雪佛龍 (CVX) 2010 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2010 Atlas Energy, Incorporated earnings conference call.

My name's Takesha and I will be your operator for today.

( Operator Instructions )

At this time, all line are in listen-only mode.

Later, we will conduct a question and answer session.

If at any time you require operator assistance, please press star one and we will be happy to assist you.

Also, as a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to Mr.

Brian Begley, head of Investor Relations.

Please proceed.

Good morning everyone.

And thank you for joining us for today's call.

As they get started, I'd like to remind everyone that during this conference call we'll make certain forward-looking statements.

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 that could cause actual results to differ materially from those projected in the forward-looking statements.

We discussed these risks in our second quarter Form 10Q, which will be filed tomorrow, and are in a report, also on Form 10-K, particularly in item one.

And,also, I would like to caution you not to place undue reliance on these forward-looking statements, which reflect managements analysis only as of the date hereof.

The Company undertakes no obligations to publicly update our forward-looking statement, or to publicly release the results of any revisions to forward-looking statements.

And may be made to reflect events or circumstances after the date hereof or to 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.

And these consolidated income statements and balance sheets provide for all applicable periods, separate Atlas Energy's - - separate Atlas Energy's core E&P operations from the financial results of Atlas pipeline, whose results are required to be consolidated under GAAP, to a controlling interest in Atlas pipeline.

And, lastly, we also provide a reconciliation from net income to adjust net income, adjusted EBITDA and discretionary cash flow for our E&P operations, as we believe that these non-GAAP measures offer the best means of evaluating the results of our business.

And, with that, I'd like to turn the call over to our Chairman and Chief Executive Officer, Ed Cohen, for his remarks.

Thanks, Brian and hello everyone.

First of all, let me start with the focus--some might say the obsession of our Company-- our horizontal Marcellus, where our results continue to be excellent.

Since our last detailed report, covering wells completed through June 30, 2010, we've turned into line two additional Greene County wells with peak 24-hour rates of approximately 5.5 million cubic feet equivalent per day and 4.1, respectively.

Both of these wells, I'm glad to say, are 100% owned by Atlas Energy.

We are now in the process of completing two additional Marcellus horizontal wells.

The Wilson 20-H in [West Worland] County and the [Rale 2-H] in eastern Indiana County.

Early indications from both are excellent.

That sharply expands our horizontal Marcellus geographical footprint of success.

The Wilson 20-H is only our third [West Worland] County well.

And the [Rale 2-H] is our first Marcellus horizontal well in Indiana county.

Four additional Marcellus horizontal wells will be fracked in the next four weeks or so, and 15 additional wells had been [spud], of which seven have already reached total depth.

On all of these wells, and all future Marcellus horizontal wells, we plan to continue providing periodic detailed reports, similar to the comprehensive information we provided in early July, that reported with specificity on all Atlas-operated horizontal Marcellus Shale Wells through June 30.

Now, we're appreciative that a number of you have commented that Atlas' comprehensive transparency on well results is uniquely helpful for modeling and for analysis.

And accordingly, we intend to continue to set the industry standard for complete disclosure of Marcellus horizontal results.

For an independent, domestic natural-gas producer we think that we're also unique in now being able to vastly increase our Marcellus net production.

As you know, from the 33.2 million cubic feet equivalent per day, produced at the end of June 2010, to the over 500 million cubic feet equivalent per day net to Atlas Energy projected by 2014.

And we're going to do all of this from finanacial resources already in place.

Our existing two joint ventures will provide all the capital resources that we'll need.

And they'll do so on terms favorable to was and still attractive to our joint venture partners.

With the billions of dollars to be expended by Reliance on drilling and completion, Atlas will have no need for additional equity or debt financing.

Atlas pipelines joint venture with Williams, called Laurel Mountain Midstream, ensures that infrastructure and take away capacity will be available for the half billion cubic feet a day 2014 production.

In fact, Laurel Mountain's new header system is being designed to be capable of handling at least one and one-half billion cubic feet per day.

And since virtually all of our Marcellus gas will be dry gas, we will not have the distraction of worrying about the absence in the eastern United States of a viable ethane market, or worrying about delays and cost over-runs in completing processing plants for the NGLs contained in wet gas.

Best of all, Laurel Mountain Midstream will provide all of the capital needed for this massive project.

Atlas Energy will not contribute a single dollar.

