0.1 % 
New York     15.6 % 
North Carolina     1.9 % 
North Dakota     0.1 % 
Ohio     7.1 %