Edgar Filing: ATLAS PIPELINE PARTNERS LP

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2013

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 1-4998

ATLAS PIPELINE PARTNERS, L.P.

(Exact name of registrant as specified in its charter)


DELAWARE		23-3011077
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Park Place Corporate Center One
1000 Commerce Drive, 4^th Floor
Pittsburgh, Pennsylvania		15275-1011
(Address of principal executive office)		(Zip code)

Registrant’s telephone number, including area code: (877) 950-7473

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of common units of the registrant outstanding on November 4, 2013 was 79,512,873.

ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES

INDEX TO QUARTERLY REPORT

ON FORM 10-Q


		Page

GLOSSARY OF TERMS			3

PART I	FINANCIAL INFORMATION		4

Item 1.	Financial Statements		4

	Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012 (Unaudited)		4

	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2013 and 2012 (Unaudited)		5

	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2013 and 2012 (Unaudited)		6

	Consolidated Statement of Equity for the Nine Months Ended September 30, 2013 (Unaudited)		7

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2013 and 2012 (Unaudited)		8

	Notes to Consolidated Financial Statements (Unaudited)		9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		48

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		73

Item 4.	Controls and Procedures		75

PART II.	OTHER INFORMATION		76

Item 1A.	Risk Factors		76

Item 6.	Exhibits		76

SIGNATURES			79

Glossary of Terms

Definitions of terms and acronyms generally used in the energy industry and in this report are as follows:


BPD		Barrels per day. Barrel – measurement for a standard US barrel is 42 gallons. Crude oil and condensate are generally reported in barrels.

BTU		British thermal unit, a basic measure of heat energy

Condensate		Liquid hydrocarbons present in casinghead gas that condense within the gathering system and are removed prior to delivery to the gas plant. This product is generally sold on terms more closely tied to crude oil pricing.

EBITDA		Net income (loss) before net interest expense, income taxes, and depreciation and amortization. EBITDA is considered to be a non-GAAP measurement.

FASB		Financial Accounting Standards Board

Fractionation		The process used to separate an NGL stream into its individual components.

GAAP		Generally Accepted Accounting Principles

G.P.		General Partner or General Partnership

GPM		Gallons per minute

Keep-Whole		Contract with producer whereby plant operator pays for or returns gas having an equivalent BTU content to the gas received at the well-head.

L.P.		Limited Partner or Limited Partnership

MCF		Thousand cubic feet

MCFD		Thousand cubic feet per day

MMBTU		Million British thermal units

MMCFD		Million cubic feet per day

NGL(s)		Natural gas liquid(s), primarily ethane, propane, normal butane, isobutane and natural gasoline

Percentage of Proceeds (“POP”)		Contract with natural gas producers whereby the plant operator retains a negotiated percentage of the sale proceeds.

Residue gas		The portion of natural gas remaining after natural gas is processed for removal of NGLs and impurities.

SEC		Securities and Exchange Commission

PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS

ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands) (Unaudited)


	September 30,		December 31,
	2013		2012
ASSETS
Current assets:
Cash and cash equivalents	$	10,439	$	3,398
Funds held in escrow		50,005		25,000
Accounts receivable		229,168		157,526
Current portion of derivative assets		5,177		23,077
Prepaid expenses and other		23,436		11,074

Total current assets		318,225		220,075
Property, plant and equipment, net		2,715,361		2,200,381
Goodwill		503,937		319,285
Intangible assets, net		545,955		199,360
Equity method investment in joint ventures		238,221		86,002
Long-term portion of derivative assets		7,458		7,942
Other assets, net		44,438		32,593

Total assets	$	4,373,595	$	3,065,638

LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	610	$	10,835
Accounts payable – affiliates		4,605		5,500
Accounts payable		72,159		59,308
Accrued liabilities		90,848		57,752
Accrued interest payable		30,607		10,399
Current portion of derivative liabilities		1,143		—
Accrued producer liabilities		161,808		109,725

Total current liabilities		361,780		253,519
Long-term debt, less current portion		1,655,042		1,169,083
Deferred income taxes, net		34,696		30,258
Other long-term liabilities		7,409		6,370
Commitments and contingencies
Equity:
Class D convertible preferred limited partners’ interests		430,201		—
Common limited partners’ interests		1,788,350		1,507,676
General Partner’s interest		47,955		31,501

Total partners’ capital		2,266,506		1,539,177
Non-controlling interest		48,162		67,231

Total equity		2,314,668		1,606,408

Total liabilities and equity	$	4,373,595	$	3,065,638

See accompanying notes to consolidated financial statements

ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per unit data)

(Unaudited)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2013			2012			2013			2012
Revenue:
Natural gas and liquids sales	$	535,719		$	274,618		$	1,410,797		$	802,644
Transportation, processing and other fees – third parties		43,651			19,116			116,534			46,474
Transportation, processing and other fees – affiliates		74			156			222			357
Derivative gain (loss), net		(24,517	)		(18,907	)		(9,493	)		36,905
Other income, net		2,943			2,585			8,661			7,588

Total revenues		557,870			277,568			1,526,721			893,968

Costs and expenses:
Natural gas and liquids cost of sales		463,564			224,778			1,213,320			652,986
Plant operating		24,253			15,180			69,671			43,661
Transportation and compression		553			520			1,764			996
General and administrative		16,637			11,248			40,481			29,888
Compensation reimbursement – affiliates		1,250			875			3,750			2,625
Other costs		685			(108	)		19,585			(303	)
Depreciation and amortization		51,080			23,161			127,921			65,715
Interest		24,347			9,692			65,614			27,669

Total costs and expenses		582,369			285,346			1,542,106			823,237

Equity income (loss) in joint ventures		(1,882	)		1,422			(314	)		4,235
Loss on asset disposition		—			—			(1,519	)		—
Loss on early extinguishment of debt		—			—			(26,601	)		—

Income (loss) before tax		(26,381	)		(6,356	)		(43,819	)		74,966
Income tax benefit		(817	)		—			(854	)		—

Net income (loss)		(25,564	)		(6,356	)		(42,965	)		74,966
Income attributable to non-controlling interests		(1,514	)		(1,511	)		(4,693	)		(4,108	)
Preferred unit imputed dividend effect		(11,378	)		—			(18,107	)		—
Preferred unit dividends in kind		(9,072	)		—			(14,413	)		—

Net income (loss) attributable to common limited partners and the General Partner	$	(47,528	)	$	(7,867	)	$	(80,178	)	$	70,858

Allocation of net income (loss) attributable to:
Common limited partner interest	$	(51,376	)	$	(9,249	)	$	(90,990	)	$	64,988
General Partner interest		3,848			1,382			10,812			5,870

	$	(47,528	)	$	(7,867	)	$	(80,178	)	$	70,858

Net income (loss) attributable to common limited partners per unit:
Basic	$	(0.66	)	$	(0.17	)	$	(1.25	)	$	1.19

Weighted average common limited partner units (basic)		78,398			53,736			72,512			53,668

Diluted	$	(0.66	)	$	(0.17	)	$	(1.25	)	$	1.19

Weighted average common limited partner units (diluted)		78,398			53,736			72,512			54,409

See accompanying notes to consolidated financial statements

ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(Unaudited)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2013			2012			2013			2012
Net income (loss)	$	(25,564	)	$	(6,356	)	$	(42,965	)	$	74,966
Other comprehensive income:

Adjustment for realized losses on cash flow hedges reclassified to net income (loss)		—			1,079			—			3,333

Total other comprehensive income		—			1,079			—			3,333

Comprehensive income (loss)	$	(25,564	)	$	(5,277	)	$	(42,965	)	$	78,299

Comprehensive income attributable to non-controlling interests	$	1,514		$	1,511		$	4,693		$	4,108
Preferred unit imputed dividend effect		11,378			—			18,107			—
Preferred unit dividends in kind		9,072			—			14,413			—
Comprehensive income (loss) attributable to common limited partners and the General Partner		(47,528	)		(6,788	)		(80,178	)		74,191

Comprehensive income (loss)	$	(25,564	)	$	(5,277	)	$	(42,965	)	$	78,299

See accompanying notes to consolidated financial statements

ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013

(in thousands, except unit data)

(Unaudited)


	Number of Limited Partner Units				Preferred Limited		Common Limited			General			Non-controlling
	Preferred		Common		Partners		Partners			Partner			Interest			Total
Balance at December 31, 2012		—		64,556,010	$	—	$	1,507,676		$	31,501		$	67,231		$	1,606,408
Issuance of units and General Partner capital contribution		13,445,383		14,708,080		397,681		491,206			18,614			—			907,501
Issuance of common units under incentive plans		—		243,340		—		119			—			—			119
Unissued common units under incentive plans		—		—		—		13,499			—			—			13,499
Distributions paid in kind units		138,598		—		—		—			—			—			—

Distributions paid		—		—		—		(133,160	)		(12,972	)		—			(146,132	)
Contributions from non-controlling interests		—		—		—		—			—			8,277			8,277
Distributions to non-controlling interests		—		—		—		—			—			(1,432	)		(1,432	)
Decrease in non-controlling interest due to business combination		—		—		—		—			—			(30,607	)		(30,607	)

Net income (loss)		—		—		32,520		(90,990	)		10,812			4,693			(42,965	)

Balance at September 30, 2013		13,583,981		79,507,430	$	430,201	$	1,788,350		$	47,955		$	48,162		$	2,314,668

See accompanying notes to consolidated financial statements

ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands) (Unaudited)


	Nine Months Ended
	September 30,
	2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(42,965	)	$	74,966
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		127,921			65,715
Equity (income) loss in joint ventures		314			(4,235	)
Distributions received from equity method joint ventures		5,400			5,400
Non-cash compensation expense		13,818			7,537
Amortization of deferred finance costs		5,119			3,356
Loss on early extinguishment of debt		26,601			—
Loss on disposal of asset		1,519			—
Deferred income tax benefit		(854	)		—
Change in operating assets and liabilities, net of business combinations:
Accounts receivable, prepaid expenses and other		(88,225	)		12,100
Accounts payable and accrued liabilities		77,841			(15,557	)
Accounts payable and accounts receivable – affiliates		(895	)		(136	)
Derivative accounts payable and receivable		19,527			(23,623	)

Net cash provided by operating activities		145,121			125,523

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(327,861	)		(242,412	)
Cash paid for business combinations, net of cash received		(1,000,785	)		(36,689	)
Investment in joint ventures		(9,813	)		—
Other		310			376

Net cash used in investing activities		(1,338,149	)		(278,725	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facility		979,000			676,500
Repayments under credit facility		(1,172,000	)		(738,500	)
Net proceeds from issuance of long term debt		1,028,369			319,100
Repayment of long-term debt		(365,822	)		—
Payment of premium on retirement of debt		(25,581	)		—
Payment of deferred financing costs		(917	)		(3,490	)
Principal payments on capital lease		(10,577	)		(1,852	)
Net proceeds from issuance of common and preferred limited partner units		888,887			—
Purchase and retirement of treasury units		—			(695	)
General Partner capital contributions		18,614			—
Contributions from non-controlling interest holders		8,277			179
Distributions to non-controlling interest holders		(1,432	)		—
Distributions paid to common limited partners and the General Partner		(146,132	)		(97,444	)
Other		(617	)		(599	)

Net cash provided by financing activities		1,200,069			153,199

Net change in cash and cash equivalents		7,041			(3	)
Cash and cash equivalents, beginning of period		3,398			168

Cash and cash equivalents, end of period	$	10,439		$	165

See accompanying notes to consolidated financial statements

ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

(Unaudited)

NOTE 1 – BASIS OF PRESENTATION

Atlas Pipeline Partners, L.P. (the “Partnership”) is a publicly-traded (NYSE: APL) Delaware limited partnership engaged in the gathering, processing and treating of natural gas in the mid-continent and southwestern regions of the United States; natural gas gathering services in the Appalachian Basin in the northeastern region of the United States; and the transportation of NGLs in the southwestern region of the United States. The Partnership’s operations are conducted through subsidiary entities whose equity interests are owned by Atlas Pipeline Operating Partnership, L.P. (the “Operating Partnership”), a wholly-owned subsidiary of the Partnership. At September 30, 2013, Atlas Pipeline Partners GP, LLC (the “General Partner”) owned a combined 2.0% general partner interest in the consolidated operations of the Partnership, through which it manages and effectively controls both the Partnership and the Operating Partnership. The General Partner is a wholly-owned subsidiary of Atlas Energy, L.P. (“ATLS”), a publicly-traded limited partnership (NYSE: ATLS). The remaining 98.0% ownership interest in the consolidated operations consists of limited partner interests. At September 30, 2013, the Partnership had 79,507,430 common units outstanding, including 1,641,026 common units held by the General Partner and 4,113,227 common units held by ATLS; and 13,583,981 Class D convertible preferred units (“Class D Preferred Units”) outstanding (see Note 5).

The accompanying consolidated financial statements, which are unaudited, except the balance sheet at December 31, 2012, which is derived from audited financial statements, are presented in accordance with the requirements of Form 10-Q and accounting principles generally accepted in the United States for interim reporting.

The accompanying consolidated financial statements and notes thereto do not include all disclosures normally made in financial statements contained in Form 10-K. In management’s opinion, all adjustments necessary for a fair presentation of the Partnership’s financial position, results of operations and cash flows for the periods disclosed have been made. These interim consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto presented in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2012. The results of operations for the nine month period ended September 30, 2013 may not necessarily be indicative of the results of operations for the full year ending December 31, 2013.

