| ATLAS PIPELINE PARTNERS LP ITEM 1A RISK FACTORS Limited partner interests are inherently different from the capital stock of a corporation, although many of the business risks we encounter are similar to those that would be faced by a corporation engaged in a similar business |
| If any of these risks actually occurs, our business, financial condition or results of operations could be materially adversely affected |
| Risks Relating to Our Business The amount of cash we generate depends in part on factors beyond our control |
| The actual amounts of cash we generate will depend upon numerous factors relating to our business which may be beyond our control, including: • the demand for and price of natural gas and NGLs; • the volume of natural gas we transport; • expiration of significant contracts; • continued development of wells for connection to our gathering systems; • the availability of local, intrastate and interstate transportation systems; • the expenses we incur in providing our gathering services; • the cost of acquisitions and capital improvements; • our issuance of equity securities; • required principal and interest payments on our debt; • fluctuations in working capital; • prevailing economic conditions; • fuel conservation measures; • alternate fuel requirements; 21 _________________________________________________________________ [69]Table of Contents • government regulation and taxation; and • technical advances in fuel economy and energy generation devices |
| Our financial and operating performance may fluctuate significantly from quarter to quarter |
| We may be unable to continue to generate sufficient cash flow to make distributions to our unitholders or to meet our working capital, capital expenditure or debt service requirements |
| If we are unable to do so, we may be required to sell assets or equity, reduce capital expenditures, refinance all or a portion of our existing indebtedness or obtain additional financing |
| Our profitability is affected by the volatility of prices for natural gas and NGL products |
| As a result, our income depends to a significant extent upon the prices at which the natural gas we transport, treat or process and the natural gas liquids, or NGLs, we produce are sold |
| Additionally, changes in natural gas prices may indirectly impact our profitability since prices can influence drilling activity and well operations and thus the volume of gas we gather and process |
| Historically, the price of both natural gas and NGLs has been subject to significant volatility in response to relatively minor changes in the supply and demand for natural gas and NGL products, market uncertainty and a variety of additional factors beyond our control, including those we describe in “—The amount of cash we generate depends in part on factors beyond our control,” above |
| We expect this volatility to continue |
| This volatility may cause our gross margin and cash flows to vary widely from period to period |
| Our hedging strategies may not be sufficient to offset price volatility risk and, in any event, do not cover all of the throughput volumes subject to percentage-of-proceeds contracts |
| Moreover, hedges are subject to inherent risks, which we describe in “— Our hedging strategies may fail to protect us and could reduce our gross margin and cash flow |
| ” The amount of natural gas we transport will decline over time unless we are able to attract new wells to connect to our gathering systems |
| Production of natural gas from a well generally declines over time until the well can no longer economically produce natural gas and is plugged and abandoned |
| Failure to connect new wells to our gathering systems could, therefore, result in the amount of natural gas we transport reducing substantially over time and could, upon exhaustion of the current wells, cause us to abandon one or more of our gathering systems and, possibly, cease operations |
| The primary factors affecting our ability to connect new supplies of natural gas to our gathering systems include our success in contracting for existing wells that are not committed to other systems, the level of drilling activity near our gathering systems and, in the Mid-Continent region, our ability to attract natural gas producers away from our competitors’ gathering systems |
| Fluctuations in energy prices can greatly affect production rates and investments by third parties in the development of new oil and natural gas reserves |
| Drilling activity generally decreases as oil and natural gas prices decrease |
| We have no control over the level of drilling activity in our service areas, the amount of reserves underlying wells that connect to our systems and the rate at which production from a well will decline |
| In addition, we have no control over producers or their production decisions, which are affected by, among other things, prevailing and projected energy prices, demand for hydrocarbons, the level of reserves, geological considerations, governmental regulation and the availability and cost of capital |
| Because our operating costs are fixed to a significant degree, a reduction in the natural gas volumes we transport or process would result in a reduction in our gross margin and cash flows |
| 22 _________________________________________________________________ [70]Table of Contents The success of our Appalachian operations depends upon Atlas America’s ability to drill and complete commercial producing wells |
| Substantially all of the wells we connect to our gathering systems in our Appalachian service area are drilled and operated by Atlas America for drilling investment partnerships sponsored by it |
