Business Combinations And Other Acquisitions

3 Months Ended

Mar. 31, 2013

Business Combinations And Other Acquisitions [Abstract]

Business Combinations And Other Acquisitions

3. BUSINESS COMBINATIONS AND OTHER ACQUISITIONS

Acquisition of Oil and Gas Mineral Rights

During the year ended December 31, 2011, the Partnership completed the acquisition of certain oil and gas mineral rights in the Cana Woodford region of western Oklahoma for a total purchase price of approximately $8.1 million. The Partnership began to receive royalty revenues from these mineral rights in early 2012.

The Partnership and an affiliate of Wexford Capital have participated with Gulfport Energy (“Gulfport”), a publicly traded company, to acquire interests in a portfolio of oil and gas leases in the Utica Shale. During the year ended December 31, 2011, the Partnership completed the acquisitions of interests in a portfolio of leases in the Utica Shale region of eastern Ohio,  which consisted of a 10.8% interest in approximately 80,000 acres. During the third quarter of 2012, the Partnership completed an exchange of its initial 10.8% position for a pro rata interest in 125,000 acres under lease by Gulfport and an affiliate of Wexford Capital. The non-cash transaction was an exchange of the Partnership’s operating interest for the operating interest owned by another party in order to diversify the Partnership’s risk in its oil and gas investment. Thus, the Partnership determined that the non-cash exchange of the Partnership’s ownership interest in the Utica acreage did not result in any gain or loss. Also during the third quarter of 2012, the Partnership’s position was adjusted to a  5% net interest in the 125,000 acres, or approximately 6,250 net acres. As of March 31, 2013, the Partnership had invested approximately $25.1 million for its pro rata interest in the Utica Shale portfolio of oil and gas leases, which consisted of a 5% interest in a total of 137,000 gross acres, or 6,850 net acres. In addition, per the joint operating agreement completed between the Partnership, Gulfport and an affiliate of Wexford Capital, the Partnership has funded its proportionate share of drilling costs to Gulfport for wells being drilled on the Partnership’s acreage. For the three months ended March  31, 2013 and year ended December 31, 2012, the Partnership has funded approximately $6.9 million and $5.3 million, respectively, of drilling costs that are included in Coal properties and oil and natural gas properties in the unaudited condensed consolidated statements of financial position as of March 31, 2013 and December 31, 2012. Two wells began production in late 2012 and one additional well was producing as of March 31, 2013. For the three months ended March 31, 2013 and the year ended December 31, 2012, the Partnership recognized an immaterial amount of revenue and depletion expense from its Utica Shale investment.

On March 6, 2012, the Partnership completed a lease agreement with a third party for approximately1,232 acres that the Partnership previously owned in the Utica Shale region in Harrison County, Ohio. The lease agreement is for an initial five year term with an optional three year renewal period and conveys rights to the third party to perform drilling and operating activities for producing oil, natural gas or other hydrocarbons. As part of the lease agreement, the third party agreed to pay the Partnership the sum of $6,000 per acre as a lease bonus, of which $0.5 million was paid at the signing of the lease agreement. An additional $6.9 million was paid in the second quarter of 2012 totaling approximately $7.4 million of lease bonus payments for the approximately 1,232 acres. The Partnership is working to resolve title issues on approximately250 remaining acres to be included in the lease.In addition, the lease agreement stipulates that the third party shall pay the Partnership a 20% royalty based upon the gross proceeds received from the sale of oil and/or natural gas recovered from the leased property.

The Partnership analyzed the lease agreement and determined that the lease bonus payments represented a conveyance of these oil and gas rights, and should be recognized as a component of the Partnership’s unaudited consolidated condensed statements of operations. This determination was based upon the fact that that the lease agreement did not require the Partnership to perform any future obligations to perform or participate in drilling activities and the lease agreement did not result in any pooling of assets that would be used to perform any future drilling activities. In addition, the entire amount of the lease bonus was recognized as Other revenues since the Partnership’s business activities have historically included the leasing of mineral resources, including coal leasing, which have been recorded as Other revenues. These leasing activities are expected to continue. For the three months ended March 31, 2012, the Partnership recorded $0.5 million related to the initial lease bonus payments within Other revenues in the Partnership’s Northern Appalachia segment.  

Acquisition of Coal Properties 

In May 2012, the Partnership completed the purchase of certain rights to coal leases and surface property located in Daviess and McLean counties in western Kentucky for approximately $1.5 million. In addition, the Partnership could potentially be required to pay an additional $3.0 million related to this acquisition if certain conditions are met. Of that amount, $2.0 million was recorded in Property, plant and equipment and Accrued expenses related to this acquisition since this additional amount related to the purchase of these assets was probable and estimable. The remaining $1.0 million in potential payments has not been recorded because the conditions requiring payment of this amount are currently not probable.

During the third quarter of 2012, the Partnership paid $1.6 million of the $2.0 million that was accrued related to the acquisition since the conditions requiring payment had been met. The remaining accrued balance of $0.4  million is recorded in the Partnership’s unaudited condensed consolidated statements of financial position as of March 31, 2013 since the conditions remained probable and estimable.  

The coal leases and property are estimated to contain approximately 32 million tons ofproven and probable coal reserves that are contiguous to the Green River. The property is undeveloped, but fully permitted, and provides the Partnership with access to Illinois Basin coal that is adjacent to a navigable waterway, which could be exported to non-U.S. customers.