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Understanding The E+P Mlp Business Model

|Includes:Atlas Resource Partners, L.P. (ARP)

I am a happy holder of ARP units which I bought last summer during the LINE sell off. I am so happy in fact, that I have decided to understand the business model a little better with the view to increasing my position substantially.

But, reading through the 10K, I have encountered some difficulty in trying to understanding the business plan. I am sure it is a good plan, I just would like to understand it! Can anyone help?

Here are numbers taken from ARP's latest 10K:

Gas and oil production revenues 2013: $ 266,783
Gas and oil production expenses 2013: $97,237

Clearly, production operations are cash flow positive. However,

Depletion, depreciation and amortization 2013 associated with gas and oil production: $129,729
Total SGA: $78,063

Clearly, only a portion of SGA apply to Gas and oil production. Since gas and oil production are 56% of revenues, I suppose we could assume that SGA costs associated with gas and oil production are perhaps $78,063 x .56 = $43,715.

If so, then the net result of the gas and oil production would appear to be negative $3,898 even before giving consideration to any interest expense.

Yet, ARP continues to acquire gas and oil properties. There is an entrepreneurial logic here which escapes me. If the business is money losing, why keep buying more?

Is it because:

1) SGA expenses are largely fixed and as total gas and oil business goes, they will eventually decline as share of revenues and the business will become profitable?

2) SGA expenses associated with gas an oil production are in fact a much smaller portion of total SGA expenses than the apparent 56%?

3) Gas and oil are currently underpriced and one expects prices to increase in the future? But in this case would it not make more sense to just buy reserves and hold off exploiting them until prices have risen?

4) Although depletion is said to be calculated per unit of production, it somehow overstates the rate of consumption of reserves?

5) Some other reason I have not understood?

Stocks: ARP