| As a result, our Appalachian operations depend principally upon the success of Atlas America in sponsoring drilling investment partnerships and completing wells for these partnerships |
| Atlas America operates in a highly competitive environment for acquiring undeveloped leasehold acreage and attracting capital |
| Atlas America may not be able to compete successfully in the future in acquiring undeveloped leasehold acreage or in raising additional capital through its drilling investment partnerships |
| Furthermore, Atlas America is not required to connect wells for which it is not the operator to our gathering systems |
| If Atlas America cannot or does not continue to sponsor drilling investment partnerships, if the amount of money raised by those partnerships decreases, or if the number of wells actually drilled and completed as commercially producing wells decreases, the amount of natural gas transported by our Appalachian gathering systems would substantially decrease and could, upon exhaustion of the wells currently connected to our gathering systems, cause us to abandon one or more of our Appalachian gathering systems, thereby materially reducing our gross margin, and cash flows |
| The failure of Atlas America to perform its obligations under our natural gas gathering agreements with it may adversely affect our business |
| Substantially all of our Appalachian operating system revenues currently consist of the fees we receive under the master natural gas gathering agreement and other transportation agreements we have with Atlas America and its affiliates |
| We expect to derive a material portion of our gross margin from the services we provide under our contracts with Atlas America for the foreseeable future |
| Any factor or event adversely affecting Atlas America’s business or its ability to perform under its contracts with us or any default or nonperformance by Atlas America of its contractual obligations to us, could reduce our gross margin, and cash flows |
| The success of our Mid-Continent operations depends upon our ability to continually find and contract for new sources of natural gas supply from unrelated third parties |
| Unlike our Appalachian operations, none of the drillers or operators in our Mid-Continent service area is an affiliate of ours |
| Moreover, our agreements with most of the drillers and operators with which our Mid-Continent operations do business do not require them to dedicate significant amounts of undeveloped acreage to our systems |
| Failure to connect new wells to our Mid-Continent operations will, as described in “— The amount of natural gas we transport will decline over time unless we are able to attract new wells to connect to our gathering systems,” above, reduce our gross margin and cash flows |
| Our Mid-Continent operations currently depend on certain key producers for their supply of natural gas; the loss of any of these key producers could reduce our revenues |
| supplied our Mid-Continent systems with a majority of their natural gas supply |
| If these producers reduce the volumes of natural gas that they supply to us, our gross margin and cash flows would be reduced unless we obtain comparable supplies of natural gas from other producers |
| 23 _________________________________________________________________ [71]Table of Contents The curtailment of operations at, or closure of, either of our processing plants could harm our business |
| We currently have one processing plant for our Elk City operation and one active processing plant for our Velma operation |
| If operations at either plant were to be curtailed, or closed, whether due to accident, natural catastrophe, environmental regulation or for any other reason, our ability to process natural gas from the relevant gathering system and, as a result, our ability to extract and sell NGLs, would be harmed |
| If this curtailment or stoppage were to extend for more than a short period, our gross margin, and cash flows would be materially reduced |
| We may face increased competition in the future in our Mid-Continent service areas |
| Our Mid-Continent operations may face competition for well connections |
| operate competing gathering systems and processing plants in our Velma service area |
| In our Elk City service area, ONEOK Field Services, Eagle Rock Midstream Resources, LP, Enbridge Energy Partners, LP, CenterPoint Energy, Inc |
| and Enogex operate competing gathering systems and processing plants |
| Some of our competitors have greater financial and other resources than we do |
| If these companies become more active in our Mid-Continent service areas, we may not be able to compete successfully with them in securing new well connections or retaining current well connections |
| If we do not compete successfully, the amount of natural gas we transport, process and treat will decrease, reducing our gross margin, and cash flows |
| The amount of natural gas we transport, treat or process may be reduced if the public utility and interstate pipelines to which we deliver gas cannot or will not accept the gas |
| Our gathering systems principally serve as intermediate transportation facilities between sales lines from wells connected to our systems and the public utility or interstate pipelines to which we deliver natural gas |
| If one or more of these pipelines has service interruptions, capacity limitations or otherwise does not accept the natural gas we transport, and we cannot arrange for delivery to other pipelines, local distribution companies or end users, the amount of natural gas we transport may be reduced |
