Derivative Instruments

6 Months Ended

Jun. 30, 2012

Derivative Instruments [Abstract]

DERIVATIVE INSTRUMENTS

NOTE 4 - DERIVATIVE INSTRUMENTS

Outstanding Contracts

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

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

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

Natural Gas Put Options

Production
Period Ending		Average	Fair Value
December 31,	Volumes	Strike	Asset  (2)
	(mmbtu) (1)	(per mmbtu) (1)
2012	14,522	$                        2.80	$                     2,515
2013	21,782	3.45	8,718
2014	18,152	3.80	9,408
2015	14,522	4.00	9,860
2016	14,522	4.15	11,881
			$                  42,382

____________

(1)"Mmbtu" represents million British Thermal Units.

(2)Fair value based on forward NYMEX natural gas prices, as applicable.

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

Fair Value of Derivative Instruments:

		Fair Value
Derivatives in Cash Flow Hedging Relationships	Balance Sheet Location	June 30, 2012
Derivative Commodity Contracts	Current Assets	$        6,800
	Long-Term Assets	35,600
	Current liabilities	—
	Long-term liabilities	—
	Total	$      42,400

Effects of Derivative Instruments on Statements of Operations:

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2012	2011	2012	2011
(Loss) Gain recognized in accumulated OCI	$     (3,600)	$              —	$    (3,600)	$         24,100
Gain reclassified from accumulated OCI into income	$    19,300	$      63,100	$   78,200	$       134,800

Historically, the MGP has entered into natural gas and crude oil future option contracts and collar contracts on behalf of the Partnership to achieve more predictable cash flows by hedging its exposure to changes in natural gas and oil prices. At any point in time, such contracts 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 delivery of natural gas. Crude oil contracts are based on a West Texas Intermediate ("WTI") index. These contracts qualified and were designated as cash flow hedges and recorded at their fair values.

The Partnership recognized a gain of $188,300 for the six months ended June 30, 2011 on settled contracts covering natural gas and oil production for historical periods prior to the acquisition of the Transferred Business. These gains are 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 six months ended June 30, 2011 for hedge ineffectiveness or as a result of the discontinuance of any cash flow hedges.

Monetized Gains

Prior to the sale on February 17, 2011 of the Transferred Business, Atlas Energy, Inc. monetized its derivative instruments related to the Transferred Business. The monetized proceeds related to instruments that were originally put into place to hedge future natural gas and oil production of the Transferred Business, including production generated through its drilling partnerships. In addition, a portion of the monetized proceeds were used to fund the premiums paid in connection with the purchase of the June 2012 put options. As of June 30, 2012 and December 31, 2011, the Partnership recorded a receivable from the monetized derivative instruments of $190,000 and $248,500 in accounts receivable monetized gains-affiliate, respectively, and $87,000 and $163,100 in long-term receivable monetized gains-affiliate, respectively, with the corresponding net unrealized gains in accumulated other comprehensive income on the Partnership's balance sheets, which will be allocated to natural gas and oil production revenue generated over the period of the original instruments' term.

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 at June 30, 2012, the put premiums were recorded as short-term and long-term payables to affiliate of $9,400 and $36,500, respectively. Furthermore, the put premium liabilities were included in accounts receivable monetized gains-affiliate and long-term receivable monetized gains-affiliate, respectively, in the Partnership's balance sheets. The put premiums will be allocated to natural gas production revenues generated over the contractual term of the purchased hedging instruments.

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

	Gross Amounts	Gross Amounts	Net Amount of Assets
	of Recognized	Offset in the	Presented in the
	Assets	Balance Sheets	Balance Sheets
Offsetting Derivative Assets
As of June 30, 2012
Accounts receivable monetized gains-affiliate	$                           190,000	$                           (9,400)	$                                          180,600
Long-term accounts receivable monetized gains-affiliate	87,000	(36,500)	50,500
Total	$                           277,000	$                           (45,900)	$                                          231,100
As of December 31, 2011
Accounts receivable monetized gains-affiliate	$                           248,500	$                           —	$                                          248,500
Long-term accounts receivable monetized gains-affiliate	163,100	—	163,100
Total	$                           411,600	$                           —	$                                          411,600
	Gross Amounts	Gross Amounts	Net Amount of Liabilities
	of Recognized	Offset in the	Presented in the
	Liabilities	Balance Sheets	Balance Sheets
Offsetting Derivative Liabilities
As of June 30, 2012
Put premiums payable-affiliate	$                          (9,400)	$                          9,400	$                                          —
Long-term put premiums payable-affiliate	(36,500)	36,500	—
Total	$                          (45,900)	$                          45,900	$                                          —
As of December 31, 2011
Put premiums payable-affiliate	$                          —	$                          —	$                                          —
Long-term put premiums payable-affiliate	—	—	—
Total	$                          —	$                          —	$                                          —

Accumulated Other Comprehensive Income (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 income in prior periods due to natural gas and oil property impairments, the Partnership recorded a net deferred gain on its balance sheet in accumulated other comprehensive income of $22,200 as of June 30, 2012. For the year ended December 31, 2011 and prior periods, unrealized gains of $31,800 and $219,500 net of the MGP interest, respectively, were recognized into income as a result of oil and gas property impairments. In 2011, the MGP's portion of the unrealized gains, $327,000, was written-off as part of the terms of the acquisition of the Transferred Business as a non-cash distribution to the MGP. During the current year, $19,100 of monetized proceeds were recorded by the Partnership and allocated only to the limited partners. Of the remaining $22,200 of net unrealized gain in accumulated other comprehensive income, the Partnership will reclassify $11,700 of net gains to the Partnership's statements of operations over the next twelve month period and the remaining $10,500 in later periods.