The Partnership has revised the presentation of its consolidated statements of comprehensive income (loss) in order to more clearly distinguish the amounts of other comprehensive income (loss) attributable to each of the common unitholders, preferred unitholders, and the non-controlling interest. This change in presentation has been applied to all periods presented. The previously reported amounts of other comprehensive income (loss) attributable to the common limited partners and the General Partner did not change for any period.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

In addition to matters discussed further within this note, a more thorough discussion of the Partnership’s significant accounting policies is included in its audited consolidated financial statements and notes thereto in its Annual Report on Form 10-K for the year ended December 31, 2012.

Comprehensive Income (Loss)

Comprehensive income (loss) includes net income (loss) and all other changes in the equity of a business during a period from transactions and other events and circumstances from non-owner sources that, under GAAP, have not been recognized in the calculation of net income (loss). These changes, other than net income (loss), are referred to as “other comprehensive income (loss)” and for the Partnership only include changes in the fair value of unsettled derivative contracts which were previously accounted for as cash flow hedges (see Note 10). These contracts are wholly owned by the Partnership and the related gains and losses are not shared with the non-controlling interests. The Partnership does not have any other type of transaction which would be included within other comprehensive income (loss). During the three and nine months ended September 30, 2012, the Partnership reclassified $1.1 million and $3.3 million, respectively, from other comprehensive income to natural gas and liquids sales within the Partnership’s consolidated statements of operations. As of December 31, 2012, all amounts had been reclassified out of accumulated other comprehensive income and the Partnership had no amounts outstanding within accumulated other comprehensive income.

Net Income (Loss) Per Common Unit

Basic net income (loss) attributable to common limited partners per unit is computed by dividing net income (loss) attributable to common limited partners by the weighted average number of common limited partner units outstanding during the period. Net income (loss) attributable to common limited partners is determined by deducting net income attributable to participating securities, if applicable, and net income (loss) attributable to the General Partner’s and the preferred unitholders’ interests. The General Partner’s interest in net income (loss) is calculated on a quarterly basis based upon its 2.0% general partner interest and incentive distributions to be distributed for the quarter (see Note 5), with a priority allocation of net income to the General Partner’s incentive distributions, if any, in accordance with the partnership agreement, and the remaining net income (loss) allocated with respect to the General Partner’s and limited partners’ ownership interests.

The Partnership presents net income (loss) per unit under the two-class method for master limited partnerships, which considers whether the incentive distributions of a master limited partnership represent a participating security when considered in the calculation of earnings per unit under the two-class method. The two-class method considers whether the partnership agreement contains any contractual limitations concerning distributions to the incentive distribution rights that would impact the amount of earnings to allocate to the incentive distribution rights for each reporting period. If distributions are contractually limited to the incentive distribution rights’ share of currently designated available cash for distributions as defined under the partnership agreement, undistributed earnings in excess of available cash should not be allocated to the incentive distribution rights. Under the two-class method, management of the Partnership believes the partnership agreement contractually limits cash distributions to available cash; therefore, undistributed earnings are not allocated to the incentive distribution rights.

Class D Preferred Units participate in distributions with the common limited partner units according to a predetermined formula (see Note 5), thus they are considered participating securities and are included in the computation of earnings per unit pursuant to the two-class method. The participation rights result in a non-contingent transfer of value each time the Partnership declares a distribution. However, the contractual terms of the Class D Preferred Units do not require the holders to share in the losses of the entity, therefore the net income (loss) utilized in the calculation of net income (loss) per unit must be determined based upon the allocation of only net income to the Class D Preferred Units on a pro-rata basis.

Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are included in the computation of earnings per unit pursuant to the two-class method. The Partnership’s phantom unit awards, which consist of common units issuable under the terms of its long-term incentive plans and incentive compensation agreements (see Note 15), contain non-forfeitable rights to distribution equivalents of the Partnership. The participation rights result in a non-contingent transfer of value each time the Partnership declares a distribution or distribution equivalent right during the award’s vesting period. However, unless the contractual terms of the participating securities require the holders to share in the losses of the entity, net loss is not allocated to the participating securities. Therefore, the net income (loss) utilized in the calculation of net income (loss) per unit must be determined based upon the allocation of only net income to the phantom units on a pro-rata basis.

The following is a reconciliation of net income (loss) allocated to the General Partner and common limited partners for purposes of calculating net income (loss) attributable to common limited partners per unit (in thousands):


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2013			2012			2013			2012
Net income (loss)	$	(25,564	)	$	(6,356	)	$	(42,965	)	$	74,966
Income attributable to non-controlling interests		(1,514	)		(1,511	)		(4,693	)		(4,108	)
Preferred unit imputed dividend effect		(11,378	)		—			(18,107	)		—
Preferred unit dividends in kind		(9,072	)		—			(14,413	)		—

Net income (loss) attributable to common limited partners and the General Partner		(47,528	)		(7,867	)		(80,178	)		70,858

General Partner’s cash incentive distributions		4,901			1,572			12,678			4,537
General Partner’s ownership interest		(1,053	)		(190	)		(1,866	)		1,333

Net income attributable to the General Partner’s ownership interests		3,848			1,382			10,812			5,870

Net income (loss) attributable to common limited partners		(51,376	)		(9,249	)		(90,990	)		64,988
Net income attributable to participating securities – phantom units⁽¹⁾		—			—			—			886
Net income attributable to participating securities – Class D Preferred Units⁽²⁾		—			—			—			—

Net income attributable to participating securities		—			—			—			886

Net income (loss) utilized in the calculation of net income (loss) attributable to common limited partners per unit	$	(51,376	)	$	(9,249	)	$	(90,990	)	$	64,102

(1)

Net income attributable to common limited partners’ ownership interest is allocated to the phantom units on a pro-rata basis (weighted average phantom units outstanding as a percentage of the sum of the weighted average phantom units and common limited partner units outstanding). Net loss attributable to common limited partners’ ownership interest is not allocated to approximately 1,455,000 and 1,160,000 weighted average phantom units for the three and nine months ended September 30, 2013, respectively, and 964,000 weighted average phantom units for the three months ended September 30, 2012, because the contractual terms of the phantom units as participating securities do not require the holders to share in the losses of the entity.

(2)

Net income attributable to common limited partners’ ownership interest is allocated to the Class D Preferred Units on a pro-rata basis (weighted average Class D Preferred Units outstanding as a percentage of the sum of the weighted average Class D Preferred Units and common limited partner units outstanding). For the three and nine months ended September 30, 2013 net loss attributable to common limited partners’ ownership interest is not allocated to approximately 13,518,000 and 7,560,000 weighted average Class D Preferred Units, respectively, because the contractual terms of the Class D Preferred Units as participating securities do not require the holders to share in the losses of the entity.

Diluted net income (loss) attributable to common limited partners per unit is calculated by dividing net income (loss) attributable to common limited partners, plus income allocable to participating securities, by the sum of the weighted average number of common limited partner units outstanding plus the dilutive effect of outstanding participating securities.

The following table sets forth the reconciliation of the Partnership’s weighted average number of common limited partner units used to compute basic net income (loss) attributable to common limited partners per unit with those used to compute diluted net income (loss) attributable to common limited partners per unit (in thousands):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2013		2012		2013		2012
Weighted average number of common limited partner units – basic		78,398		53,736		72,512		53,668
Add effect of dilutive securities – phantom units⁽¹⁾		—		—		—		741
Add effect of convertible preferred limited partner units⁽²⁾		—		—		—		—

Weighted average common limited partner units – diluted		78,398		53,736		72,512		54,409

(1)

For the three and nine months ended September 30, 2013, and for the three months ended September 30, 2012, approximately 1,455,000, 1,160,000, and 964,000 weighted average phantom units, respectively, were excluded from the computation of diluted earnings attributable to common limited partners per unit, because the inclusion of such phantom units would have been anti-dilutive.

(2)

For the three and nine months ended September 30, 2013, approximately 13,518,000 and 7,560,000 weighted average Class D Preferred Units, respectively were excluded from the computation of diluted net income (loss) attributable to common limited partners as the impact of the conversion would have been anti-dilutive.

Revenue Recognition

The Partnership’s revenue primarily consists of the sale of natural gas and NGLs along with the fees earned from its gathering, processing, treating and transportation operations. Under certain agreements, the Partnership purchases natural gas from producers and moves it into receipt points on its pipeline systems, and then sells the natural gas, or produced NGLs, if any, off delivery points on its systems. Under other agreements, the Partnership gathers natural gas across its systems, from receipt to delivery point, without taking title to the natural gas. Revenue associated with the physical sale of natural gas and NGLs is recognized upon physical delivery. In connection with the Partnership’s gathering, processing and transportation operations, it enters into the following types of contractual relationships with its producers and shippers:

Fee-Based Contracts. These contracts provide a set fee for gathering and/or processing raw natural gas and for transporting NGLs. Revenue is a function of the volume of natural gas that the Partnership gathers and processes or the volume of NGLs transported and is not directly dependent on the value of the natural gas or NGLs. The Partnership is also paid a separate compression fee on many of its gathering systems. The fee is dependent upon the volume of gas flowing through its compressors and the quantity of compression stages utilized to gather the gas.

POP Contracts. These contracts provide for the Partnership to retain a negotiated percentage of the sale proceeds from residue gas and NGLs it gathers and processes, with the remainder being remitted to the producer. In this contract-type, the Partnership and the producer are directly dependent on the volume of the commodity and its value; the Partnership effectively owns a percentage of the commodity and revenues are directly correlated to its market value. POP contracts may include a fee component, which is charged to the producer.

Keep-Whole Contracts. These contracts require the Partnership, as the processor and gatherer, to gather or purchase raw natural gas at current market rates per MMBTU. The volume and energy content of gas gathered or purchased is based on the measurement at an agreed upon location (generally at the wellhead). The BTU quantity of gas redelivered or sold at the tailgate of the Partnership’s processing facility may be lower than the BTU quantity purchased at the wellhead primarily due to the NGLs extracted from the natural gas when processed through a plant. The Partnership must make up or “keep the producer whole” for this loss in BTU quantity. To offset the make-up obligation, the Partnership retains the NGLs, which are extracted, and sells them for its own account. Therefore, the Partnership bears the economic risk (the “processing margin risk”) that (1) the BTU quantity of residue gas available for redelivery to the producer may be less than received from the producer; and/or (2) the aggregate proceeds from the sale of the processed natural gas and NGLs could be less than the amount the Partnership paid for the unprocessed natural gas. In order to help mitigate the risk associated with Keep-Whole contracts the Partnership generally imposes a fee to gather the gas that is settled under this arrangement. Also, because the natural gas volumes contracted under some Keep-Whole agreements are lower in BTU content and thus can meet downstream pipeline specifications without being processed, the natural gas can be bypassed around the processing plants on these systems and delivered directly into downstream pipelines during periods when the processing margin risk is uneconomic.

The Partnership accrues unbilled revenue and the related purchase costs due to timing differences between the delivery of natural gas, NGLs, and condensate and the receipt of a delivery statement. This revenue is recorded based upon volumetric data from the Partnership’s records and management estimates of the related gathering and compression fees, which are, in turn, based upon applicable product prices. The Partnership had unbilled revenues at September 30, 2013 and December 31, 2012 of $136.9 million and $100.8 million, respectively, which are included in accounts receivable within its consolidated balance sheets.

Accrued Producer Liabilities

Accrued producer liabilities on the Partnership’s consolidated balance sheets represent accrued purchase commitments payable to producers related to gas gathered and processed through its system under its POP and Keep-Whole contracts (see “–Revenue Recognition”).

Cash and Cash Equivalents

The Partnership considers all highly liquid investments with a remaining maturity of three months or less at the time of purchase to be cash equivalents. These cash equivalents consist principally of temporary investments of cash in short-term money market instruments. Checks outstanding at the end of a period that exceed available cash balances held at the bank are considered to be book overdrafts and are reclassified to accounts payable. At September 30, 2013 and December 31, 2012, respectively, the Partnership reclassified the balance related to outstanding checks of $16.9 million and $27.6 million from cash and cash equivalents to accounts payable on the Partnership’s consolidated balance sheets.

Recently Adopted Accounting Standards

In February 2013, the FASB issued Accounting Standards Update (“ASU”) 2013-02, “Other Comprehensive Income (Topic 220) – Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income,” which, among other changes, requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component and the respective line items of net income to which the amounts were reclassified. The update does not change the components of comprehensive income that must be presented. These requirements are effective for interim and annual reporting periods beginning after December 15, 2012. The Partnership began including the additional required disclosures upon the adoption of this ASU on January 1, 2013 (see “–Comprehensive Income (Loss)”). The adoption had no material impact on the Partnership’s financial position or results of operations.

Recently Issued Accounting Standards

In July 2013, the FASB issued ASU 2013-11, “Income Taxes (Topic 740) – Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists,” which, among other changes, requires an entity to present an unrecognized tax benefit as a liability and not net with deferred tax assets when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date to settle any additional income taxes under the tax law of the applicable jurisdiction that would result from the disallowance of a tax position or when the tax law of the applicable tax jurisdiction does not require, and the entity does not intend to, use the deferred tax asset for such purpose. These requirements are effective for interim and annual reporting periods beginning after December 15, 2013. Early adoption is permitted. These amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. The Partnership will apply these requirements upon the adoption of the ASU on January 1, 2014. The Partnership does not expect the adoption to have a material impact on its financial position or results of operations.