| Since our revenues depend upon the volumes of natural gas we transport, this could result in a material reduction in our gross margin, and cash flows |
| We may be unsuccessful in integrating the operations from our recent acquisitions or any future acquisitions with our operations and in realizing all of the anticipated benefits of these acquisitions |
| We acquired Elk City in April 2005 and completed the NOARK acquisition in October 2005 and are currently in the process of integrating their operations with ours |
| We also have an active, on-going program to identify other potential acquisitions |
| The integration of previously independent operations with ours can be a complex, costly and time-consuming process |
| The difficulties of combining Elk City and NOARK, as well as any operations we may acquire in the future, with us include, among other things: • operating a significantly larger combined entity; • the necessity of coordinating geographically disparate organizations, systems and facilities; • integrating personnel with diverse business backgrounds and organizational cultures; • consolidating operational and administrative functions; • integrating internal controls, compliance under Sarbanes-Oxley Act of 2002 and other corporate governance matters; 24 _________________________________________________________________ [72]Table of Contents • the diversion of management’s attention from other business concerns; • customer or key employee loss from the acquired businesses; • a significant increase in our indebtedness; and • potential environmental or regulatory liabilities and title problems |
| The process of combining companies or the failure to integrate them successfully could harm our business or future prospects, and result in significant decreases in our gross margin and cash flows |
| The acquisitions of our Velma, Elk City and NOARK operations have substantially changed our business, making it difficult to evaluate our business based upon our historical financial information |
| The acquisitions of our Velma, Elk City and NOARK operations have significantly increased our size and substantially redefined our business plan, expanded our geographic market and resulted in large changes to our revenues and expenses |
| As a result of these acquisitions, and our continued plan to acquire and integrate additional companies that we believe present attractive opportunities, our financial results for any period or changes in our results across periods may continue to dramatically change |
| Our historical financial results, therefore, should not be relied upon to accurately predict our future operating results, thereby making the evaluation of our business more difficult |
| Before acquiring its Velma and Elk City operations, Atlas had no previous experience either in its Mid-Continent service area or in operating natural gas processing plants |
| Our Mid-Continent gathering systems are located principally in Oklahoma and northern Texas, areas in which it has been involved only since July 2004 as a result of the Velma acquisition and, subsequently, Elk City acquisition in April 2005 and the NOARK acquisition in October 2005 |
| In addition, as a result of these acquisitions, Atlas began to operate natural gas processing plants, a business in which it had no prior operating experience |
| Atlas depends upon the experience, knowledge and business relationships that have been developed by the senior management of its Mid-Continent operations to operate successfully in the region |
| The loss of the services of one or more members of Atlas’ Mid-Continent senior management, in particular, Robert R Firth, President, and David D Hall, Chief Financial Officer, could limit its growth or ability to maintain its current level of operations in the Mid-Continent region |
| Due to our lack of asset diversification, negative developments in our operations would reduce our ability to make distributions to our unitholders |
| We rely exclusively on the revenues generated from our transportation, gathering and processing operations, and as a result, our financial condition depends upon prices of, and continued demand for, natural gas and NGLs |
| Due to our lack of diversification in asset type, a negative development in one of these businesses would have a significantly greater impact on our financial condition and results of operations than if we maintained more diverse assets |
| Our construction of new assets may not result in revenue increases and is subject to regulatory, environmental, political, legal and economic risks, which could impair our results of operations and financial condition |
| One of the ways we may grow our business is through the construction of new assets, such as the Sweetwater plant |
| The construction of additions or modifications to our existing systems and facilities, and the construction of new assets, involve numerous regulatory, environmental, political and legal uncertainties beyond our control and require the expenditure of significant amounts of capital |
| Any projects we undertake 25 _________________________________________________________________ [73]Table of Contents may not be completed on schedule at the budgeted cost, or at all |
| Moreover, our revenues may not increase immediately upon the expenditure of funds on a particular project |
| For instance, if we expand a gathering system, the construction may occur over an extended period of time, and we will not receive any material increases in revenues until the project is completed |
| Moreover, we may construct facilities to capture anticipated future growth in production in a region in which growth does not materialize |
