Atlas Energy, L.P. (ATLS)

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Atlas Energy, Inc. (ATLS)

Q1 2010 Earnings Call

May 7, 2010 9:00 am ET

Executives

Brian Begley – VP, IR

Ed Cohen – Chairman and CEO

Rich Weber – President and COO

Matt Jones – CFO and EVP

Analysts

Mike Hall – Wells Fargo

Amir Arif – Stifel Nicolaus

Scott Hanold – RBC Capital Markets

Jack Aydin – KeyBanc Capital Markets

Marshall Carver – Capital One Southcoast

Mike Scialla – Thomas Weisel Partners

Ray Deacon – Pritchard Capital

Lee Cooperman – Omega Advisors

Wayne Cooperman – Cobalt Capital

Presentation

Operator

Welcome to the first quarter 2010 Atlas Energy Incorporated earnings conference call. (Operators Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Brian Begley, Director of Investor Relations. Mr. Begley, you may proceed.

Brian Begley

Thanks and good morning, everyone. Thank you for joining us today for our call. As we get started, I would like to remind everyone of the following. During this conference call, we make certain forward-looking statements and in this context, forward-looking statements often address our expected future business and financial performance and financial condition and often contains words such as expects, anticipates and similar words or phrases.

Forward-looking statements by their nature address matters that are uncertain and are subject to certain risks and uncertainties which could cause actual results to differ materially from those projected in the forward-looking statements. We discussed these risks in our quarterly report on form 10-Q which will be filed later today and our annual report also on form 10-K, particularly in Item 1.

I would also like to caution you not to place undue reliance on these forward-looking statements which reflect management's analysis only as of the date hereof. The company undertakes no obligation to publicly update our forward-looking statement or publicly release the results of any revisions to forward-looking statements that may be made to reflect events or circumstances after the date thereof or reflect the occurrence of unanticipated events.

As we introduced several periods ago we have provided several additional financial disclosures, incorporated in our earnings release, in order to segregate our E&P operations from our consolidated GAAP financial statements. These consolidated income statements and balance sheets provided for all applicable periods that separate Atlas Energy's core E&P operations from the financial results from Atlas Pipeline whose results are required to be consolidated under GAAP in Atlas Energy's results due to our controlling interest in Atlas Pipeline.

Lastly, we also provided reconciliation from net income on a GAAP basis to adjusted net income, adjusted EBITDA and discretionary cash flow for our E&P operations as we believe, these non-GAAP measures offer the best means of evaluating results of our business. With that, I would like to turn the call over to our Chairman and Chief Executive Officer, Ed Cohen, for his remarks.

Ed Cohen

Thank you very much Brian and hello to all. We really do have a lot to celebrate. First, we will be reporting today on the excellent increasingly successful results from our horizontal Marcellus Shale drill. Then, of course, we are moving rapidly to implement and to expand the Marcellus joint venture we have just entered into and we entered into it at record-breaking prices and on extremely desirable terms. The transaction by the way which has generated virtually universal praise for us and for our joint venture partner, Reliance Industries.

We have already purchased a further 42,000 acres of strategic in-fill acreage on behalf of the Marcellus joint venture and we did that at an average price per acre only about 1/3 of the acreage value that we ourselves received in last month’s $3 billion Reliance joint venture.

As for results, we have now spud 42 horizontal Marcellus Shale wells in our core area of Southwestern Pennsylvania. 29 of these wells have been successful drilled to total depth and cased. The remaining 13 wells are in the process of being drilled. Atlas has turned 17 of these horizontal wells into line; six wells in the wet gas area and 11 wells in the dry gas area. A clear picture has now emerged. Mature Atlas wells are now averaging actual production of 4.5 Mmcf per day, some 70 days after initial production.

As a result, we have actually had to make upward revisions in our budgetary and planning projections to provide for average anticipated EURs of 6 billion cubic feet equivalent per well. That is a sharp increase from our original estimates of 4 billion cubic feet equivalent. Production declines have now proven significantly shallower than originally anticipated. Accordingly, while we had ourselves conservatively anticipated average production during the first year of 1.35 Mmcf per horizontal Marcellus well and to be sure some bolder analysts had projected as much as 1.6-1.7 Mmcf per year.

We have now had to adjust our expectations upward again to anticipated average production above 2 Mmcf during the first year of a well’s full operations, approximately 50% higher than our original expectation. This is all great news. I want to point out we owe much to the impressive dedication and the exceptional effort of scores of skilled Atlas employees. These things just don’t happen on their own.

Our continued success, however, depends first on our ability to overcome prevailing low market prices for natural gas and secondly on our ability to resolve the pipeline constraints I discussed in our February call. As for prices, we would of course prefer higher prices but we can make a great return even at the present NYMEX strip pricing.

In summary, Atlas will generate a 51% annual internal rate of return based on today’s results at today’s prices and at today’s costs and that is even before the benefits of our joint venture. As a result of the Reliance joint venture, however, for each future Marcellus horizontal well we will pay only 15% of the total costs but we will receive 60% of the revenues. Now that is a real enhancement and what downside protection as some analysts have pointed out.

Furthermore, hedging has helped us enormously in the past in dealing with volatile and sometimes deteriorating prices. During the first quarter of 2010 for example Atlas realized an average natural gas price of $7.61/Mcf and that compares to an average market price of $5.68. Currently I am glad to report we had an unrealized mark to market hedge gain of approximately $90 million.

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