Now, starting from this strong position, and already having paid down, as of June 30, all but $88 million of our $500 million dollar revolving credit facility, we're now planning to generate up to $100 million in additional cash by disposing in the near future of non-core assets that we have identified as easily saleable but non-strategic to our core mission of shale exploitation.

These additional monies will be available to augment funding available for stock repurchases and for targeted acreage acquisitions, and to further aid us in our desire to maintain relatively low leverage, fiscally conservative balance sheet.

Even before the enormous, positive cash flow that we will be generating by mid-2011, even at present depressed strip prices.

Furthermore, the sale by Atlas pipeline with Elk City Systems for $682 million--that was a sale to Anchorage announced last week-- that sale should ensure that Atlas pipeline has abundant capacity to fund its obligations for Laurel Mountain.

In fact, many analysts express surprise at the high price that Atlas pipeline will recieve for its Elk City plant; APL stock price virtually doubled, in fact, on last week's news.

But APL's other assets are similarly, in my opinion, under-appreciated.

Its west Texas processing system, for example, is the most modern and efficient in its area, and has been experiencing, and should continue to experience, enormous increases in volumes as a result of burgeoning (inauible) production.

The Velma, Oklahoma system is enjoying similar enormous growth from the prolific, now legendary, Woodford shale, and the west Oklahoma production plants have long been flourishing.

The enormous value of and the future for potential profits from APLs 49% interest in Laurel Mountain Midstream derives, of course, from the gigantic header system being built from Marcellus transportation by Williams.

In turn, Atlas Energy's controlling ownership of the general partner of APL, and Atlas Energy's direct holdings in APL, have a value that is not in my opinion presently reflected in its Atlas Energy APLS' stock price.

You may recall that we had a similar problem with the E&P subsidiary of APLS, the old ATN, and that we resolved it by appropriate corporate reorganization resulting in a significant increase last year in the stock price of APLS.

Now, we've discussed in past public conferences the possibility of separating APL from APLS.

The possibility of merging the general limited partners of APL and other potential value-creating solutions.

We're now determined, I assure you, more than ever, to produce an APLS that will be a pure play shale natural gas BNP company with even heightened transparency.

So stay tuned on this front.

And, of course, to deal with what we considered to be the continued bargain-basement evaluation of APLS, our board has authorized the repurchase of up to $100 million of our stock, an authorization that we intend to execute on so long as market conditions and other conditions, other considerations justify.

Our production and financial results for the second quarter were highly favorable as Rich Weber, our Chief Operating Officer, and Matt Jones, our Chief Financial Officer, will shortly explore in some detail.

Great growth and average daily Appalachian production in the Marcellus shale production, in particular.

Strong drilling and completion results.

An increase in GAAP net income to $175.9 million for the second quarter 2010.

A continued strengthening of our Marcellus staff by the successful recruitment of literally dozens of world-class professionals, et cetera, et cetera.

Much of it's in our news release.

But I think that our Company's greatest second quarter accomplishment, perhaps lay, once again, in our hedging success.

Atlas' average sales price for natural gas, before the effects of financial hedging, was $4.32 per Mcf for the three months ended June 30, 2010, but it was $7.09 per Mcf after hedging.

An incredible performance, $4.32 increased by hedging to $7.09 per Mcf.

But it was a performance achieved conservatively and I think that is made clear by the Company's statement of derivative positions as of August 3, 2010, that was included in this morning's news release.

But, perhaps most astonishing is the fact that even after this hedging success, and that of proceeding quarters, Atlas still possesses a mark to market hedge gain of more than $100 million from its remaining future hedge positions.

This is an accomplishment that all of our executives involved with this program should be very proud of.

Finally, the most important subject for our industry and our Company.

Safety and environmental policies.

Now, I know it's very easy to utter platitudes on health and environment.

But in reality, it's very difficult to reconcile the often conflicting realities of cost control and environmental safety aspects.

Through an ongoing effort including our most senior officers, we think, however, that we have made great progress in developing sophisticated programs that both reduce expenses and enhance environmental and safety considerations.

One big example, are recently developed patent pending water treatment program eliminates practices that some environmentalists object to.

But as Rich Weber will shortly explain, it results in enormous cost savings in handling water.

Win-win for the Company and for the environment.

Again, we reward executives and employees who enhance our safety procedures, and we do not reward those who merely save costs.