| Since we are not engaged in the exploration for and development of natural gas reserves, we often do not have access to estimates of potential reserves in an area before constructing facilities in the area |
| To the extent we rely on estimates of future production in our decision to construct additions to our systems, the estimates may prove to be inaccurate because there are numerous uncertainties inherent in estimating quantities of future production |
| As a result, new facilities may not be able to attract enough throughput to achieve our expected investment return, which could impair our results of operations and financial condition |
| In addition, our actual revenues from a project could materially differ from expectations as a result of the price of natural gas, the NGL content of the natural gas processed and other economic factors described in this section |
| In addition to the risks discussed above, expected revenue from the Sweetwater gas plant could be reduced or delayed due to the following reasons: • difficulties in obtaining equity or debt financing for construction and operating costs; • difficulties in obtaining permits or other regulatory or third party consents; • construction and operating costs exceeding budget estimates; • revenue being less than expected due to lower commodity prices or lower demand; • difficulties in obtaining consistent supplies of natural gas; and • terms in operating agreements that are not favorable to us |
| If we are unable to obtain new rights-of-way or the cost of renewing existing rights-of-way increases, then we may be unable to fully execute our growth strategy and our cash flows could be reduced |
| The construction of additions to our existing gathering assets may require us to obtain new rights-of-way before constructing new pipelines |
| We may be unable to obtain rights-of-way to connect new natural gas supplies to our existing gathering lines or capitalize on other attractive expansion opportunities |
| Additionally, it may become more expensive for us to obtain new rights-of-way or to renew existing rights-of-way |
| If the cost of obtaining new rights-of-way or renewing existing rights-of-way increases, then our cash flows could be reduced |
| Regulation of our gathering operations could increase our operating costs, decrease our revenues, or both |
| Currently our gathering of natural gas from wells is exempt from regulation under the Natural Gas Act of 1938 |
| However, the implementation of new laws or policies, or interpretations of existing laws, could subject us to regulation by FERC under the Natural Gas Act |
| We expect that any such regulation would increase our costs, decrease our gross margin and cash flows, or both |
| FERC regulation will still affect our business and the market for our products |
| FERC’s policies and practices affect a range of our natural gas pipeline activities, including, for example, its policies on open access transportation, ratemaking, capacity release, and market center promotion, which indirectly affect intrastate markets |
| In recent years, FERC has pursued pro-competitive policies in its regulation of interstate natural gas 26 _________________________________________________________________ [74]Table of Contents pipelines |
| However, we cannot assure you that FERC will continue this approach as it considers matters such as pipeline rates and rules and policies that may affect rights of access to natural gas transportation capacity |
| Other state and local regulations will also affect our business |
| Matters subject to regulation include rates, service and safety |
| Our gathering lines are subject to ratable take and common purchaser statutes in Texas and Oklahoma |
| Ratable take statutes generally require gatherers to take, without undue discrimination, natural gas production that may be tendered to the gatherer for handling |
| Similarly, common purchaser statutes generally require gatherers to purchase without undue discrimination as to source of supply or producer |
| These statutes restrict our right as an owner of gathering facilities to decide with whom we contract to purchase or transport natural gas |
| Federal law leaves any economic regulation of natural gas gathering to the states |
| Texas and Oklahoma have adopted complaint-based regulation of natural gas gathering activities, which allows natural gas producers and shippers to file complaints with state regulators in an effort to resolve grievances relating to natural gas gathering access and, in Texas and Oklahoma, with respect to rate discrimination |
| Should a complaint be filed or regulation by the Texas Railroad Commission or Oklahoma Corporation Commission become more active, our revenues could decrease |
| Increased regulatory requirements relating to the integrity of the Ozark Transmission pipeline will require it to spend additional money to comply with these requirements |
| Ozark Gas Transmission is subject to extensive laws and regulations related to pipeline integrity |
| For example, federal legislation signed into law in December 2002 includes guidelines for the US Department of Transportation and pipeline companies in the areas of testing, education, training and communication |
| Compliance with existing and recently enacted regulations requires significant expenditures |
| Additional laws and regulations that may be enacted in the future, such as US Department of Transportation implementation of additional hydrostatic testing requirements, could significantly increase the amount of these expenditures |