NOTE 3 – ACQUISITIONS

Cardinal Midstream, LLC

On December 20, 2012, the Partnership completed the acquisition of 100% of the equity interests held by Cardinal Midstream, LLC (“Cardinal”) in three wholly-owned subsidiaries for $599.1 million in cash, including final purchase price adjustments, less cash received (the “Cardinal Acquisition”). The assets of these companies, which are referred to as the Arkoma assets, include gas gathering, processing and treating facilities in Arkansas, Louisiana, Oklahoma and Texas. The acquisition includes a 60% interest in Centrahoma Processing, LLC (“Centrahoma”). The remaining 40% ownership interest in Centrahoma is held by MarkWest Oklahoma Gas Company LLC (“MarkWest”), a wholly-owned subsidiary of MarkWest Energy Partners, L.P. (NYSE: MWE).

The Partnership accounted for this transaction as a business combination. Accordingly, the Partnership evaluated the identifiable assets acquired and liabilities assumed at their respective acquisition date fair values. Due to the recent date of the acquisition, the accounting for the business combination is based on preliminary data that remains subject to adjustment and could further change as the Partnership continues to evaluate the facts and circumstances that existed as of the acquisition date. As part of the Cardinal Acquisition, the Partnership placed $25.0 million into escrow to cover potential indemnity claims. The $25.0 million was released to the sellers in June 2013.

The following table presents the values assigned to the assets acquired and liabilities assumed in the Cardinal Acquisition, based on their preliminary estimated fair values as of the date of acquisition, including the 40% non-controlling interest of Centrahoma held by MarkWest (in thousands):


Cash	$	1,184
Accounts receivable		13,783
Prepaid expenses and other		1,289
Property, plant and equipment		246,787
Intangible assets		232,740
Goodwill		214,532

Total assets acquired		710,315

Current portion of long-term debt		(341	)
Accounts payable and accrued liabilities		(14,854	)
Deferred tax liability, net		(35,353	)
Long-term debt, less current portion		(604	)

Total liabilities acquired		(51,152	)

Non-controlling interest		(58,832	)

Net assets acquired		600,331
Less cash received		(1,184	)

Net cash paid for acquisition	$	599,147

The fair value of MarkWest’s 40% non-controlling interest in Centrahoma was based upon the purchase price allocated to the 60% controlling interest the Partnership acquired using an income approach. This measurement uses significant inputs that are not observable in the market and thus represents a fair value measurement categorized within Level 3 of the fair value hierarchy. The 40% non-controlling interest in Centrahoma was reduced by a 5.0% adjustment for lack of control that market participants would consider when measuring its fair value.

TEAK Midstream, LLC

On May 7, 2013, the Partnership completed the acquisition of 100% of the equity interests of TEAK Midstream, LLC (“TEAK”) for $1.0 billion in cash, subject to customary purchase price adjustments, less cash received (the “TEAK Acquisition”), including $50.0 million placed into escrow pending final settlement of working capital adjustments and to cover potential indemnity claims. The assets of these companies, which are referred to as the SouthTX assets, include the following gas gathering and processing facilities in Texas:

•

the Silver Oak I plant, which is a 200 MMCFD cryogenic processing facility;

•

a second 200 MMCFD cryogenic processing facility, the Silver Oak II plant, to be in service the second quarter of 2014;

•

265 miles of primarily 20-24 inch gathering and residue lines;

•

approximately 275 miles of low pressure gathering lines;

•

a 75% interest in T2 LaSalle Gathering Company L.L.C. (“T2 LaSalle”), which owns a 62 mile, 24 inch gathering line;

•

a 50% interest in T2 Eagle Ford Gathering Company L.L.C. (“T2 Eagle Ford”), which owns a 45 mile 16 inch gathering pipeline and is currently building a 71 mile 24 inch gathering line; and

•

a 50% interest in T2 EF Cogeneration Holdings L.L.C. (“T2 Co-Gen”), which is building a cogeneration facility.

As a result of the TEAK Acquisition, the Partnership has added additional gathering and processing capacity as well as fee-based cash flows from natural gas gathering and processing operations.

The Partnership funded the purchase price for the TEAK Acquisition in part from the private placement of $400.0 million of Class D Preferred Units for net proceeds of $397.7 million, plus the General Partner’s contribution of $8.2 million to maintain its 2.0% general partner interest in the Partnership (see Note 5); and in part from the sale of 11,845,000 common limited partner units in a public offering for net proceeds of approximately $388.4 million, plus the General Partner’s contribution of $8.3 million to maintain its 2.0% general partner interest in the Partnership (see Note 5). The Partnership funded the remaining purchase price from its senior secured revolving credit facility, and issued $400.0 million of 4.75% unsecured senior notes due November 15, 2021 (“4.75% Senior Notes”) on May 10, 2013 for net proceeds of $391.5 million to reduce the level of borrowings under the revolving credit facility as part of the TEAK Acquisition (see Note 13).

The Partnership accounted for this transaction as a business combination. Accordingly, the Partnership evaluated the identifiable assets acquired and liabilities assumed at their respective acquisition date fair values. Due to the recent date of acquisition, the accounting for the business combination is based on preliminary data that remains subject to adjustment and could change as the Partnership continues to evaluate the facts and circumstances that existed as of the acquisition date and the changes could be material.

The following table presents the values assigned to the assets acquired and liabilities assumed in the TEAK Acquisition, based on their preliminary estimated fair values at the date of the acquisition (in thousands):


Cash	$	8,157
Accounts receivable		11,837
Prepaid expenses and other		1,871
Property, plant and equipment		290,118
Intangible assets		285,000
Goodwill		280,331
Equity method investment in joint ventures		148,120

Total assets acquired		1,025,434

Accounts payable and accrued liabilities		(17,754	)

Total liabilities acquired		(17,754	)

Net assets acquired		1,007,680
Less cash received		(8,157	)

Net cash paid for acquisition	$	999,523

In conjunction with the issuance of the Partnership’s common limited partner units associated with the acquisition, $14.3 million of transaction fees were included in the $388.4 million net proceeds

recorded within common limited partners’ interests on the Partnership’s consolidated balance sheets. In conjunction with the issuance the Partnership’s Class D Preferred Units associated with the acquisition, $2.3 million of transaction fees were included in the $397.7 million proceeds recorded within preferred limited partner interests on the Partnership’s consolidated balance sheets. In conjunction with the issuance of the 4.75% Senior Notes and an amendment of the revolving credit facility, $9.5 million of transaction fees were recorded as deferred finance costs within other assets, net on the Partnership’s consolidated balance sheets. Other acquisition costs of $18.8 million associated with the TEAK Acquisition were expensed as incurred and recorded to other costs on the Partnership’s consolidated statements of operations.

Revenues and net losses of $39.2 million and $8.8 million for the three months ended September 30, 2013, respectively, and $59.2 million and $11.3 million for the nine months ended September 30, 2013, respectively, from the acquisition date of May 7, 2013 have been included in the Partnership’s consolidated financial statements related to the TEAK Acquisition, which were included in the Partnership’s Gathering and Processing operating segment. Net earnings of $1.0 million contributed from the TEAK Acquisition from April 1, 2013 (the effective date) to May 7, 2013 (the closing date) were included as a reduction to the purchase price.

The following table provides the unaudited pro forma revenue, net income, and net income per basic and diluted common unit for the three and nine months ended September 30, 2013 and 2012 as if (A)(1) the TEAK Acquisition; (2) the common unit equity offering for net proceeds of $388.4 million in April 2013; (3) the Class D Preferred Unit offering for net proceeds of $397.7 million in April 2013; (4) the General Partner’s contribution of $16.5 million to maintain its 2.0% general partner interest in the Partnership; (5) the issuance of $400.0 million of 4.75% Senior Notes for net proceeds of $391.5 million; and (B) (1) the Cardinal Acquisition; (2) the equity offering for net proceeds of $319.3 million in December 2012, including General Partner contribution; (3) the $176.5 million net proceeds from the 6.625% unsecured senior notes due October 1, 2020 (“6.625% Senior Notes”); and (4) the borrowings under the Partnership’s revolving credit facility had been included in operations commencing on January 1, 2012 (in thousands, except per unit data; unaudited):


	Three months ended						Nine months ended
	September 30,						September 30,
	2013			2012			2013			2012
Total revenues	$	558,000		$	312,479		$	1,561,328		$	1,114,953
Continuing net income (loss) after tax attributable to common limited partners and the General Partner⁽¹⁾		(46,843	)		(32,437	)		(105,993	)		(40,793	)
Continuing net income (loss) after tax attributable to common limited partner unit:
Basic and diluted⁽¹⁾	$	(0.65	)	$	(0.44	)	$	(1.51	)	$	(0.61	)

(1)

Pro forma earnings for the three and nine months ended September 30, 2013 were adjusted to exclude $0.7 million and $18.8 million, respectively, of TEAK Acquisition related costs incurred and pro forma earnings for the three and nine months ended September 30, 2012 were adjusted to include these costs.

The Partnership has prepared these unaudited pro forma financial results for comparative purposes only. These pro forma financial results may not be indicative of the results that would have occurred if the Partnership had completed the TEAK and Cardinal Acquisitions and financing transactions at the beginning of the periods shown above or the results that will be attained in the future.

NOTE 4 – EQUITY METHOD INVESTMENTS

The Partnership’s consolidated financial statements include its 20% interest in West Texas LPG Pipeline Limited Partnership (“WTLPG”), 75% interest in T2 LaSalle, 50% interest in T2 Eagle Ford and 50% interest in T2 EF Co-Gen. The Partnership acquired its interests in T2 LaSalle, T2 Eagle Ford, and T2 EF Co-Gen (“T2 Joint Ventures”) as part of the TEAK Acquisition (see Note 3). The Partnership accounts for its investments in the joint ventures under the equity method of accounting.

The Partnership evaluated whether the T2 Joint Ventures should be subject to consolidation. The T2 Joint Ventures do meet the qualifications of a Variable Interest Entity (“VIE”), but the Partnership does not meet the qualifications as the primary beneficiary. Even though the Partnership owns 50 or more percentage interest in the T2 Joint Ventures, the Partnership does not have controlling financial interests in these entities. The Partnership shares equal management rights with TexStar Midstream Services, L.P. (“TexStar”), the investor owning the remaining interests; and TexStar is the operator of the T2 Joint Ventures. The Partnership determined that it should account for the T2 Joint Ventures under the equity method, since the Partnership does not have a controlling financial interest, but does have a significant influence. The T2 Joint Ventures were formed to provide services for the benefit of the joint interest owners. The T2 Joint Ventures have capacity lease agreements with the joint interest owners, which cover the costs of operations of the T2 Joint Ventures. The Partnership’s maximum exposure to loss as a result of its involvement with the VIEs includes its equity investment; any additional capital contribution commitments and the Partnership’s share of any operating expenses incurred by the VIEs.

Under the equity method of accounting, the Partnership records its proportionate share of the joint ventures’ net income (loss) as equity income (loss) on its consolidated statements of operations. Investments in excess of the underlying net assets of equity method investees identifiable to property, plant and equipment or finite lived intangible assets are amortized over the useful life of the related assets and recorded as a reduction to equity investment on the Partnership’s consolidated balance sheet with an offsetting reduction to equity income on the Partnership’s consolidated statements of operations. Excess investment representing equity method goodwill is not amortized but is evaluated for impairment annually. This goodwill is not subject to amortization and is accounted for as a component of the investment. No goodwill was recorded on the acquisition of WTLPG, T2 LaSalle, T2 Eagle Ford, or T2 EF Co-Gen.

The following table presents the Partnership’s equity method investments in joint ventures as of September 30, 2013 and December 31, 2012 (in thousands):


	September 30,		December 31,
	2013		2012
WTLPG	$	85,718	$	86,002
T2 LaSalle		49,337		—
T2 Eagle Ford		88,693		—
T2 EF Co-Gen		14,473		—

Equity method investment in joint ventures	$	238,221	$	86,002

The following table presents the Partnership’s equity income (loss) in joint ventures for the three and nine months ended September 30, 2013 and 2012 (in thousands):


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2013			2012		2013			2012
WTLPG	$	1,389		$	1,422	$	5,116		$	4,235
T2 LaSalle		(1,263	)		—		(2,162	)		—
T2 Eagle Ford		(1,120	)		—		(2,198	)		—
T2 EF Co-Gen		(888	)		—		(1,070	)		—

Equity income (loss) in joint ventures	$	(1,882	)	$	1,422	$	(314	)	$	4,235

NOTE 5 – EQUITY

Common Units

In April 2013, the Partnership sold 11,845,000 common units of the Partnership at a price to the public of $34.00 per unit, yielding net proceeds of $388.4 million after underwriting commissions and expenses. The Partnership also received a capital contribution from the General Partner of $8.3 million to maintain its 2.0% general partnership interest. The Partnership used the proceeds from this offering to fund a portion of the purchase price of the TEAK Acquisition (see Note 3).