We have vastly expanded our team focus on life, safety and environmental factors.

The head of this group, and I think this is really important, reports directly to the CEO and President and not to operating leaders whose priorities may be elsewhere.

That is not to denigrate pure operations which, of course, are critical.

And for more on our success in this area, I'm going to turn to Rich Weber.

Rich?

Thank you, Ed.

We were pleased to report a few weeks ago that our net production from the Appalachian basin grew 21% in the first quarter of this year to a record 55 million cubic feet per day in the second quarter.

Our gross Marcellus production in the second quarter reached approximately 82 million cubic feet per day, up 31% from the prior quarter, and has continued to grow through the month of July.

These results reflect the extraordinary efforts of our operating team, who have demonstrated an ability to consistently drill superior wells.

And the efforts of our Midstream partners at Williams and Atlas pipeline who worked tirelessly -- tirelessly to create additional capacity on Laurel Mountain's legacy gathering system.

We are well on our way to reaching 500 million cubic feet per day of net Appalachia production by the end of 2014.

Production from our Michigan Business Unit, which includes our activities in the New Albany shale, came in on-budget at about 55 million cubic feet per day.

As a result, Atlas reported record net total Company production of 110 million cubic feet per day in the second quarter.

During the second quarter we turned into line eight horizontal Marcellus shale wells for own account and for the benefit of our partnership programs.

And these wells came on at an average of 5.1 million cubic feet per day.

We landed each of these wells low in the Marcellus section, which is the most organic, yet most brittle part of the formation.

We have observed consistently strong results from this technique and are targeting all of our horizontal wells in the lower Marcellus.

Since the end of the second quarter we have completed an additional four horizontal Marcellus wells and two of these wells are already producing near 10 million cubic feet per day, while the other two wells are still flowing back.

In our July 7 press release updating operations, we outlined a schedule of horizontal Marcellus Shale wells to be drilled and turned into line through the end of 2011.

During the second quarter, we spud six new wells for the benefit of our joint venture with Reliance and 38 -- and have 38 additional wells to drill in the second half of this year.

To meet this schedule, we currently have four rigs running in the Marcellus, two of which are fit for purpose rigs capable of drilling the deep lateral sections and the two remaining rigs are for air drilling the vertical top holes.

We have the third horizontal rig being delivered in the fourth quarter of this year, a forth horizontal rig in the second quarter of 2011, and a fifth and sixth rig are being delivered in the third quarter 2011.

A strong contributor to our production growth in the second quarter was added -- was the added capacity and higher utilization of existing capacity on Laurel Mountain's Legacy Gathering System.

Our engineers worked in conjunction with our partners at Williams and Atlas pipeline to strategically add compression and to loop bottlenecks to create this capacity.

In addition, we were able to strategically turn into line several wells in locations where capacity was underutilized.

Even with the success of these efforts our production was still constrained in the second quarter by high line pressures, operational issues or turn-in delays by approximately 24 million cubic feet per day of gross production, or approximately 9 million cubic feet per day of net production.

Our teams continue to make progress in expanding and unlocking capacity on the legacy systems and we do expect continued growth and production for the remainder of the year.

A permanent fix will come in the fourth quarter of this year, and the early part of 2011, when parts of the Laurel Mountain new expansion gathering systems will become available to us.

These expansion gathering systems are being construction -- constructed with a much larger diameter pipe and compression that is designed to move large volumes of high-pressure Marcellus gas.

Expansion system will ultimately be able to gather more than 1.5 Bcf per day of our production.

We are pleased to report that the regulatory system in Pennsylvania continues to function quite well despite the negative rhetoric you hear in the press.

Atlas currently has 70 Marcellus permits in hand and 85 permits in process.

We typically get our drilling permits within 45 days of submitting our final permit package.

There's no question that the DEP in Pennsylvania has stepped up inspections in the enforcement of our oil and gas regulations in the Commonwealth.

Because Atlas is absolutely committed to operating safely and, as a steward of the environment, we fully support these efforts.

And are proud that the increased staffing of the oil and gas division of the DEP was paid for by increased permitting fees of Marcellus operators.

Further, we support the efforts of the DEP to clarify regulations and to provide more transparency to the public.

Dealing with flowback and produce water is a critical issue for the future development of the Marcellus shale; that is why we have invested so much time and money in our sustainable water recycling program.