| Ozark Gas Transmission is subject to FERC rate-making policies that could have an adverse impact on our ability to establish rates that would allow us to recover the full cost of operating the pipeline |
| Rate-making policies by FERC could affect Ozark Gas Transmission’s ability to establish rates, or to charge rates that would cover future increases in its costs, or even to continue to collect rates that cover current costs |
| Natural gas companies may not charge rates that have been determined not to be just and reasonable by FERC The rates, terms and conditions of service provided by natural gas companies are required to be on file with FERC in FERC-approved tariffs |
| Pursuant to FERC’s jurisdiction over rates, existing rates may be challenged by complaint and proposed rate increases may be challenged by protest |
| We cannot assure you that FERC will continue to pursue its approach of pro-competitive policies as it considers matters such as pipeline rates and rules and policies that may affect rights of access to natural gas capacity and transportation facilities |
| Any successful complaint or protest against Ozark Gas Transmission’s rates could reduce our revenues associated with providing transmission services |
| We cannot assure you that we will be able to recover all of Ozark Gas Transmission’s costs through existing or future rates |
| Ozark Gas Transmission is subject to regulation by FERC in addition to FERC rules and regulations related to the rates it can charge for its services |
| FERC’s regulatory authority also extends to: • operating terms and conditions of service; • the types of services Ozark Gas Transmission’s may offer to its customers; • construction of new facilities; 27 _________________________________________________________________ [75]Table of Contents • acquisition, extension or abandonment of services or facilities; • accounts and records; and • relationships with affiliated companies involved in all aspects of the natural gas and energy businesses |
| FERC action in any of these areas or modifications of its current regulations can impair Ozark Gas Transmission’s ability to compete for business, the costs it incurs in its operations, the construction of new facilities or its ability to recover the full cost of operating its pipeline |
| For example, the development of uniform interstate gas quality standards by FERC could create two distinct markets for natural gas—an interstate market subject to uniform minimum quality standards and an intrastate market with no uniform minimum quality standards |
| Such a bifurcation of markets could make it difficult for our pipelines to compete in both markets or to attract certain gas supplies away from the intrastate market |
| The time FERC takes to approve the construction of new facilities could raise the costs of our projects to the point where they are no longer economic |
| FERC has authority to review pipeline contracts |
| If FERC determines that a term of any such contract deviates in a material manner from a pipeline’s tariff, FERC typically will order the pipeline to remove the term from the contract and execute and refile a new contract with FERC or, alternatively, to amend its tariff to include the deviating term, thereby offering it to all shippers |
| If FERC audits a pipeline’s contracts and finds deviations that appear to be unduly discriminatory, FERC could conduct a formal enforcement investigation, resulting in serious penalties and/or onerous ongoing compliance obligations |
| Should Ozark Gas Transmission’s fail to comply with all applicable FERC administered statutes, rules, regulations and orders, it could be subject to substantial penalties and fines |
| Under the recently enacted Energy Policy Act of 2005, FERC has civil penalty authority under the Natural Gas Act to impose penalties for current violations of up to dlra1cmam000cmam000 per day for each violation |
| Finally, we cannot give any assurance regarding the likely future regulations under which we will operate Ozark Gas Transmission or the effect such regulation could have on our business, financial condition, and results of operations |
| Compliance with pipeline integrity regulations issued by the United States Department of Transportation and state agencies could result in substantial expenditures for testing, repairs and replacement |
| United States Department of Transportation and state agency regulations require pipeline operators to develop integrity management programs for transportation pipelines located in “high consequence areas |
| ” The regulations require operators to: • perform ongoing assessments of pipeline integrity; • identify and characterize applicable threats to pipeline segments that could impact a high consequence area; • improve data collection, integration and analysis; • repair and remediate the pipeline as necessary; and • implement preventative and mitigating actions |
| 28 _________________________________________________________________ [76]Table of Contents We do not believe that the cost of implementing integrity management program testing along certain segments of our pipeline will have a material effect on our results of operations |
| This does not include the costs, if any, of any repair, remediation, preventative or mitigating actions that may be determined to be necessary as a result of the testing program, which costs could be substantial |
| Our midstream natural gas operations may incur significant costs and liabilities resulting from a failure to comply with new or existing environmental regulations or a release of hazardous substances into the environment |