The Partnership has an equity distribution program with Citigroup Global Markets, Inc. (“Citigroup”). Pursuant to this program, the Partnership may offer and sell from time to time through Citigroup, as its sales agent, common units having an aggregate value of up to $150.0 million. Subject to the terms and conditions of the equity distribution agreement, Citigroup will not be required to sell any specific number or dollar amount of the common units, but will use its reasonable efforts, consistent with its normal trading and sales practices, to sell such units. Such sales will be at market prices prevailing at the time of the sale. There will be no specific date on which the offering will end; there will be no minimum purchase requirements; and there will be no arrangements to place the proceeds of the offering in an escrow, trust or similar account. Under the terms of the equity distribution agreement, the Partnership also may sell common units to Citigroup as principal for its own account at a price agreed upon at the time of the sale. The Partnership intends to use the net proceeds from any such offering for general partnership purposes, which may include, among other things, repayment of indebtedness, acquisitions, capital expenditures and additions to working capital. During the three and nine months ended September 30, 2013, the Partnership issued 1,772,800 and 2,863,080 common units, respectively, under the equity distribution program for net proceeds of $63.7 million and $102.7 million, respectively, net of $1.3 million and $2.1 million, respectively, in commissions incurred from Citigroup. The Partnership also received capital contributions from the General Partner of $1.3 million and $2.1 million during the three and nine months ended September 30, 2013, respectively, to maintain its 2.0% general partner interest in the Partnership. The net proceeds from the common unit offering were utilized for general partnership purposes.

Cash Distributions

The Partnership is required to distribute, within 45 days after the end of each quarter, all its available cash (as defined in its partnership agreement) for that quarter to its common unitholders (subject to the rights of any other class or series of the Partnership’s securities with the right to share in the Partnership’s cash distributions) and to the General Partner. If common unit distributions in any quarter exceed specified target levels, the General Partner will receive between 15% and 50% of such

distributions in excess of the specified target levels, including the General Partner’s 2.0% interest. The General Partner, which holds all the incentive distribution rights in the Partnership, has agreed to allocate up to $3.75 million of its incentive distribution rights per quarter back to the Partnership after the General Partner receives the initial $7.0 million per quarter of incentive distribution rights.

Common unit and General Partner distributions declared by the Partnership for quarters ending from March 31, 2012 through June 30, 2013 were as follows:


For Quarter Ended	Date Cash Distribution Paid	Cash Distribution Per Common Limited Partner Unit		Total Cash Distribution to Common Limited Partners		Total Cash Distribution to the General Partner
				(in thousands)		(in thousands)

March 31, 2012	May 15, 2012	$	0.56	$	30,030	$	2,217
June 30, 2012	August 14, 2012		0.56		30,085		2,221
September 30, 2012	November 14, 2012		0.57		30,641		2,409
December 31, 2012	February 14, 2013		0.58		37,442		3,117
March 31, 2013	May 15, 2013		0.59		45,382		3,980
June 30, 2013	August 14, 2013		0.62		48,165		5,875

Class D Preferred Units

On May 7, 2013, the Partnership completed a private placement of $400.0 million of its Class D Preferred Units to third party investors, at a negotiated price per unit of $29.75, resulting in net proceeds of $397.7 million pursuant to the Class D preferred unit purchase agreement dated April 16, 2013 (the “Commitment Date”). The General Partner contributed $8.2 million to maintain its 2.0% general partnership interest upon the issuance of the Class D Preferred Units. The Partnership used the proceeds to fund a portion of the purchase price of the TEAK Acquisition (see Note 3). The Class D Preferred Units were offered and sold in a private transaction exempt from registration under Section 4(2) of the Securities Act of 1933, as amended. The Partnership has the right to convert the Class D Preferred Units, in whole but not in part, beginning one year following their issuance, into common units, subject to customary anti-dilution adjustments. Unless previously converted, all Class D Preferred Units will convert into common units at the end of eight full quarterly periods following their issuance. In the event of any liquidation, dissolution or winding up of the Partnership or the sale or other disposition of all or substantially all of the assets of the Partnership, the holders of the Class D Preferred Units are entitled to receive, out of the assets of the Partnership available for distribution to unit holders, prior and in preference to any distribution of any assets of the Partnership to the holders of any other existing or subsequently issued units, an amount equal to $29.75 per Class D Preferred Unit plus any unpaid preferred distributions.

Upon the issuance of the Class D Preferred Units, the Partnership entered into a registration rights agreement pursuant to which it agreed to file a registration statement with the SEC to register the resale of the common units issuable upon conversion of the Class D Preferred Units. The Partnership agreed to use its commercially reasonable efforts to have the registration statement declared effective within 180 days of the date of conversion.

The fair value of the Partnership’s common units on the Commitment Date of the Class D Preferred Units was $36.52 per unit, resulting in an embedded beneficial conversion discount (“discount”) on the Class D Preferred Units of $91.0 million. The Partnership recognized the fair value of the Class D Preferred Units with the offsetting intrinsic value of the discount within Class D preferred limited partner interests on its consolidated balance sheets as of September 30, 2013. The discount will be accreted and recognized as imputed dividends over the term of the Class D Preferred Units as a reduction to net income attributable to the common limited partners and the General Partner on the Partnership’s consolidated statements of operations. For the three and nine months ended September 30, 2013, the Partnership recorded $11.4 million and $18.1 million, respectively, within preferred unit imputed dividend effect on the Partnership’s consolidated statements of operations to recognize the accretion of the beneficial conversion discount. The Class D Preferred Units are presented combined with a net $72.9 million unaccreted beneficial conversion discount on the Partnership’s consolidated balance sheets as of September 30, 2013.

The Class D Preferred Units will receive distributions of additional Class D Preferred Units for the first four full quarterly periods following their issuance, and thereafter will receive distributions in Class D Preferred Units, or cash, or a combination of Class D Preferred Units and cash, at the discretion of the Partnership’s General Partner. Cash distributions will be paid to the Class D Preferred Unit holders prior to any other distributions of available cash. Distributions will be determined based upon the cash distribution declared each quarter on the Partnership’s common limited partner units plus a preferred yield premium. Class D Preferred Unit distributions, whether in kind units or in cash, will be accounted for as a reduction to net income attributable to the common limited partners and the General Partner. For the three and nine months ended September 30, 2013, the Partnership recorded costs related to preferred unit distributions of $9.1 million and $14.4 million, respectively, on the Partnership’s consolidated statements of operations. During the three and nine months ended September 30, 2013, the Partnership distributed 138,598 Class D Preferred Units to the holders of the Class D Preferred Units as a distribution for the quarter ended June 30, 2013.

On October 24, 2013, the Partnership declared a cash distribution of $0.62 per unit on its outstanding common limited partner units, representing the cash distribution for the quarter ended September 30, 2013. Based on this declaration, the Partnership estimates that approximately 234,000 Class D Preferred Units will be distributed to the holders of the Class D Preferred Units as a preferred unit distribution in kind for the quarter ended September 30, 2013. The in kind distribution will be issued on November 14, 2013 to the preferred unitholders of record at the close of business on November 7, 2013.

NOTE 6 – PROPERTY, PLANT AND EQUIPMENT

The following is a summary of property, plant and equipment, including leased property and equipment meeting capital lease criteria (see Note 13) (in thousands):


	September 30, 2013			December 31, 2012			Estimated Useful Lives in Years
Pipelines, processing and compression facilities	$	2,883,963		$	2,294,024		2 – 40
Rights of way		190,767			178,234		20 – 40
Buildings		10,252			8,224		40
Furniture and equipment		12,869			10,305		3 – 7
Other		15,482			14,761		3 – 10

		3,113,333			2,505,548
Less – accumulated depreciation		(397,972	)		(305,167	)

	$	2,715,361		$	2,200,381

The Partnership recorded depreciation expense on property, plant and equipment, including capital lease arrangements (see Note 13), of $27.2 million and $16.9 million for the three months ended September 30, 2013 and 2012, respectively, and $73.7 million and $47.7 million for the nine months ended September 30, 2013 and 2012, respectively, on its consolidated statements of operations.

The Partnership capitalizes interest on borrowed funds related to capital projects only for periods that activities are in progress to bring these projects to their intended use. The weighted average interest rate used to capitalize interest on borrowed funds was 5.7% and 5.7% for the three months ended September 30, 2013 and 2012, respectively, and 5.9% and 6.2% for the nine months ended September 30, 2013 and 2012, respectively. The amount of interest capitalized was $1.5 million and $2.2 million for the three months ended September 30, 2013 and 2012, respectively, and $5.3 million and $6.4 million for the nine months ended September 30, 2013 and 2012, respectively.

NOTE 7 – GOODWILL AND INTANGIBLE ASSETS

Goodwill is the cost of an acquisition less the fair value of the net identifiable assets of the acquired business. The Partnership reflected goodwill on its consolidated balance sheets of $503.9 million and $319.3 million at September 30, 2013 and December 31, 2012, respectively. The change in goodwill is primarily related to an addition of $280.3 million of goodwill from the TEAK Acquisition offset by a $96.4 million reduction in goodwill related to an adjustment of the fair value of assets acquired and liabilities assumed from the Cardinal Acquisition. The goodwill related to the Cardinal Acquisition is a result of the strategic industry position and potential future synergies. The goodwill related to the TEAK Acquisition is a result of the strategic industry position (see Note 3). The Partnership estimates approximately $280.3 million of goodwill recorded as a result of the TEAK Acquisition to be deductible for tax purposes.

The Partnership has recorded intangible assets with finite lives in connection with certain consummated acquisitions including the Cardinal and TEAK Acquisitions. The following table reflects the components of intangible assets being amortized at September 30, 2013 and December 31, 2012 (in thousands):


	September 30, 2013			December 31, 2012			Estimated Useful Lives In Years
Gross carrying amount:
Customer contracts	$	3,419		$	119,933		7 – 10
Customer relationships		722,653			205,313		7 – 10

		726,072			325,246

Accumulated amortization:
Customer contracts		(653	)		(746	)
Customer relationships		(179,464	)		(125,140	)

		(180,117	)		(125,886	)

Net carrying amount:
Customer contracts		2,766			119,187
Customer relationships		543,189			80,173

Net carrying amount	$	545,955		$	199,360

The weighted-average amortization period for customer contracts and customer relationships is 9.7 years and 7.8 years, respectively. The Partnership recorded amortization expense on intangible assets of $23.9 million and $6.2 million for the three months ended September 30, 2013 and 2012, respectively, and $54.2 million and $18.0 million for the nine months ended September 30, 2013 and 2012, respectively, on its consolidated statements of operations. Amortization expense related to intangible assets is estimated to be as follows for each of the next five calendar years: remainder of 2013 – $23.9 million; 2014 – $92.0 million; 2015 through 2016 – $86.8 million per year; 2017 – $80.7 million.

The valuation assessment for the Cardinal and TEAK Acquisitions have not been completed as of September 30, 2013 and the estimates of fair value of goodwill and intangible assets with finite lives reflected as of September 30, 2013 are subject to change and the change may be material (see Note 3).

NOTE 8 – OTHER ASSETS

The following is a summary of other assets (in thousands):


	September 30,		December 31,
	2013		2012
Deferred finance costs, net of accumulated amortization of $20,188 and $23,536 at September 30, 2013 and December 31, 2012, respectively	$	42,651	$	30,496
Security deposits		1,787		2,097

	$	44,438	$	32,593

Deferred finance costs are recorded at cost and amortized over the term of the respective debt agreement (see Note 13). The Partnership incurred $0.1 million and $6.0 million deferred finance costs during the three months ended September 30, 2013 and 2012, respectively, and $22.5 million and $9.4 million deferred finance costs during the nine months ended September 30, 2013 and 2012, respectively, related to various financing activities (see Note 13). During the nine months ended September 30, 2013, the Partnership redeemed all of its outstanding $365.8 million 8.75% unsecured senior notes due June 15, 2018 (“8.75% Senior Notes”) (see Note 13). The Partnership recorded $5.3 million of accelerated amortization of deferred financing costs associated with the retirement of debt during the nine months ended September 30, 2013 related to the retirement of the 8.75% Senior Notes, which is included in loss

on early extinguishment of debt on the Partnership’s consolidated statement of operations. There was no accelerated amortization of deferred financing costs during the nine months ended September 30, 2012. Amortization expense of deferred finance costs, excluding accelerated amortization expense was $1.8 million and $1.1 million for the three months ended September 30, 2013 and 2012, respectively, and $5.1 million and $3.4 million for the nine months ended September 30, 2013 and 2012, respectively, which is recorded within interest expense on the Partnership’s consolidated statements of operations.

NOTE 9 – INCOME TAXES

As part of the Cardinal Acquisition (see Note 3), the Partnership acquired APL Arkoma, Inc., a taxable subsidiary. The components of the federal and state income tax benefit of the Partnership’s taxable subsidiary at September 30, 2013 are summarized as follows (in thousands):


	Three Months Ended September 30, 2013			Nine Months Ended September 30, 2013
Deferred benefit:
Federal	$	(732	)	$	(765	)
State		(85	)		(89	)

Total income tax benefit	$	(817	)	$	(854	)

The components of net deferred tax liabilities as of September 30, 2013 and December 31, 2012 consist of the following (in thousands):


	September 30,			December 31,
	2013			2012
Deferred tax assets:
Net operating loss tax carryforwards and alternative minimum tax credits	$	12,732		$	10,277
Deferred tax liabilities:
Excess of asset carrying value over tax basis		(47,428	)		(40,535	)

Net deferred tax liabilities	$	(34,696	)	$	(30,258	)

As of September 30, 2013, the Partnership had net operating loss carry forwards for federal income tax purposes of approximately $32.8 million, which expire at various dates from 2029 to 2033. Management of the General Partner believes it more likely than not that the deferred tax asset will be fully utilized.