Our system, which we believe is proprietary and have filed for a patent, goes way beyond simple blending.

We are able to condition our recycled water to be reused many times over while still producing outstanding results downhole.

This process not only eliminates the need for discharge but it also substantially lowers our cost of our water management program.

We are already recycling a significant percentage of our flow back and expect to be at 100% by the end of the year.

As of the second quarter, Atlas controlled 342,000 Marcellus acres within the area of mutual interest with Reliance and just over 280,000 acres respective for Marcellus outside the Reliance EMI.

These figures include previously announced acreage purchases that have not had their final closing.

The substantial majority of our acreage with Reliance is in the dry gas window of southwestern Pennsylvania and is approximately 40% held by production.

Our strategy is to continue to consolidate our acreage position in order to increase the number of wells we drill on a pad and to increase the length of our laterals.

As a result, we are requiring strategic acreage, allowing non-strategic acreage to expire and entering into swap acreage transactions with other operators.

Our current estimate for the fully loaded cost of a well having a 3,000-foot lateral and ten completion stages using recycled water is between $4.2 million and $4.4 million.

We have observed stronger production from wells having longer laterals and more completion stages.

Preliminary analysis suggests roughly two Bcf of EUR per 1,000 feet of lateral length.

As I mentioned, we are seeking to extend our lateral lengths where our lease configurations will allow.

Lease operating costs in the dry gas area of the Marcellus shale are very attractive.

We are experiencing lease operating expenses per Mcf of production from our Marcellus horizontal wells below $0.20 per Mcf, including water costs.

As a result of strong productivity and low costs, our horizontal Marcellus shale wells generate an attractive rate of return even at today's prices.

Using a $6.00 flat price we generate a 58% internal rate of return using a $5.00 flat price we generate a 43% rate of return.

In addition to the Marcellus, Atlas is exposed to several new emerging shale plays in the midst of our existing acreage position -- positions in Michigan and Pennsylvania.

We mentioned last quarter our growing interest in the liquids-rich Utica-Collingwood play of northern Michigan, which gained notoriety earlier this year after (inaudible) drilled a discovery well.

Atlas now controls a net lease position of 105,000 acres in the heart of the play.

About half of our acreage is held by our existing Antrim Shale production with the remainder of the leases being acquired over the last few quarters.

We feel very satisfied with our position and are now focused on development.

We plan to drill and complete two horizontal wells into the Collingwood by the end of this year with funding coming from our partnership programs.

In western Pennsylvania we are pursuing both the Upper Devonian and Utica shale plays.

Both of these shale packages are prevalent throughout western Pennsylvania and New York, where we have over 630,000 net acres.

In the Ordovician-Utica shale, which is found below the Marcellus, we are in the early stages of planning to drill two horizontal wells, both with industry partners.

One of these wells will be in close proximity to a succussful horizontal Utica shale well recently tested by a competitor at a rumored IP rate of 9 million cubic feet per day.

Upper Devonian -- the Upper Devonian shale package, which includes the [Briquette], Rhinestreet, and Genesee formations, sits above the Marcellus.

We have successfully completed four vertical wells into the Upper Devonian shale package and are planning to drill and complete a horizontal well this year funded by our partnership programs.

Speaking of our partnership programs, we are targeting $150 million fund raise for our spring and summer partnership program and the marketing of this program is in full swing.

We are already in the preliminay stages of planning our year-end program where we estimate investor funds of $100 million to $150 million, which will fund drilling in the New Albany shale, the Collingwood, the Antrim shale, the Pennsylvania Upper Devonian Shale, and the Chattanooga shale.

And now to our Chief Financial Officer, Matt Jones.

Thank you, Rich.

Consistent with past quarters and, as Brian mentioned, we provided in our press release consolidating and consolidated financial information, a specific segment summary data related to our E&P operations.

We hope that analysts, investors and other interested parties find this presentation helpful in the review of our results.

Our ownership interest in Atlas pipeline holdings and Atlas pipeline partners nessecitate the amalgamation, or consolidation, of the entirety of the results of these enterprises into Atlas Energy, Inc's financial presentation.

With the Atlas pipeline announcement last week of the definitive agreement to sell a portion of the Oklahoma based assets and the resulting benefits of this action the trading prices of Atlas Holdings and Atlas Pipeline's common units have increased materially.