| The operations of our gathering systems, plant and other facilities are subject to stringent and complex federal, state and local environmental laws and regulations |
| These laws and regulations can restrict or impact our business activities in many ways, including restricting the manner in which we dispose of substances, requiring remedial action to remove or mitigate contamination, and requiring capital expenditures to comply with control requirements |
| Failure to comply with these laws and regulations 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 impose strict, joint and several liability for costs required to clean up and restore sites where substances and wastes have been disposed or otherwise released |
| 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 substances or wastes into the environment |
| There is inherent risk of the incurrence of environmental costs and liabilities in our business due to our handling of natural gas and other petroleum products, air emissions related to our operations, historical industry operations including releases of substances into the environment, and waste disposal practices |
| For example, an accidental release from one of our pipelines or processing facilities could subject us to substantial liabilities arising from environmental cleanup, restoration costs and natural resource damages, claims made by neighboring landowners and other third parties for personal injury and property damage, and fines or penalties for related violations of environmental laws or regulations |
| Moreover, the possibility exists that stricter laws, regulations or enforcement policies could significantly increase our compliance costs and the cost of any remediation that may become necessary |
| We may not be able to recover some or any of these costs from insurance |
| We may not be able to execute our growth strategy successfully |
| Our strategy contemplates substantial growth through both the acquisition of other gathering systems and processing assets and the expansion of our existing gathering systems and processing assets |
| Our growth strategy involves numerous risks, including: • we may not be able to identify suitable acquisition candidates; • we may not be able to make acquisitions on economically acceptable terms; • our costs in seeking to make acquisitions may be material, even if we cannot complete any acquisition we have pursued; • irrespective of estimates at the time we make an acquisition, the acquisition may prove to be dilutive to earnings and operating surplus; • we may encounter difficulties in integrating operations and systems; and 29 _________________________________________________________________ [77]Table of Contents • any additional debt we incur to finance an acquisition may impair our ability to service our existing debt |
| Limitations on our access to capital or on the market for our common units will impair our ability to execute our growth strategy |
| Our ability to raise capital for acquisitions and other capital expenditures depends upon ready access to the capital markets |
| Historically, we have financed our acquisitions, and to a much lesser extent, expansions of our gathering systems by bank credit facilities and the proceeds of public and private equity offerings of our common units and preferred units of our operating partnership |
| If we are unable to access the capital markets, we may be unable to execute our strategy of growth through acquisitions |
| Our hedging strategies may fail to protect us and could reduce our gross margin and cash flow |
| We pursue various hedging strategies to seek to reduce our exposure to losses from adverse changes in the prices for natural gas and NGLs |
| Our hedging activities will vary in scope based upon the level and volatility of natural gas and NGL prices and other changing market conditions |
| Our hedging activity may fail to protect or could harm us because, among other things: • hedging can be expensive, particularly during periods of volatile prices; • available hedges may not correspond directly with the risks against which we seek protection; • the duration of the hedge may not match the duration of the risk against which we seek protection; and • the party owing money in the hedging transaction may default on its obligation to pay |
| Litigation or governmental regulation relating to environmental protection and operational safety may result in substantial costs and liabilities |
| Our operations are subject to federal and state environmental laws under which owners of natural gas pipelines can be liable for clean-up costs and fines in connection with any pollution caused by their pipelines |
| We may also be held liable for clean-up costs resulting from pollution which occurred before our acquisition of the gathering systems |
| In addition, we are subject to federal and state safety laws that dictate the type of pipeline, quality of pipe protection, depth, methods of welding and other construction-related standards |
| Any violation of environmental, construction or safety laws could impose substantial liabilities and costs on us |
| We are also subject to the requirements of the Occupational Health and Safety Act, or OSHA, and comparable state statutes |
| Any violation of OSHA could impose substantial costs on us |
| We cannot predict whether or in what form any new legislation or regulatory requirements might be enacted or adopted, nor can we predict our costs of compliance |
| In general, we expect that new regulations would increase our operating costs and, possibly, require us to obtain additional capital to pay for improvements or other compliance action necessitated by those regulations |
