Derivative Instruments

12 Months Ended

Dec. 31, 2012

Derivative Instruments [Abstract]

DERIVATIVE INSTRUMENTS

NOTE 6 — DERIVATIVE INSTRUMENTS

The MGP on behalf of the Partnership uses a number of different derivative instruments, principally swaps, collars and options, in connection with their commodity price risk management activities. Management enters into financial instruments to hedge forecasted commodity sales against the variability in expected future cash flows attributable to changes in market prices. Swap instruments are contractual agreements between counterparties to exchange obligations of money as the underlying commodities are sold. Under commodity-based swap agreements, the Partnership receives or pays a fixed price and receives or remits a floating price based on certain indices for the relevant contract period. Commodity-based put option instruments are contractual agreements that require the payment of a premium and grant the purchaser of the put option the right, but not the obligation, to receive the difference between a fixed, or strike, price and a floating price based on certain indices for the relevant contract period, if the floating price is lower than the fixed price. The put option instrument sets a floor price for commodity sales being hedged. Costless collars are a combination of a purchased put option and a sold call option, in which the premiums net to zero. The costless collar eliminates the initial cost of the purchased put, but places a ceiling price for commodity sales being hedged.

The MGP formally documents all relationships between the Partnership's hedging instruments and the items being hedged, including its risk management objective and strategy for undertaking the hedging transactions. This includes matching the commodity derivative contracts to the forecasted transactions. The MGP assesses, both at the inception of the derivative and on an ongoing basis, whether the derivative is effective in offsetting changes in the forecasted cash flow of the hedged item. If it is determined that a derivative is not effective as a hedge or that it has ceased to be an effective hedge due to the loss of adequate correlation between the hedging instrument and the underlying item being hedged, the Partnership will discontinue hedge accounting for the derivative and subsequent changes in the derivative fair value, which is determined by management of the Partnership through the utilization of market data, will be recognized immediately in the Partnership's statements of operations. For derivatives qualifying as hedges, the Partnership recognizes the effective portion of changes in fair value of derivative instruments as accumulated other comprehensive income and reclassifies the portion relating to commodity derivatives to gas and oil production revenues within the Partnership's statements of operations as the underlying transactions are settled. For non-qualifying derivatives and for the ineffective portion of qualifying derivatives, management recognized changes in fair value within gain on mark-to-market derivatives in the Partnership's statements of operations as they occur.

The Partnership enters into derivative contracts with various financial institutions, utilizing master contracts based upon the standards set by the International Swaps and Derivatives Association, Inc. These contracts allow for rights of offset at the time of settlement of the derivatives. Due to the right of offset, derivatives are recorded on the Partnership's balance sheets as assets or liabilities at fair value on the basis of the net exposure to each counterparty. Potential credit risk adjustments are also analyzed based upon the net exposure to each counterparty. Premiums paid for purchased options are recorded on the Partnership's balance sheets as the initial value of the options. The Partnership reflected net derivative assets on its balance sheets of $15,100 at December 31, 2012, net of monetized gains receivable.

The following table summarizes the gross fair values of the Partnership's derivative instruments, presenting the impact of offsetting the derivative assets and liabilities on the Partnership's balance sheets for the periods indicated:

	Gross Amounts of Recognized Assets	Gross Amounts Offset in the Balance Sheets		Net Amount of Assets Presented in the Balance Sheets
Offsetting Derivative Assets
As of December 31, 2012
Accounts receivable monetized gains-affiliate	$      69,000	$       (5,600)	$                 63,400
Long-term receivable monetized gains-affiliate	13,800	(13,800)	—
Total derivative assets	$      82,800	$     (19,400)	$                 63,400
As of December 31, 2011
Accounts receivable monetized gains-affiliate	$    127,400	$              —	$               127,400
Long-term receivable monetized gains-affiliate	83,300	—	83,300
Total derivative assets	$    210,700	$              —	$               210,700

	Gross Amounts of Recognized Liabilities	Gross Amounts Offset in the Balance Sheets		Net Amount of Liabilities Presented in the Balance Sheets
Offsetting Derivative Liabilities
As of December 31, 2012
Put premiums payable-affiliate	$      (5,600)	$         5,600	$                         —
Long-term put premiums payable-affiliate	(16,900)	13,800	(3,100)
Total derivative liabilities	$   (22,500)	$       19,400	$                  (3,100)
As of December 31, 2011
Put premiums payable-affiliate	$             —	$               —	$                         —
Long-term put premiums payable-affiliate	—	—	—
Total derivative liabilities	$             —	$               —	$                         —