As Ed mentioned, and consistent with past practice, we'll continue to evaluate the optimal approach to allowing our shareholders to achieve the highest risk adjusted return possible on all interest held in the Atlas family of enterprises.

For quick reference we have summarized our various equity interest in Atlas pipeline and Atlas holdings in the table of the financial section of earnings press release.

Moving to our quartly E&P results.

We reported record production volumes Company-wide, including a 21% sequential quarter increase in Appalachia production.

Oil and gas production margin in the second quarter was again successfully enhanced by our hedging strategy.

Our average realized price for natural gas volumes was $7.09 per Mcf, compared to the average spot price for the quarter of $4.32.

That's $2.77 of additional margin received during the quarter on roughly 7.7 Bcf of natural gas production.

Fortunately, looking forward our substantial hedge portfolio should continue to significantly mitigate potential downside volatility associated with movements in natural gas markets.

We have incrementally added to our hedge positions during the second quarter, and currently have approximately 95 Bcf natural gas production hedged for the period beginning with the third quarter 2010 and ending with the fourth quarter 2014.

During that period roughly 62 Bcf is hedged in an average spot price of $6.85 per Mcf and 33 Bcf is collared with an average floor price of $6.23 and a ceiling of $7.34 per Mcf.

As Rich just layed out , its $6.00 gas overturns are quite substantial from the drilling we're undertaking in our Company.

We currently estimate that our hedge book has a mark to market value in excess of $100 million.

A more detailed summary of our hedge position is provided in our press release.

Moving to our partnerhsip management segment, please recall that we recognize revenue as we invest our limited partners' capital in well drilling and completion activities.

We invested approximately $43 million of our limited partners' capital in the second quarter.

At the end of the second quarter we had about $36 million of drilling partner's funds available to deploy, which we believe will be fully utilized in the third quarter in addition to incremental funds raised during the third quarter.

Consistent with past calendar years we currently expect partnership margin generation in the third quarter this year to somewhat exceed the level achieved in the second quarter of this year, and we anticipate fourth quarter margin contribution from this segment to be the highest quarter of the year.

Viewed in percentage terms, we expect absolute partnership margin contribution to increase between 20%,25% and 35%, in the second half of 2010 compared to the margin generated from the segment in the first half of 2010.

Cash, general, and administrative expenses this quarter came in at $14.6 million, which represents an increase of $2.7 million, compared to the second quarter of last year.

The increase primarily relates to increased salary and wage expense associated with the expansion of Marcellus operations.

Fortunately, our Marcellus joint-venture partner shares proportionately in overhead costs related to our Marcellus activity.

Now to the overhead contribution from our joint-venture partner and with the continued expansion of our professional staff dedicated to the Marcellus activity, we expect G&A will increase to between $16.5 and $17.5 million per quarter for the third and fourth quarters of this year.

Please notice also that we've highlighted in our press release that we recognized a book gain of $288 million from the contribution of certain of the Company's Marcellus shale assets to our joint venture with Reliance Industries.

On a tax basis and with the expected cash taxes nearly the entirety of the gain is deferred.

Capital expenditures during the second quarter totaled $90 million inclusive of $27 million of deposits on two substantial Marcellus acreage acquisitions announced in April of this year.

We acquired this acreage, predominately held by production and strategic to our existing footprint, in partnership with Reliance and we used cash proceeds from the closing of our joint venture with Reliance to fund our proportionate share of the acquisition price.

For the remaining two quarters of 2010, we expect CapEx to fall within a range of $185 million to $195 million.

Importantly, this estimate includes roughly $70 million of final payments due on the acreage acquisitions announced in April.

Please note that we had an excessive $90 million of cash in our balance sheet at the end of the second quarter.

This includes cash set aside to fund the $70 million payment, so a meaningful portion of our remaining CapEx estimate for the year has been pre-funded.

The remaining portion of our projected capital spending for 2010 includes roughly $60 million to $70 million of drilling and completion costs inclusive of wells drilled in our partnership management segment.

Approximately $30 million of the forecasted cost include discretionary spending on acreage additions and the Collingwood and Marcellus regions and seismic costs related to our Marcellus acreage.

Our preliminary estimate for capital expenditures for 2011 falls within a range of $190 million to $220 million subject to the full development of our 2011 budget, for which we will seek board approval upon completion during the fourth quarter of this year.