NOTE 10 – DERIVATIVE INSTRUMENTS

The Partnership uses derivative instruments in connection with its commodity price risk management activities. The Partnership uses financial swap and put option instruments to hedge its forecasted natural gas, NGLs and condensate sales against the variability in expected future cash flows attributable to changes in market prices. Swap instruments are contractual agreements between counterparties to exchange obligations of money as the underlying natural gas, NGLs and condensate are sold. Under its swap agreements, the Partnership receives a fixed price and remits a floating price based on certain indices for the relevant contract period. The swap agreement sets a fixed price for the product being hedged. Commodity-based put option instruments are contractual agreements that require the payment of a premium and grant the purchaser of the put option the right to receive the difference between a fixed, or strike, price and a floating price based on certain indices for the relevant contract period, if the floating price is lower than the fixed price. The put option instrument sets a floor price for

commodity sales being hedged. A costless collar is a combination of a purchased put option and a sold call option, in which the premiums net to zero. A costless collar eliminates the initial cost of the purchased put, but places a ceiling price for commodity sales being hedged.

The Partnership no longer applies hedge accounting for derivatives. Changes in fair value of derivatives are recognized immediately within derivative gain (loss), net in its consolidated statements of operations. The change in fair value of commodity-based derivative instruments, which was previously recognized in accumulated other comprehensive loss within equity on the Partnership’s consolidated balance sheets, was reclassified to the Partnership’s consolidated statements of operations at the time the originally hedged physical transactions affected earnings. The Partnership has reclassified all earnings out of accumulated other comprehensive income (loss), within equity on the Partnership’s consolidated balance sheet as of December 31, 2012.

The Partnership enters into derivative contracts with various financial institutions, utilizing master contracts based upon the standards set by the International Swaps and Derivatives Association, Inc. These contracts allow for rights of setoff at the time of settlement of the derivatives. Due to the right of setoff, derivatives are recorded on the Partnership’s consolidated balance sheets as assets or liabilities at fair value on the basis of the net exposure to each counterparty. Potential credit risk adjustments are also analyzed based upon the net exposure to each counterparty. Premiums paid for purchased options are recorded on the Partnership’s consolidated balance sheets as the initial value of the options. Changes in the fair value of the options are recognized within derivative gain (loss), net as unrealized gain (loss) on the Partnership’s consolidated statements of operations. Premiums are reclassified to realized gain (loss) within derivative gain (loss), net at the time the option expires or is exercised. The Partnership reflected net derivative assets on its consolidated balance sheets of $11.5 million and $31.0 million at September 30, 2013 and December 31, 2012, respectively.

The following tables summarize the Partnership’s gross fair values of its derivative instruments, presenting the impact of offsetting derivative assets and liabilities on the Partnership’s consolidated balance sheets for the periods indicated (in thousands):

Offsetting of Derivative Assets


	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheets			Net Amounts of Assets Presented in the Consolidated Balance Sheets
As of September 30, 2013:
Current portion of derivative assets	$	7,981	$	(2,804	)	$	5,177
Long-term portion of derivative assets		9,186		(1,728	)		7,458
Current portion of derivative liabilities		1,171		(1,171	)		—

Total derivative assets, net	$	18,338	$	(5,703	)	$	12,635

As of December 31, 2012:
Current portion of derivative assets	$	23,534	$	(457	)	$	23,077
Long-term portion of derivative assets		9,637		(1,695	)		7,942

Total derivative assets, net	$	33,171	$	(2,152	)	$	31,019

Offsetting of Derivative Liabilities


	Gross Amounts of Recognized Liabilities			Gross Amounts Offset in the Consolidated Balance Sheets		Net Amounts of Liabilities Presented in the Consolidated Balance Sheets
As of September 30, 2013:
Current portion of derivative assets	$	(2,804	)	$	2,804	$	—
Long-term portion of derivative assets		(1,728	)		1,728		—
Current portion of derivative liabilities		(2,314	)		1,171		(1,143	)

Total derivative liabilities, net	$	(6,846	)	$	5,703	$	(1,143	)

As of December 31, 2012:
Current portion of derivative liabilities	$	(457	)	$	457	$	—
Long-term portion of derivative liabilities		(1,695	)		1,695		—

Total derivative liabilities, net	$	(2,152	)	$	2,152	$	—

The following table summarizes the Partnership’s commodity derivatives as of September 30, 2013, (dollars and volumes in thousands):


Production Period	Commodity	Volumes⁽¹⁾		Average Fixed Price ($/Volume)		Fair Value⁽²⁾Asset/ (Liability)
Fixed price
2013	Natural gas		1,570	$	3.75	$	245
2014	Natural gas		12,600		3.98		1,344
2015	Natural gas		15,160		4.24		2,745
2016	Natural gas		3,750		4.40		769
2013	NGLs		18,774		1.20		2,234
2014	NGLs		75,978		1.18		(2,007	)
2015	NGLs		27,216		1.10		191
2013	Crude oil		75		96.66		(385	)
2014	Crude oil		312		92.37		(1,181	)
2015	Crude oil		60		85.13		(213	)

Total fixed price swaps							3,742

Purchased Put Options
2014	Natural gas		600		4.13		312
2013	NGLs		11,844		1.90		1,893
2014	NGLs		4,410		1.00		261
2015	NGLs		1,890		0.90		173
2013	Crude oil		75		100.10		164
2014	Crude oil		449		94.69		2,591
2015	Crude oil		270		89.18		2,356

Total options							7,750

Total derivatives						$	11,492

(1)	NGL volumes are stated in gallons. Crude oil volumes are stated in barrels. Natural gas volumes are stated in MMBTUs.

(2)	See Note 11 for discussion on fair value methodology.

The following tables summarize the gross effect of all derivative instruments on the Partnership’s consolidated statements of operations for the periods indicated (in thousands):


	For the Three Months ended September 30,						For the Nine Months ended September 30,
	2013			2012			2013			2012
Derivatives previously designated as cash flow hedges
Loss reclassified from accumulated other comprehensive loss into natural gas and liquids sales	$	—		$	(1,079	)	$	—		$	(3,333	)


Derivatives not designated as hedges

Gain (loss) recognized in derivative gain (loss), net:
Commodity contract – realized⁽¹⁾	$	(907	)	$	4,157		$	3,573		$	7,079
Commodity contract – unrealized⁽²⁾		(23,610	)		(23,064	)		(13,066	)		29,826

Derivative gain (loss), net	$	(24,517	)	$	(18,907	)	$	(9,493	)	$	36,905

(1)	Realized gain (loss) represents the gain or loss incurred when the derivative contract expires and/or is cash settled.

(2)	Unrealized gain (loss) represents the mark-to-market gain or loss recognized on open derivative contracts, which have not yet settled.

NOTE 11 – FAIR VALUE OF FINANCIAL INSTRUMENTS

The Partnership uses a valuation framework based upon inputs that market participants use in pricing an asset or liability, which are classified into two categories: observable inputs and unobservable inputs. Observable inputs represent market data obtained from independent sources; whereas, unobservable inputs reflect the Partnership’s own market assumptions, which are used if observable inputs are not reasonably available without undue cost and effort. These two types of inputs are further prioritized into the following hierarchy:

Level 1 – Unadjusted quoted prices in active markets for identical, unrestricted assets and liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability.

Level 3 – Unobservable inputs that reflect the entity’s own assumptions about the assumptions market participants would use in the pricing of the asset or liability and are consequently not based on market activity but rather through particular valuation techniques.

The Partnership uses a market approach fair value methodology to value the assets and liabilities for its outstanding derivative contracts (see Note 10). The Partnership manages and reports the derivative assets and liabilities on the basis of its net exposure to market risks and credit risks by counterparty. The Partnership has a financial risk management committee (the “Financial Risk Management Committee”), which sets the policies, procedures and valuation methods utilized by the Partnership to value its derivative contracts. The Financial Risk Management Committee members include, among others, the Chief Executive Officer, the Chief Financial Officer and the Executive Vice Chairman of the managing

board of the General Partner. The Financial Risk Management Committee receives daily reports and meets on a weekly basis to review the risk management portfolio and changes in the fair value in order to determine appropriate actions.

Derivative Instruments

At September 30, 2013, the valuations for all the Partnership’s derivative contracts are defined as Level 2 assets and liabilities within the same class of nature and risk, with the exception of the Partnership’s NGL fixed price swaps and NGL options, which are defined as Level 3 assets and liabilities within the same class of nature and risk.

The Partnership’s Level 2 commodity derivatives include natural gas and crude oil swaps and options, which are calculated based upon observable market data related to the change in price of the underlying commodity. These swaps and options are calculated by utilizing the New York Mercantile Exchange (“NYMEX”) quoted prices for futures and option contracts traded on NYMEX that coincide with the underlying commodity, expiration period, strike price (if applicable) and pricing formula utilized in the derivative instrument.

Valuations for the Partnership’s NGL options are based on forward price curves developed by financial institutions, and therefore are defined as Level 3. The NGL options are over-the-counter instruments that are not actively traded in an open market, thus the Partnership utilizes the valuations provided by the financial institutions that provide the NGL options for trade. The Partnership tests these valuations for reasonableness through the use of an internal valuation model.

Valuations for the Partnership’s NGL fixed price swaps are based on forward price curves provided by a third party, which the Partnership considers to be Level 3 inputs. The prices are adjusted based upon the relationship between the prices for the product/locations quoted by the third party and the underlying product/locations utilized for the swap contracts, as determined by a regression model of the historical settlement prices for the different product/locations. The regression model is recalculated on a quarterly basis. This adjustment is an unobservable Level 3 input. The NGL fixed price swaps are over-the-counter instruments which are not actively traded in an open market. However, the prices for the underlying products and locations do have a direct correlation to the prices for the products and locations provided by the third party, which are based upon trading activity for the products and locations quoted. A change in the relationship between these prices would have a direct impact upon the unobservable adjustment utilized to calculate the fair value of the NGL fixed price swaps.

The following table represents the Partnership’s derivative assets and liabilities recorded at fair value as of September 30, 2013 and December 31, 2012 (in thousands):


	Level 1		Level 2			Level 3			Total
September 30, 2013
Assets
Commodity swaps	$	—	$	5,362		$	5,226		$	10,588
Commodity options		—		5,423			2,327			7,750

Total assets		—		10,785			7,553			18,338

Liabilities
Commodity swaps		—		(2,038	)		(4,808	)		(6,846	)

Total liabilities		—		(2,038	)		(4,808	)		(6,846	)

Total derivatives	$	—	$	8,747		$	2,745		$	11,492


December 31, 2012
Assets
Commodity swaps	$	—	$	2,007		$	17,573		$	19,580
Commodity options		—		7,322			6,269			13,591

Total assets		—		9,329			23,842			33,171

Liabilities
Commodity swaps		—		(1,393	)		(759	)		(2,152	)

Total liabilities		—		(1,393	)		(759	)		(2,152	)

Total derivatives	$	—	$	7,936		$	23,083		$	31,019

The Partnership’s Level 3 fair value amount relates to its derivative contracts on NGL fixed price swaps and NGL options. The following table provides a summary of changes in fair value of the Partnership’s Level 3 derivative instruments for the nine months ended September 30, 2013 (in thousands):


	NGL Fixed Price Swaps						NGL Put Options						Total
	Gallons			Amount			Gallons			Amount			Amount
Balance – December 31, 2012		87,066		$	16,814			38,556		$	6,269		$	23,083
New contracts⁽¹⁾		77,364			—			7,560			816			816
Cash settlements from unrealized gain (loss)⁽²⁾⁽³⁾		(42,462	)		(11,769	)		(27,972	)		5,680			(6,089	)
Net change in unrealized gain (loss)⁽²⁾		—			(4,627	)		—			(1,482	)		(6,109	)
Deferred option premium recognition⁽³⁾		—			—			—			(8,956	)		(8,956	)

Balance – September 30, 2013		121,968		$	418			18,144		$	2,327		$	2,745

(1)	Swaps are entered into with no value on the date of trade. Options include premiums paid, which are included in the value of the derivatives on the date of trade.

(2)	Included within derivative gain (loss), net on the Partnership’s consolidated statements of operations.

(3)	Includes option premium cost reclassified from unrealized gain (loss) to realized gain (loss) at time of option expiration.