The following table summarizes the gain or loss recognized in the Partnership's statements of operations or accumulated other comprehensive income in the Partnership's balance sheet for effective derivative instruments for the periods indicated:

	Years Ended December 31,
	2012	2011
(Loss) gain recognized in accumulated OCI	$  (7,400)	$         8,400
Gain reclassified from accumulated OCI into loss	$  71,300	$    254,000

The Partnership enters into commodity future option and collar contracts to achieve more predictable cash flows by hedging its exposure to changes in commodity prices. At any point in time, such contracts may include regulated New York Mercantile Exchange ("NYMEX") futures and options contracts and non-regulated over-the-counter futures contracts with qualified counterparties. NYMEX contracts are generally settled with offsetting positions, but may be settled by the physical delivery of the commodity. Crude oil contracts are based on a West Texas Intermediate ("WTI") index. NGL fixed price swaps are priced based on a WTI crude oil index. These contracts have qualified and been designated as cash flow hedges and recorded at their fair values.

The Partnership recognized gains of $71,300 and $254,000 for the years ended December 31, 2012 and 2011, respectively, on settled contracts covering commodity production. These gains were included within gas and oil production revenue in the Partnership's statements of operations. As the underlying prices and terms in the Partnership's derivative contracts were consistent with the indices used to sell its natural gas and oil, there were no gains or losses recognized during the years ended December 31, 2012 and 2011 for hedge ineffectiveness or as a result of the discontinuance of any cash flow hedges.

At December 31, 2012, the Partnership had the following commodity derivatives:

Natural Gas Put Options

Production
Period Ending			Average	Fair Value
December 31,	Option Type	Volumes	Fixed Price	Asset (2)
		(MMBtu)(1)	(per MMBtu)(1)
2013	Puts purchased	11,800	$             3.45	$                   3,000
2014	Puts purchased	9,800	3.30	3,700
2015	Puts purchased	7,800	4.00	3,700
2016	Puts purchased	7,800	4.15	4,700
				$                 15,100

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

Prior to its merger with Chevron on February 17, 2011, Atlas Energy Inc., (AEI) monetized its derivative instruments, including those related to the future natural gas and oil production of the Transferred Business. AEI also monetized derivative instruments which were specifically related to the future natural gas and oil production of the Partnership. At December 31, 2012 and 2011, remaining hedge monetization cash proceeds of $69,000 and $127,400 related to the amounts hedged on behalf of the Partnerships' limited partners were included within accounts receivable monetized gains-affiliate, respectively, and $13,800 and $83,300 in long-term receivable monetized gains-affiliate, respectively, on the Partnership's balance sheets. The Partnership will allocate the monetization net proceeds to the limited partners based on the natural gas and oil production generated over the period of the original derivative contracts.

During June 2012, the MGP used the undistributed monetized funds to purchase natural gas put options on behalf of the limited partners of the Partnership only. A premium ("put premium") was paid to purchase the contracts and will be allocated to natural gas production revenues generated over the contractual term of the purchased hedging instruments. At December 31, 2012, the put premiums were recorded as short-term and long-term payables to affiliate of $5,600 and $16,900, respectively. Furthermore, the short-term put premium liabilities were included in accounts receivable monetized gains-affiliate and the long-term receivable monetized gains-affiliate were included in long-term liability-affiliate put premiums payable on in the Partnership's balance sheets. The put premiums included on the Partnership's balance sheets are allocable to the limited partners only.

Accumulated Other Comprehensive Loss

As a result of the monetization and the early settlement of natural gas and oil derivative instruments, the put options and the unrealized gains recognized in gains in prior periods due to natural gas and oil property impairments, the Partnership recorded a net deferred loss on its balance sheet in accumulated other comprehensive loss of $7,900 as of December 31, 2012. Included in other comprehensive loss are unrealized gains of $65,400 and $17,900 net of the MGP interest, that were recognized into income as a result of oil and gas property impairments during the year ended December 31, 2011 and prior periods, respectively. In 2011, the MGP's portion of the unrealized losses, $82,400, was written-off as part of the terms of the acquisition of the Transferred Business as a non-cash distribution to the MGP. Of the remaining $7,900 of net unrealized losses in accumulated other comprehensive loss, the Partnership will reclassify $2,800 of net losses to the Partnership's statements of operations over the next twelve month period and the remaining $5,100 in later periods.