Based on our preliminary estimates, roughly 70% of our projected capital spending will be dedicated to our Marcellus well drilling activity and well drilling investments in our partnership program business.

Roughly 20% is associated with acreage acquisitions -- potential acreage acquisitions and the remainder to seismic costs and general corporate capital investment.

Our preliminary capital budget may appear relatively modest compared to our projected growth in natural gas production and the continued funding of wells drilled in our partnership management business.

As that addressed, the reason for this is that the vast majority of the capital investment required to build out the transportation and compression infrastructure, and drilling and completion costs related to our massive Marcellus opportunity, is being funded by third parties.

The closing of the Reliance joint venture transaction in April this year and the Laurel Mountain gathering agreement completed last year greatly expedited the expansion of our business, while substantially reducing our required capital investment.

We anticipate that the capital liquidity and net cash flow implications of the strategy will allow us to grow production very rapidly without causing our shareholders to suffer potential equity dilution.

To the contrary, our board recently authorized a share repurchase program.

Speaking of our capital position.

Our debt position remain largely unchanged with roughly $600 million of senior unsecured notes outstanding maturing in 2017 and 2018, and $88 million drawn on our $550 million borrowing base facility, which matures in June of 2012.

Overall, we remain in solid financial shape.

We've arranged for other parties to fund the vast majority of our infrastructure development costs and well drilling and completion costs on our Marcellus play.

And we remain committed to prudently accelerating value on a per-share basis for the benefit of our shareholders and enhancing value for those who have committed debt capital to our Company.

That concludes my remarks, and I'll turn the call over to our CEO, Ed

I'm going to return it to Takesha to open the line for questions.

Thank you, Mr.

Cohen.

(Operator Instructions)

Your first question comes from the line of Scott Hanold from RBC.

Please proceed.

Good morning, guys.

You all talked about the infrastructure and it seems like everything is on track there and we could get some volumes in there during the fourth quarter.

Can you just give us a sense of how this is going to progress from now on to the fourth quarter?

Is it the pipe purchase, is it out there?

The permits in place?

From your best understanding where are we at in the process here and how do we get volumes [up] in the system by year-end?

As we outlined in our press release on July 7, the first system that is going to be online in the fourth quarter is the Brown system and the pipe has been ordered, permits are in place and construction has begun.

The next major project that will come online towards the end of this year or early part of next year is the Shamrock station and again the rights are in place.

I do not believe that we have all final permits but we're very, very far along.

The pipe has been ordered and that system looks like it's on track.

Okay.

Very good.

Thanks.

You'll have a -- serve a lot of other opportunities here and looking at the Collingwood shale.

What are your thoughts there if you do have some successful tests by the end of the year -- is that an area that you would try to develop outside of the partnership funds?

I think in that situation, there is not necessarily a conflict between the partnership funds and other means of financing so that initially we may very well pursue delineation of opportunity and early opportunity for profit through the partnership mechanism.

If it explodes as the Marcellus did or explodes even at a fraction of where the Marcellus is we then would be constrained to seek more professional assistance.

And I think we have shown that we are certainly not behind others in having mastered the joint venture technique.

Okay.

That is good color there.

And finally another question, Ed, you more than hinted that you guys are looking at things to streamline the structure of Atlas and I would assume that sort of implies looking to deconsolidate the ownership with APL as well as potentially doing some of the partnership.

Am I reading into those two as a couple of top options?

I think you are right that we are definitely going to do something.

I think we have shown that we can be imaginative in what we do and we have not yet really decided, although this is at the top of our agenda.

I appreciate it, guys, thanks.

Operator, before we move on we received a question via email that I thought would benefit all of our listeners.

And that is, we were asked if the internal rate of return figures that I gave in my remarks were before or after the effects of our joint venture.

And those would be before the effects of our joint venture.

After taking into account the effects of our joint venture with Reliance our return on invested capital is actually in excess of 400%.

Thank you, operator.

Thank you.

Your next question comes from the line of Michael Hall from Wells Fargo.

Please proceed.

Thanks, good morning.

Question, kind of getting back on the cleaning up of the structure, if you will.

Can you talk a little bit about just timeline there?

And maybe put a little bit more detail around when we might expect to see something done?

I would say sooner rather than later.

It has been observed by one of our best friends in the big investment community that the hallmark of Atlas is, according to this observer, that we always get things done.

But he observed that it takes us a goll dang long time to get them done.