The following table provides a summary of the unobservable inputs used in the fair value measurement of the Partnership’s NGL fixed price swaps at September 30, 2013 and December 31, 2012 (in thousands):


	Gallons		Third Party Quotes⁽¹⁾			Adjustments⁽²⁾			Total Amount
As of September 30, 2013
Propane swaps		92,106	$	645		$	(88	)	$	557
Isobutane swaps		6,300		(2,208	)		1,006			(1,202	)
Normal butane swaps		7,560		1			335			336
Natural gasoline swaps		16,002		1,533			(806	)		727

Total NGL swaps – September 30, 2013		121,968	$	(29	)	$	447		$	418

As of December 31, 2012
Propane swaps		69,678	$	16,302		$	(552	)	$	15,750
Isobutane swaps		1,134		(219	)		187			(32	)
Normal butane swaps		6,174		(909	)		242			(667	)
Natural gasoline swaps		10,080		3,247			(1,484	)		1,763

Total NGL swaps – December 31, 2012		87,066	$	18,421		$	(1,607	)	$	16,814

(1)	Based upon the difference between the quoted market price provided by the third party and the fixed price of the swap.

(2)

Product and location basis differentials calculated through the use of a regression model, which compares the difference between the settlement prices for the products and locations quoted by the third party and the settlement prices for the actual products and locations underlying the derivatives, using a three year historical period.

The following table provides a summary of the regression coefficient utilized in the calculation of the unobservable inputs for the Level 3 fair value measurements for the NGL fixed price swaps for the periods indicated (in thousands):


	Level 3 NGL Swap Fair			Adjustment based upon Regression Coefficient
	Value Adjustments			Lower 95%		Upper 95%		Average
As of September 30, 2013:
Propane	$	(88	)		0.8959		0.906		0.9009
Isobutane		1,006			1.1194		1.1291		1.1242
Normal butane		335			1.0345		1.0389		1.0367
Natural gasoline		(806	)		0.9729		0.9754		0.9741

Total Level 3 adjustments – September 30, 2013	$	447

As of December 31, 2012:
Propane	$	(552	)		0.9019		0.9122		0.9071
Isobutane		187			1.1285		1.1376		1.1331
Normal butane		242			1.0370		1.0416		1.0393
Natural gasoline		(1,484	)		0.8988		0.9169		0.9078

Total Level 3 adjustments – December 31, 2012	$	(1,607	)

NGL Linefill

The Partnership had $20.0 million and $7.8 million of NGL linefill at September 30, 2013 and December 31, 2012, respectively, which was included within prepaid expenses and other on its consolidated balance sheets. The NGL linefill represents amounts receivable for NGLs delivered to counterparties for which the counterparty will pay at a designated later period at a price determined by the then market price. The Partnership’s NGL linefill is defined as a Level 3 asset and is valued using the same forward price curve utilized to value the Partnership’s NGL fixed price swaps. The product/location adjustment based upon the multiple regression analysis, which was included in the value of the linefill, was a reduction of $0.4 million and $0.4 million as of September 30, 2013 and December 31, 2012, respectively.

The following table provides a summary of changes in fair value of the Partnership’s NGL linefill for the nine months ended September 30, 2013 (in thousands):


	NGL Linefill
	Gallons			Amount
Balance – December 31, 2012	$	9,148		$	7,783
Deliveries into NGL linefill		52,334			41,950
NGL linefill sales		(39,787	)		(30,769	)
Net change in NGL linefill valuation⁽¹⁾		—			(332	)
Acquired NGL linefill⁽²⁾		2,213			1,368

Balance – September 30, 2013	$	23,908		$	20,000

(1)	Included within natural gas and liquid sales on the Partnership’s consolidated statements of operations.

(2)	NGL linefill acquired as part of the TEAK Acquisition (see Note 3).

Contingent Consideration

In February 2012, the Partnership acquired a gas gathering system and related assets for an initial net purchase price of $19.0 million. The Partnership originally agreed to pay up to an additional $12.0 million, payable in two equal amounts, if certain volumes are achieved on the acquired gathering system within a specified time period (“Trigger Payments”). Sufficient volumes were achieved in December 2012 and the Partnership paid the first Trigger Payment of $6.0 million in January 2013. As of September 30, 2013, the fair value of the remaining Trigger Payment resulted in a $6.0 million long term liability, which was recorded within other long term liabilities on the Partnership’s consolidated balance sheets. The range of the undiscounted amount the Partnership could pay related to the remaining Trigger Payment is between $0.0 and $6.0 million.

Other Financial Instruments

The estimated fair value of the Partnership’s other financial instruments has been determined based upon its assessment of available market information and valuation methodologies. However, these estimates may not necessarily be indicative of the amounts the Partnership could realize upon the sale or refinancing of such financial instruments.

The Partnership’s current assets and liabilities on its consolidated balance sheets, other than the derivatives, NGL linefill and contingent consideration discussed above, are considered to be financial instruments for which the estimated fair values of these instruments approximate their carrying amounts

due to their short-term nature and thus are categorized as Level 1 values. The carrying value of outstanding borrowings under the revolving credit facility, which bear interest at a variable interest rate, approximates their estimated fair value and thus is categorized as a Level 1 value. The estimated fair value of the Partnership’s Senior Notes (see Note 13) is based upon the market approach and calculated using the yield of the Senior Notes as provided by financial institutions and thus is categorized as a Level 3 value. The estimated fair values of the Partnership’s total debt at September 30, 2013 and December 31, 2012, which consists principally of borrowings under the revolving credit facility and the Senior Notes, were $1,578.2 million and $1,216.4 million, respectively, compared with the carrying amounts of $1,655.7 million and $1,179.9 million, respectively.

Acquisitions

On December 20, 2012, the Partnership completed the Cardinal Acquisition (see Note 3). On May 7, 2013, the Partnership completed the TEAK Acquisition (see Note 3). The fair value measurements of assets acquired and liabilities assumed are based on inputs that are not observable in the market and therefore represent Level 3 inputs. These inputs require significant judgments and estimates at the time of the valuation. The estimates of fair value as of the acquisition date, which are reflected in the Partnership’s consolidated balance sheet as of September 30, 2013, are subject to change.

NOTE 12 – ACCRUED LIABILITIES

The following is a summary of accrued liabilities (in thousands):


	September 30, 2013		December 31, 2012
Accrued capital expenditures	$	11,161	$	8,336
Cardinal and TEAK Acquisitions payable (offset by funds in escrow)		50,005		25,000
Acquisition-based short-term contingent consideration		—		6,000
Accrued ad valorem and production taxes		14,416		3,950
Other		15,266		14,466

	$	90,848	$	57,752

NOTE 13 – DEBT

Total debt consists of the following (in thousands):


	September 30, 2013			December 31, 2012
Revolving credit facility	$	100,000		$	293,000
8.750% Senior notes – due 2018		—			370,184
6.625% Senior notes – due 2020		504,725			505,231
5.875% Senior notes – due 2023		650,000			—
4.750% Senior notes – due 2021		400,000			—
Capital lease obligations		927			11,503

Total debt		1,655,652			1,179,918
Less current maturities		(610	)		(10,835	)

Total long term debt	$	1,655,042		$	1,169,083

Cash payments for interest related to debt, net of capitalized interest, were $17.8 million and $0.9 million for the three months ended September 30, 2013 and 2012, respectively, and $40.3 million and $16.2 million for the nine months ended September 30, 2013 and 2012, respectively.

Revolving Credit Facility

At September 30, 2013, the Partnership had a $600.0 million senior secured revolving credit facility with a syndicate of banks that matures in May 2017. Borrowings under the revolving credit facility bear interest, at the Partnership’s option, at either (1) the higher of (a) the prime rate, (b) the federal funds rate plus 0.50% and (c) three-month LIBOR plus 1.0%, or (2) the LIBOR rate for the applicable period (each plus the applicable margin). The weighted average interest rate for borrowings on the revolving credit facility, at September 30, 2013, was 3.2%. Up to $50.0 million of the revolving credit facility may be utilized for letters of credit, of which $0.4 million was outstanding at September 30, 2013. These outstanding letters of credit amounts were not reflected as borrowings on the Partnership’s consolidated balance sheets. At September 30, 2013, the Partnership had $499.6 million of remaining committed capacity under its revolving credit facility.

Borrowings under the revolving credit facility are secured by (i) a lien on and security interest in all the Partnership’s property and that of its subsidiaries, except for the assets owned by Atlas Pipeline Mid-Continent WestOk, LLC (“WestOK LLC”) and Atlas Pipeline Mid-Continent WestTex, LLC (“WestTX LLC”), entities in which the Partnership has 95% interests, and Centrahoma, in which the Partnership has a 60% interest; and their respective subsidiaries; and (ii) by the guaranty of each of the Partnership’s consolidated subsidiaries other than the joint venture companies. The revolving credit facility contains customary covenants, including requirements that the Partnership maintain certain financial thresholds and restrictions on the Partnership’s ability to (1) incur additional indebtedness, (2) make certain acquisitions, loans or investments, (3) make distribution payments to its unitholders if an event of default exists, or (4) enter into a merger or sale of assets, including the sale or transfer of interests in its subsidiaries. The Partnership is unable to borrow under its revolving credit facility to pay distributions of available cash to unitholders because such borrowings would not constitute “working capital borrowings” pursuant to its partnership agreement.

The events that constitute an event of default for the revolving credit facility are also customary for loans of this size, including payment defaults, breaches of representations or covenants contained in the credit agreement, adverse judgments against the Partnership in excess of a specified amount, and a change of control of the Partnership’s General Partner.

On April 19, 2013, the Partnership entered into an amendment to the credit agreement which, among other changes, adjusted certain covenant ratio limits and adjusted the method of calculation as a result of the TEAK Acquisition. As of September 30, 2013, the Partnership was in compliance with all covenants under the credit facility.

Senior Notes

At September 30, 2013, the Partnership had $500.0 million principal outstanding of 6.625% Senior Notes, $650.0 million principal outstanding of 5.875% unsecured senior notes due August 1, 2023 (“5.875% Senior Notes”), and $400.0 million of 4.75% Senior Notes (with the 6.625% Senior Notes and 5.875% Senior Notes, the “Senior Notes”).

The 6.625% Senior Notes are presented combined with a net $4.7 million unamortized premium as of September 30, 2013. Interest on the 6.625% Senior Notes is payable semi-annually in arrears on April 1 and October 1. The 6.625% Senior Notes are redeemable at any time after October 1, 2016, at certain redemption prices, together with accrued and unpaid interest to the date of redemption.

On September 28, 2012, the Partnership issued $325.0 million of the 6.625% Senior Notes, and on December 20, 2012, the Partnership issued an additional $175.0 million of the 6.625% Senior Notes. In connection with the issuance of the 6.625% Senior Notes, the Partnership entered into registration rights agreements, whereby it agreed to (a) file an exchange offer registration statement with the SEC to exchange the privately issued notes for registered notes, and (b) cause the exchange offer to be consummated by September 23, 2013 in the case of the 6.625% Senior Notes issued in September 2012, or by December 15, 2013, in the case of the 6.625% Senior Notes issued in December 2012. The registration statement the Partnership filed with the SEC for the exchange offer for the 6.625% Senior Notes in satisfaction of the registration requirements of the registration rights agreements became effective on September 17, 2013. The Partnership commenced an exchange offering for the 6.625% Senior Notes on September 18, 2013 and the exchange offer was completed on October 16, 2013. Pursuant to the terms of the registration rights agreement, because the exchange offer was not consummated within the aforementioned timeframe, the Partnership incurred a 0.25% interest penalty from September 23, 2013 through consummation of the exchange offer on October 16, 2013.

On February 11, 2013, the Partnership issued $650.0 million of the 5.875% Senior Notes in a private placement transaction. The 5.875% Senior Notes were issued at par. The Partnership received net proceeds of $637.3 million after underwriting commissions and other transactions costs and utilized the proceeds to redeem the 8.75% unsecured senior notes due June 15, 2018 (“8.75% Senior Notes”) and repay a portion of the outstanding indebtedness under the revolving credit agreement. Interest on the 5.875% Senior Notes is payable semi-annually in arrears on February 1 and August 1. The 5.875% Senior Notes are redeemable any time after February 1, 2018, at certain redemption prices, together with accrued and unpaid interest to the date of redemption.

In connection with the issuance of the 5.875% Senior Notes, the Partnership entered into a registration rights agreement, whereby it agreed to (a) file an exchange offer registration statement with the SEC to exchange the privately issued notes for registered notes, and (b) cause the exchange offer to be consummated by February 6, 2014. If the Partnership does not meet the aforementioned deadline, the 5.875% Senior Notes will be subject to additional interest, up to 1% per annum, until such time that the Partnership causes the exchange offer to be consummated. On October 4, 2013, the Partnership filed a registration statement with the SEC for an exchange offer for the 5.875% Senior Notes.

On May 10, 2013, the Partnership issued $400.0 million of the 4.75% Senior Notes in a private placement transaction. The 4.75% Senior Notes were issued at par. The Partnership received net proceeds of $391.5 million after underwriting commissions and other transactions costs and utilized the proceeds to repay a portion of the outstanding indebtedness under the revolving credit agreement as part of the TEAK Acquisition (see Note 3). Interest on the 4.75% Senior Notes is payable semi-annually in arrears on May 15 and November 15. The 4.75% Senior Notes are due on November 15, 2021 and are redeemable any time after March 15, 2016, at certain redemption prices, together with accrued and unpaid interest to the date of redemption.