| 30 _________________________________________________________________ [78]Table of Contents We are subject to operating and litigation risks that may not be covered by insurance |
| Our operations are subject to all operating hazards and risks incidental to transporting and processing natural gas and NGLs |
| These hazards include: • damage to pipelines, plants, related equipment and surrounding properties caused by floods and other natural disasters; • inadvertent damage from construction and farm equipment; • leakage of natural gas, NGLs and other hydrocarbons; • fires and explosions; • other hazards, including those associated with high-sulfur content, or sour gas, that could also result in personal injury and loss of life, pollution and suspension of operations; and • acts of terrorism directed at our pipeline infrastructure, production facilities, transmission and distribution facilities and surrounding properties |
| As a result, we may be a defendant in various legal proceedings and litigation arising from our operations |
| We may not be able to maintain or obtain insurance of the type and amount we desire at reasonable rates |
| As a result of market conditions, premiums and deductibles for some of our insurance policies have increased substantially, and could escalate further |
| In some instances, insurance could become unavailable or available only for reduced amounts of coverage |
| For example, insurance carriers are now requiring broad exclusions for losses due to war risk and terrorist acts |
| If we were to incur a significant liability for which we were not fully insured, our gross margin and cash flows would be materially reduced |
| The IRS could treat us as a corporation for tax purposes, which would substantially reduce the cash available to us for payment of principal and, in some instances, interest on the notes |
| If we were treated as a corporation for US federal income tax purposes for any taxable year for which the statute of limitations remains open or any future year, we would pay federal income tax on our taxable income for such year at the corporate tax rates, currently at a maximum rate of 35prca, and would likely pay state income tax at varying rates |
| Because a tax would be imposed on us as a corporation, our cash available for payment of distributions to our unitholders would be substantially reduced |
| Risks Related to Our Ownership Structure Atlas America and its affiliates have conflicts of interest and limited fiduciary responsibilities, which may permit them to favor their own interests to the detriment of our unitholders |
| Atlas America and its affiliates own and control our general partner, which also owns a 13prca limited partner interest in us |
| We do not have any employees and rely solely on employees of Atlas America and its affiliates who serve as our agents, including all of the senior managers who operate our business |
| A number of officers and employees of Atlas America also own interests in us |
| Conflicts of interest may arise between Atlas America, our general partner and their affiliates, on the one hand, and us, on the other hand |
| As a result of these conflicts, our general partner may favor its own interests and the interests of its affiliates over our interests and the interests of our unitholders |
| These conflicts include, among others, the following situations: 31 _________________________________________________________________ [79]Table of Contents • Employees of Atlas America who provide services to us also devote significant time to the businesses of Atlas America in which we have no economic interest |
| If these separate activities are significantly greater than our activities, there could be material competition for the time and effort of the employees who provide services to our general partner, which could result in insufficient attention to the management and operation of our business |
| • Neither our partnership agreement nor any other agreement requires Atlas America to pursue a future business strategy that favors us or, apart from our agreements with Atlas America relating to our Appalachian region operations, use our assets for transportation or processing services we provide |
| Atlas America directors and officers have a fiduciary duty to make these decisions in the best interests of the stockholders of Atlas America |
| • Our general partner is allowed to take into account the interests of parties other than us, such as Atlas America, in resolving conflicts of interest, which has the effect of limiting its fiduciary duty to us |
| • Our general partner controls the enforcement of obligations owed to us by our general partner and its affiliates, including our agreements with Atlas America |
| Conflicts of interest with Atlas America and its affiliates, including the foregoing factors, could exacerbate periods of lower or declining performance, or otherwise reduce our gross margin and cash flows |
| Cost reimbursements due our general partner may be substantial and will reduce the cash available for distributions to our unitholders |
| We reimburse Atlas America, our general partner and their affiliates, including officers and directors of Atlas America, for all expenses they incur on our behalf |
| Our general partner has sole discretion to determine the amount of these expenses |
| In addition, Atlas America and its affiliates provide us with services for which we are charged reasonable fees as determined by Atlas America in its sole discretion |
| The reimbursement of expenses or payment of fees could adversely affect our ability to make distributions to our unitholders |