The reality is that it just takes a while to actually get things done, although it takes not nearly as long to announce it.

But we're working on this, and I think now that we have got in some of our other ventures under control that we've been talking about and that we accomplished in the last year it's time to work on this.

Okay.

So you think by year end is a reasonable goal or is that more of a maybe first half of 2011?

I would say I would be surprised if we did not have an announcement considerably before year-end.

Great.

Thanks for that color.

And then on the midstream expansions.

The Brown and Shamrock stations.

You talk about cap capacity if you will in the prior update.

Can you give a little more granularity as to how much will actually be deliverable in the fourth quarter, first quarter, second quarter type of time frame?

Well, we scale up our compression or I should say Laurel Mountain scales their compression based on our forecast of production and so we anticipate that all of the capacity or all of the production being delivered to those facilities will be available to be delivered to market.

Hopefully that answers your question.

Yes.

So there's not expecting to be any sort of production constraints and some of that $24 million a day of backlog can start coming on and that sort of thing?

Yes, yes.

Where these facilities are being constructed happens to be -- it's not a coincidence -- happens to be where we are most constrained and so not only will we have new wells going into these systems but we will be able to reroute some of the constraint production into these systems.

Okay.

That makes sense.

And then the two recent wells that are flowing back in Westmoreland and Indiana counties.

I believe, Ed, you mentioned that initial data from the wells looks encouraging.

Can you add any more color there?

How does that look relative to the Fayette and Greene counties?

Are there any consistent differences you're seeing relative to the previous Westmoreland wells?

I think we probably said as much as we can based on the early results.

Okay.

We will have further information out before long.

And then, one more just one off.

The Black Raven Energy AK that came out earlier in the week, is that a new area in the Eastern Niobrara play that you were working there?

Can you give a little background on that?

Yes, it is a new area and it represents our effort to make sure that the syndication program goes forward powerfully and without interference with our basic orientation.

So we have now in effect established separate units for handling the syndication business.

There is always a tendency when you have something as enormously exciting as the Marcellus and to lead in new exciting areas at the syndication business that is relegated to a second category if you have the same people working on it.

Though the syndication business is now operating autonomously with some of our very finest people and the Niobrara expansion is the first example of how we intend to continue to make sure that top-notch acreage is available with top-notch people working on it.

Freddie Kotek, do you want to add anything to that?

That's the planning for the full deal; right now it's difficult to add anymore color because we do have our current Reg D private placement on the Street so we are prohibited from really promoting some of these things, but Black Raven deal is the first of several future transactions that we're looking forward to continue to provide partnership product.

Great.

Appreciate the color, guys.

I will let someone else take it.

Thanks.

(Operator Instructions)

Your next question comes from a line of the Amir Arif from Stifel Nicolaus.

Please proceed.

Thanks.

Good morning, guys.

Rich, you mentioned a number on the conference call here and I just want to make sure I got it right.

Was it well cost of $4.2 million to $4.4 million?

Is that what your Marcellus wells are currently costing?

That is in the deep dry gas area -- that's what we're seeing, that is correct.

And then, Ed, I know you guys just -- with the share buyback authorization is July 10, so less than a month but just curious if you have started to buy back any stock yet?

No, as you know we have been in a black-out period pending this call.

Amir, as we look at well costs this has been a tremendous focus at our Company.

It is one of the key variables that really drive investment returns obviously.

Something we're very focused on.

We still maintain a goal of getting our costs below $4 million and I can tell you it is in discussion at our Company.

Just one final question on the asset sales, just strategically, or just to add some additional financial flexibility or are you willing to take it to the point where you are viewed as a pure play E&P Marcellus type producer?

We're determined to get a degree of transparency where we will be seen as a pure play situation.

Perfect.

Thanks, guys.

Your next question comes from the line of Sebastian Hoppe from Jefferies.

Please proceed.

Good morning.

First question is the proprietary water treatment method.

Is there any update or any plans to apply that to a new batch of wells here in Q3?

We are already applying these recycling techniques and as I said, Sebastian, in our comments that we're going to be moving towards a program of 100% recycling of both flowback and production water using this process.

Okay.

And you still, I guess, we're talking about a full recycling because I think you made the distinction between recycling and actual -- I think most operators are just diluting dirty water to clean water and you are honest to God recycling.

Is that the plan for 2011 to do that for 100% of your program?