In connection with the issuance of the 4.75% Senior Notes, the Partnership entered into a registration rights agreement, whereby it agreed to (a) file an exchange offer registration statement with the SEC to exchange the privately issued notes for registered notes, and (b) cause the exchange offer to be consummated by May 5, 2014. If the Partnership does not meet the aforementioned deadline, the 4.75% Senior Notes will be subject to additional interest, up to 1% per annum, until such time that the Partnership causes the exchange offer to be consummated. On October 4, 2013, the Partnership filed a registration statement with the SEC for an exchange offer for the 4.75% Senior Notes.

On January 28, 2013, the Partnership commenced a cash tender offer for any and all of its outstanding $365.8 million 8.75% Senior Notes, excluding unamortized premium, and a solicitation of consents to eliminate most of the restrictive covenants and certain of the events of default contained in the indenture governing the 8.75% Senior Notes (“8.75% Senior Notes Indenture”). Approximately $268.4 million aggregate principal amount of the 8.75% Senior Notes were validly tendered as of the expiration date of the consent solicitation. In February 2013, the Partnership accepted for purchase all 8.75% Senior Notes validly tendered as of the expiration of the consent solicitation and paid $291.4 million to redeem the $268.4 million principal plus $11.2 million make-whole premium, $3.7 million accrued interest and $8.0 million consent payment. The Partnership entered into a supplemental indenture amending and supplementing the 8.75% Senior Notes Indenture. The Partnership also issued a notice to redeem all the 8.75% Senior Notes not purchased in connection with the tender offer.

On March 12, 2013, the Partnership paid $105.6 million to redeem the remaining $97.3 million outstanding 8.75% Senior Notes plus a $6.3 million make-whole premium and $2.0 million in accrued interest. The Partnership funded the redemption with a portion of the net proceeds from the issuance of the 5.875% Senior Notes. During the nine months ended September 30, 2013, the Partnership recorded a loss of $26.6 million within loss on early extinguishment of debt on the Partnership’s consolidated statements of operations, related to the redemption of the 8.75% Senior Notes. The loss includes $17.5 million premiums paid; $8.0 million consent payment; $5.3 million write off of deferred financing costs, offset by $4.2 million recognition of unamortized premium.

The Senior Notes are subject to repurchase by the Partnership at a price equal to 101% of their principal amount, plus accrued and unpaid interest, upon a change of control or upon certain asset sales if the Partnership does not reinvest the net proceeds within 360 days. The Senior Notes are junior in right of payment to the Partnership’s secured debt, including the Partnership’s obligations under its revolving credit facility.

Indentures governing the Senior Notes contain covenants, including limitations of the Partnership’s ability to: incur certain liens; engage in sale/leaseback transactions; incur additional indebtedness; declare or pay distributions if an event of default has occurred; redeem, repurchase or retire equity interests or subordinated indebtedness; make certain investments; or merge, consolidate or sell substantially all its assets. The Partnership is in compliance with these covenants as of September 30, 2013.

Capital Leases

The following is a summary of the leased property under capital leases as of September 30, 2013 and December 31, 2012, which are included within property, plant and equipment (see Note 6) (in thousands):


	September 30, 2013			December 31, 2012
Pipelines, processing and compression facilities	$	2,281		$	15,457
Less – accumulated depreciation		(284	)		(1,066	)

	$	1,997		$	14,391

On May 30, 2013, the Partnership accelerated payment on certain leases and purchased the leased property by paying approximately $7.5 million in accordance with the lease agreements. These leases were to mature in August 2013.

Depreciation expense for leased properties was $44 thousand and $186 thousand for the three months ended September 30, 2013 and 2012, respectively, and $293 thousand and $538 thousand for the nine months ended September 30, 2013 and 2012, respectively, which is included within depreciation and amortization expense on the Partnership’s consolidated statements of operations (see Note 6).

NOTE 14 – COMMITMENTS AND CONTINGENCIES

The Partnership has certain long-term unconditional purchase obligations and commitments, consisting primarily of transportation contracts. These agreements provide for transportation services to be used in the ordinary course of the Partnership’s operations. Transportation fees paid related to these contracts were $7.2 million and $2.6 million for three months ended September 30, 2013 and 2012, respectively, and $24.8 million and $7.6 million for nine months ended September 30, 2013 and 2012, respectively. The future fixed and determinable portion of the obligations as of September 30, 2013 was as follows: remainder of 2013 – $2.8 million; 2014 – $9.5 million; and 2015 to 2017 – $3.5 million per year.

The Partnership had committed approximately $166.2 million for the purchase of property, plant and equipment at September 30, 2013.

The Partnership is a party to various routine legal proceedings arising out of the ordinary course of its business. Management of the Partnership believes that the ultimate resolution of these actions, individually or in the aggregate, will not have a material adverse effect on its financial condition or results of operations.

NOTE 15 – BENEFIT PLANS

Generally, all share-based payments to employees, which are not cash settled, including grants of unit options and phantom units, are recognized within equity in the financial statements based on their fair values on the date of the grant. Share-based payments to non-employees, which have a cash settlement option, are recognized within liabilities in the financial statements based upon their current fair market value.

A phantom unit entitles a grantee to receive a common limited partner unit upon vesting of the phantom unit. In tandem with phantom unit grants, participants may be granted a distribution equivalent right (“DER”), which is the right to receive cash per phantom unit in an amount equal to and at the same time as the cash distributions the Partnership makes on a common unit during the period the phantom unit is outstanding. The compensation committee appointed by the General Partner’s managing board (the “Compensation Committee”) determines the vesting period for phantom units.

A unit option entitles a grantee to purchase a common limited partner unit upon payment of the exercise price for the option after completion of vesting of the unit option. The exercise price of the unit option is equal to the fair market value of the common unit on the date of grant of the option. The Compensation Committee determines how the exercise price may be paid by the grantee as well as the vesting and exercise period for unit options. Unit option awards expire 10 years from the date of grant. There were no unit options outstanding as of September 30, 2013.

Long-Term Incentive Plans

The Partnership has a 2004 Long-Term Incentive Plan (“2004 LTIP”) and a 2010 Long-Term Incentive Plan (“2010 LTIP” and collectively with the 2004 LTIP, the “LTIPs”) in which officers,

employees, non-employee managing board members of the General Partner, employees of the General Partner’s affiliates and consultants are eligible to participate. The LTIPs are administered by the Compensation Committee. Under the LTIPs, the Compensation Committee may make awards of either phantom units or unit options for an aggregate of 3,435,000 common units. At September 30, 2013, the Partnership had 1,522,822 phantom units outstanding under the Partnership’s LTIPs, with 809,720 phantom units and unit options available for grant. The Partnership generally issues new common units for phantom units and unit options, which have vested and have been exercised.

Partnership Phantom Units.

Through September 30, 2013, phantom units granted to employees under the LTIPs generally had vesting periods of four years. Phantom units awarded to non-employee managing board members will vest over a four year period. Awards to non-employee members of the board automatically vest upon a change of control, as defined in the LTIPs. At September 30, 2013, there were 468,544 units outstanding under the LTIPs that will vest within the following twelve months.

All phantom units outstanding under the LTIPs at September 30, 2013 include DERs granted to the participants by the Compensation Committee. The amounts paid with respect to LTIP DERs were $1.0 million and $0.6 million, during the three months ended September 30, 2013 and 2012, respectively, and $2.2 million and $1.4 million, during the nine months ended September 30, 2013 and 2012, respectively. These amounts were recorded as reductions of equity on the Partnership’s consolidated balance sheets.

The following table sets forth the Partnership’s LTIPs phantom unit activity for the periods indicated:


	Three Months Ended September 30,										Nine Months Ended September 30,
	2013					2012					2013					2012
	Number of Units			Fair Value⁽¹⁾		Number of Units			Fair Value⁽¹⁾		Number of Units			Fair Value⁽¹⁾		Number of Units			Fair Value⁽¹⁾
Outstanding, beginning of period		909,012		$	33.54		972,402		$	32.19		1,053,242		$	33.21		394,489		$	21.63
Granted		697,122			39.07		85,103			33.61		740,897			38.97		783,187			34.83
Forfeited		(24,200	)		36.74		(51,000	)		29.83		(26,300	)		36.44		(54,950	)		29.46
Matured and issued⁽²⁾		(59,112	)		27.81		(45,587	)		23.75		(245,017	)		31.44		(161,808	)		16.26

Outstanding, end of period⁽³⁾⁽⁴⁾		1,522,822		$	36.24		960,918		$	32.84		1,522,822		$	36.24		960,918		$	32.84

Matured and not issued⁽⁵⁾		2,450		$	32.95		6,800		$	27.46		2,450		$	32.95		6,800		$	27.46

Non-cash compensation expense recognized (in thousands)				$	5,998				$	3,619				$	13,818				$	7,538

(1)	Fair value based upon weighted average grant date price.

(2)	The intrinsic values for phantom unit awards exercised during the three months ended September 30, 2013 and 2012 were $2.2 million and $1.4 million, respectively, and $8.9 million and $4.9 million during the nine months ended September 30, 2013 and 2012, respectively.

(3)	The aggregate intrinsic value for phantom unit awards outstanding at September 30, 2013 and 2012 was $59.1 million and $32.8 million, respectively.

(4)	There were 23,565 and 17,926 outstanding phantom unit awards at September 30, 2013 and December 31, 2012, respectively, which were classified as liabilities due to a cash option available on the related phantom unit awards.

(5)	The aggregate intrinsic value for phantom unit awards vested but not issued at September 30, 2013 and 2012 was $94 thousand and $157 thousand, respectively.

At September 30, 2013, the Partnership had approximately $37.5 million of unrecognized compensation expense related to unvested phantom units outstanding under the LTIPs based upon the fair value of the awards, which is expected to be recognized over a weighted average period of 2.2 years.

NOTE 16 – RELATED PARTY TRANSACTIONS

The Partnership does not directly employ any persons to manage or operate its business. These functions are provided by the General Partner and employees of ATLS. The General Partner does not receive a management fee in connection with its management of the Partnership apart from its interest as general partner and its right to receive incentive distributions. The Partnership reimburses the General Partner and its affiliates for compensation and benefits related to its employees who perform services for the Partnership based upon an estimate of the time spent by such persons on activities for the Partnership. Other indirect costs, such as rent for offices, are allocated to the Partnership by ATLS based on the number of its employees who devote their time to activities on the Partnership’s behalf.

The partnership agreement provides that the General Partner will determine the costs and expenses allocable to the Partnership in any reasonable manner determined by the General Partner at its sole discretion. The Partnership reimbursed the General Partner and its affiliates $1.3 million and $0.8 million for the three months ended September 30, 2013 and 2012, respectively, and $3.8 million and $2.6

million for the nine months ended September 30, 2013 and 2012, respectively, for compensation and benefits related to its employees. There were no reimbursements for direct expenses incurred by the General Partner and its affiliates for the nine months ended September 30, 2013 and 2012. The General Partner believes the method utilized in allocating costs to the Partnership is reasonable.

The Partnership compresses and gathers gas for Atlas Resource Partners, L.P. (NYSE: ARP) (“ARP”) on its gathering systems located in Tennessee. ARP’s general partner is wholly-owned by ATLS, and two members of the General Partner’s managing board are members of ARP’s board of directors. The Partnership entered into an agreement to provide these services, which extends for the life of ARP’s leases, in February 2008. The Partnership charged ARP approximately $74 thousand and $156 thousand in compression and gathering fees for the three months ended September 30, 2013 and 2012, respectively, and $222 thousand and $357 thousand in compression and gathering fees for the nine months ended September 30, 2013 and 2012, respectively.

The Partnership has agreed to provide design, procurement and construction management services for ARP with respect to a pipeline to be located in Lycoming County, Pennsylvania. The total estimated price for the Partnership’s services in connection with the project is under $2.5 million. The Partnership has been reimbursed approximately $1.6 million by ARP during the nine months ended September 30, 2013.

NOTE 17 – SEGMENT INFORMATION

The Partnership has two reportable segments: Gathering and Processing; and Transportation, Treating and Other (“Transportation and Treating”). These reportable segments reflect the way the Partnership manages its operations.

The Gathering and Processing segment consists of (1) the Arkoma, SouthTX, WestOK, WestTX and Velma operations, which are comprised of natural gas gathering and processing assets servicing drilling activity in the Eagle Ford Shale play in Texas and the Anadarko, Arkoma, and Permian Basins; and (2) the natural gas gathering assets located in the Barnett Shale play in Texas and the Appalachian Basin in Tennessee. Gathering and Processing revenues are primarily derived from the sale of residue gas and NGLs and the gathering, processing and treating of natural gas.

The Transportation and Treating segment consists of (1) contract gas treating operations located in various shale plays including the Avalon, Eagle Ford, Granite Wash, Haynesville, Fayetteville and Woodford; and (2) the Partnership’s 20% interest in the equity income generated by West Texas LPG Pipeline Limited Partnership, which owns a common-carrier pipeline system that transports NGLs from New Mexico and Texas to Mont Belvieu, Texas for fractionation. Contract gas treating revenues are primarily derived from monthly lease fees for use of treating facilities. Pipeline revenues are primarily derived from transportation fees.