Yes, it is, Sebastian.

Okay.

And on that eastern Indiana well, how close was the closest production?

Either in your program or--?

I believe that is at least 15 miles from the nearest Marcellus production.

It was a real step out to the east.

We were quite pleased.

Yes, no doubt.

Terrific, that is all I had, thanks.

Your next question comes from the line of Marshall Carver from Capital One.

Please proceed.

In your desire to become a pure play E&P you talked about potentially monetizing or selling or whenever you plan on doing with HD and APL.

Can I also read into that that you would potentially sell or spin off the partnership management segment as well?

Do you consider that as something you would rather -- what are your thoughts on that?

The partnership management is not a core asset.

Other assets are not core.

The question of transparency may be one that is resolvable without disposing of the partnership management aspect.

I think we have assets that are non-core in the direct operating line and we would like to recycle the equivalent of those assets in monetized form into making it possible for us to further leverage our balance sheet, make it possible for us to further emphasize Marcellus and other shale operations.

I think we really have two separate elements that are in play here.

One, our desire for the transparency and secondly, our desire to maximize the deployment of resources into the Marcellus operation.

But to the extent that the partnership business as you know provides us with an enormously favorable cash flow without deflecting our attention, we do not think it is deleterious as long as we can get the message across as to the nature of the business and achieve transparency.

And that it's not critical that we dispose of it.

Okay.

Thank you, and one more question.

On the timing of operations updates I know you put out an operations update in the beginning of July and I really like the disclosure and appreciated that there.

Should expect that again at the beginning of the next quarter?

Or do you plan on putting that out randomly in the quarter or would that be at the end of the quarter or at the beginning of the next one?

I'm just trying to get a feel of what the timing of that would be.

Right, we do not think it's helpful to put out individual items of information under normal circumstances.

What we're trying to do is a comprehensive summary and detail.

It seemed to work out very nicely to do it at the end of the last quarter and our goal is to do it on a quarterly basis.

Okay, that's helpful.

Thank you very much.

Your next question comes from the line of Craig Shere from Tuohy Brothers Investment Research.

Please proceed.

Hi.

Just a follow up on the question of the cost per well of $4.2 million to $4.4 million.

I thought I heard you all say that for each 1,000 foot of lateral, you saw 2 Bcf of EUR, so at 3,000 feet with those costs, you are currently thinking you have about 6 Bs; is that correct?

That is correct.

But you also said you are looking into extending the laterals and at the same time you said you're looking to get pricing under $4 million a well.

Can you talk about reconciling those goals?

Well, when we say that, the only way to really look at it is to have a standard well which we lay out as a 3,000-foot lateral with ten stages.

Obviously, as you extend your lateral and you drill or you complete additional stages you do increase costs.

Really, a reasonable rule of thumb including drilling cost, completion costs, and everything else included -- somewhere in the neighborhood of $250,000 per stage is a reasonable estimate.

We think that the returns you get from extending your lateral are some of the highest returns in the process and so that is why we are interested in pursuing that.

Sure.

So reducing costs per unit with extended laterals would take precedence over maintaining sub-$4 million cost per well?

We just use that as our standard well to try to orient people.

Understood.

Appreciate it.

Your last question comes from the line of -- a follow-up question from Sebastian Hoppe from Jefferies.

Please proceed.

I was looking for any guidance and valuing the GP interests if you go about disaggregating the Midstream from APLS.

I think the market demonstrated what transparency can do once it became clear that the Elk City property had the kind of value that the Enbridge transaction suggested the price increased enormously and the general partner which trades separately under AHD also had a very similar increase through yesterday.

So we think that it's not possible for us to sit in an ivory tower and insist on the enormous value of these interests.

I think the market will make it clear.

Right, then one final follow-up.

Can you provide a sort of GP cash flow estimate for 2011?

Yes.

Sebastian, this is Matt.

We do not have the data yet and I think the Company APL and its management are finalizing projections for the business.

We may very well give an update on that information on our next call but we do not have that for this call.

Okay, perfect.

Thank you.

Thank you.

Gentlemen, we have no more questions.

All right.

Thank everyone for your participation.

We look forward to speaking with you no later than three months from now, but if the past few months have been any indication we may, in fact, be speaking with you earlier.

Bye.

Ladies and gentlemen, that concludes today's conference.

Thank you for your participation.

You may now disconnect.

Have a great day.