The following summarizes the Partnership’s reportable segment data for the periods indicated (in thousands):


	Gathering and Processing			Transportation and Treating		Corporate and Other			Consolidated
Three Months Ended September 30, 2013:
Revenue:
Revenues – third party⁽¹⁾	$	580,601		$	1,399	$	(24,204	)	$	557,796
Revenues – affiliates		74			—		—			74

Total revenues		580,675			1,399		(24,204	)		557,870

Costs and Expenses:
Operating costs and expenses		487,977			393		—			488,370
General and administrative⁽¹⁾		—			—		17,887			17,887
Other costs		—			—		685			685
Depreciation and amortization		49,642			1,226		212			51,080
Interest expense⁽¹⁾		—			—		24,347			24,347

Total costs and expenses		537,619			1,619		43,131			582,369

Equity income (loss) in joint ventures		(3,271	)		1,389		—			(1,882	)

Income (loss) before tax		39,785			1,169		(67,335	)		(26,381	)
Income tax benefit		(817	)		—		—			(817	)

Net income (loss)	$	40,602		$	1,169	$	(67,335	)	$	(25,564	)


Three Months Ended September 30, 2012:
Revenue:
Revenues – third party⁽¹⁾	$	297,478		$	—	$	(20,066	)	$	277,412
Revenues – affiliates		156			—		—			156

Total revenues		297,634			—		(20,066	)		277,568

Costs and expenses:
Operating costs and expenses		240,429			49		—			240,478
General and administrative⁽¹⁾		—			—		12,123			12,123
Other costs		(108	)		—		—			(108	)
Depreciation and amortization		23,161			—		—			23,161
Interest expense⁽¹⁾		—			—		9,692			9,692

Total costs and expenses		263,482			49		21,815			285,346

Equity income in joint ventures		—			1,422		—			1,422

Net income (loss)	$	34,152		$	1,373	$	(41,881	)	$	(6,356	)

(1)	The Partnership notes derivative contracts are carried at the corporate level and interest and general and administrative expenses have not been allocated to its reportable segments as it would be unfeasible to reasonably do so for the periods presented.


	Gathering and Processing			Transportation and Treating		Corporate and Other			Consolidated
Nine Months Ended September 30, 2013:
Revenue:
Revenues – third party⁽¹⁾	$	1,531,643		$	4,283	$	(9,427	)	$	1,526,499
Revenues – affiliates		222			—		—			222

Total revenues		1,531,865			4,283		(9,427	)		1,526,721

Costs and Expenses:
Operating costs and expenses		1,283,695			1,060		—			1,284,755
General and administrative⁽¹⁾		—			—		44,231			44,231
Other costs		—			—		19,585			19,585
Depreciation and amortization		123,610			3,678		633			127,921
Interest expense⁽¹⁾		—			—		65,614			65,614

Total costs and expenses		1,407,305			4,738		130,063			1,542,106

Equity income (loss) in joint ventures		(5,430	)		5,116		—			(314	)
Loss on asset disposition		(1,519	)		—		—			(1,519	)
Loss on early extinguishment of debt		—			—		(26,601	)		(26,601	)

Income (loss) before tax		117,611			4,661		(166,091	)		(43,819	)
Income tax benefit		(854	)		—		—			(854	)

Net income (loss)	$	118,465		$	4,661	$	(166,091	)	$	(42,965	)


Nine Months Ended September 30, 2012:
Revenue:
Revenues – third party⁽¹⁾	$	860,119		$	—	$	33,492		$	893,611
Revenues – affiliates		357			—		—			357

Total revenues		860,476			—		33,492			893,968

Costs and expenses:
Operating costs and expenses		697,521			122		—			697,643
General and administrative⁽¹⁾		—			—		32,513			32,513
Other costs		(303	)		—		—			(303	)
Depreciation and amortization		65,715			—		—			65,715
Interest expense⁽¹⁾		—			—		27,669			27,669

Total costs and expenses		762,933			122		60,182			823,237

Equity income in joint ventures		—			4,235		—			4,235

Net income (loss)	$	97,543		$	4,113	$	(26,690	)	$	74,966

(1)	The Partnership notes derivative contracts are carried at the corporate level and interest and general and administrative expenses have not been allocated to its reportable segments as it would be unfeasible to reasonably do so for the periods presented.


	Three Months Ended September 30,				Nine Months Ended September 30,
Capital Expenditures:	2013		2012		2013		2012
Gathering and processing	$	111,351	$	96,024	$	324,984	$	242,412
Transportation and treating		—		—		105		—
Corporate and other		801		—		2,772		—

	$	112,152	$	96,024	$	327,861	$	242,412


Balance Sheet	September 30, 2013		December 31, 2012
Equity method investment in joint ventures:
Gathering and processing	$	152,503	$	—
Transportation and treating		85,718		86,002

	$	238,221	$	86,002

Goodwill:
Gathering and processing	$	460,074	$	292,448
Transportation and treating		43,863		26,837

	$	503,937	$	319,285

Total assets:
Gathering and processing	$	4,087,197	$	2,831,639
Transportation and treating		174,931		141,356
Corporate and other		111,467		92,643

	$	4,373,595	$	3,065,638

The following table summarizes the Partnership’s natural gas and liquids sales by product or service for the periods indicated (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013			2012
Natural gas and liquids sales:
Natural gas	$	181,345	$	111,402	$	514,715		$	260,046
NGLs		315,824		140,065		803,894			477,918
Condensate		37,511		22,776		92,520			66,800
Other		1,039		375		(332	)		(2,120	)

Total	$	535,719	$	274,618	$	1,410,797		$	802,644

NOTE 18 – SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION

The Partnership’s Senior Notes and revolving credit facility are guaranteed by its wholly-owned subsidiaries. The guarantees are full, unconditional, joint and several. The Partnership’s consolidated financial statements as of September 30, 2013 and December 31, 2012 and for the three and nine months ended September 30, 2013 and 2012 include the financial statements of WestOK LLC, WestTX LLC, and

Centrahoma as well as the Partnership’s equity interests in WTLPG and the T2 Joint Ventures. Under the terms of the Senior Notes and the revolving credit facility, WestOK LLC, WestTX LLC, Centrahoma, WTLPG, and the T2 Joint Ventures are non-guarantor subsidiaries as they are not wholly-owned by the Partnership. The following supplemental condensed consolidating financial information reflects the Partnership’s stand-alone accounts, the combined accounts of the guarantor subsidiaries, the combined accounts of the non-guarantor subsidiaries, the consolidating adjustments and eliminations and the Partnership’s consolidated accounts as of September 30, 2013 and December 31, 2012 and for the three and nine months ended September 30, 2013 and 2012. For the purpose of the following financial information, the Partnership’s investments in its subsidiaries and the guarantor subsidiaries’ investments in their subsidiaries are presented in accordance with the equity method of accounting (in thousands):


Balance Sheets September 30, 2013	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Consolidating Adjustments			Consolidated

Assets
Cash and cash equivalents	$	—	$	166	$	10,273	$	—		$	10,439
Accounts receivable – affiliates		709,642		—		—		(709,642	)		—
Other current assets		88		125,826		183,738		(1,866	)		307,786

Total current assets		709,730		125,992		194,011		(711,508	)		318,225

Property, plant and equipment, net		—		792,884		1,922,477		—			2,715,361
Intangible assets, net		—		448,807		97,148		—			545,955
Goodwill		—		458,928		45,009		—			503,937
Equity method investment in joint ventures		—		—		238,221		—			238,221
Long term portion of derivative asset		—		7,458		—		—			7,458
Long term notes receivable		—		—		1,852,928		(1,852,928	)		—
Equity investments		3,247,779		1,486,431		—		(4,734,210	)		—
Other assets, net		42,651		1,787		—		—			44,438

Total assets	$	4,000,160	$	3,322,287	$	4,349,794	$	(7,298,646	)	$	4,373,595


Liabilities and Equity
Accounts payable – affiliates	$	—	$	434,487	$	279,760	$	(709,642	)	$	4,605
Other current liabilities		30,557		116,767		209,851		—			357,175

Total current liabilities		30,557		551,254		489,611		(709,642	)		361,780
Long-term debt, less current portion		1,654,725		317		—		—			1,655,042
Deferred income taxes, net		—		34,696		—		—			34,696
Other long-term liability		210		1,199		6,000		—			7,409
Equity		2,314,668		2,734,821		3,854,183		(6,589,004	)		2,314,668

Total liabilities and equity	$	4,000,160	$	3,322,287	$	4,349,794	$	(7,298,646	)	$	4,373,595


December 31, 2012

Assets
Cash and cash equivalents	$	—	$	157	$	3,241	$	—		$	3,398
Accounts receivable – affiliates		921,702		—		—		(921,702	)		—
Other current assets		172		68,144		149,507		(1,146	)		216,677

Total current assets		921,874		68,301		152,748		(922,848	)		220,075

Property, plant and equipment, net		—		491,790		1,708,591		—			2,200,381
Intangible assets, net		—		101,446		97,914		—			199,360
Goodwill		—		278,423		40,862		—			319,285
Equity method investment in joint venture		—		—		86,002		—			86,002
Long term portion of derivative asset		—		7,942		—		—			7,942
Long term notes receivable		—		—		1,852,928		(1,852,928	)		—
Equity investments		1,832,652		1,880,155		—		(3,712,807	)		—
Other assets, net		30,496		1,772		325		—			32,593

Total assets	$	2,785,022	$	2,829,829	$	3,939,370	$	(6,488,583	)	$	3,065,638


Liabilities and Equity
Accounts payable – affiliates	$	—	$	145,436	$	781,766	$	(921,702	)	$	5,500
Other current liabilities		10,046		61,333		176,640		—			248,019

Total current liabilities		10,046		206,769		958,406		(921,702	)		253,519
Long-term debt, less current portion		1,168,415		604		64		—			1,169,083
Deferred income taxes, net		—		30,258		—		—			30,258
Other long-term liability		153		217		6,000		—			6,370
Equity		1,606,408		2,591,981		2,974,900		(5,566,881	)		1,606,408

Total liabilities and equity	$	2,785,022	$	2,829,829	$	3,939,370	$	(6,488,583	)	$	3,065,638


Statements of Operations	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
Three Months Ended September 30, 2013
Total revenues	$	—		$	123,858		$	453,862		$	(19,850	)	$	557,870
Total costs and expenses		(23,510	)		(172,901	)		(405,503	)		19,545			(582,369	)
Equity income (loss)		(3,568	)		43,081			(1,882	)		(39,513	)		(1,882	)

Income (loss), before tax		(27,078	)		(5,962	)		46,477			(39,818	)		(26,381	)
Income tax benefit		—			(817	)		—			—			(817	)

Net income (loss)		(27,078	)		(5,145	)		46,477			(39,818	)		(25,564	)
Income attributable to non-controlling interest		—			—			(1,514	)		—			(1,514	)
Preferred unit imputed dividend effect		(11,378	)		—			—			—			(11,378	)
Preferred unit dividends in kind		(9,072	)		—			—			—			(9,072	)

Net income (loss) attributable to common limited partners and the General Partner	$	(47,528	)	$	(5,145	)	$	44,963		$	(39,818	)	$	(47,528	)


Three Months Ended September 30, 2012
Total revenues	$	—		$	26,342		$	251,226		$	—		$	277,568
Total costs and expenses		(8,476	)		(59,075	)		(217,795	)		—			(285,346	)
Equity income		609			35,266			1,422			(35,875	)		1,422

Net income (loss)		(7,867	)		2,533			34,853			(35,875	)		(6,356	)
Income attributable to non-controlling interest		—			—			(1,511	)		—			(1,511	)

Net income (loss) attributable to common limited partners and the General Partner		(7,867	)		2,533			33,342			(35,875	)		(7,867	)
Other comprehensive income adjustment for realized losses on derivatives reclassified to net income		1,079			1,079			—			(1,079	)		1,079

Comprehensive income (loss)	$	(6,788	)	$	3,612		$	33,342		$	(36,954	)	$	(6,788	)


Statements of Operations	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
Nine Months Ended September 30, 2013
Total revenues	$	—		$	373,713		$	1,214,750		$	(61,742	)	$	1,526,721
Total costs and expenses		(63,441	)		(452,077	)		(1,087,432	)		60,844			(1,542,106	)
Equity income (loss)		42,384			121,997			(314	)		(164,381	)		(314	)
Loss on early extinguishment of debt		(26,601	)		—			—			—			(26,601	)
Loss on asset disposition		—			(1,519	)		—			—			(1,519	)

Income (loss), before tax		(47,658	)		42,114			127,004			(165,279	)		(43,819	)
Income tax benefit		—			(854	)		—			—			(854	)

Net income (loss)		(47,658	)		42,968			127,004			(165,279	)		(42,965	)
Income attributable to non-controlling interest		—			—			(4,693	)		—			(4,693	)
Preferred unit imputed dividend effect		(18,107	)		—			—			—			(18,107	)
Preferred unit dividends in kind		(14,413	)		—			—			—			(14,413	)

Net income (loss) attributable to common limited partners and the General Partner	$	(80,178	)	$	42,968		$	122,311		$	(165,279	)	$	(80,178	)


Nine Months Ended September 30, 2012
Total revenues	$	—		$	192,181		$	701,787		$	—		$	893,968
Total costs and expenses		(25,305	)		(189,612	)		(608,320	)		—			(823,237	)
Equity income		96,163			93,500			4,235			(189,663	)		4,235

Net income (loss)		70,858			96,069			97,702			(189,663	)		74,966
Income attributable to non-controlling interest		—			—			(4,108	)		—			(4,108	)

Net income (loss) attributable to common limited partners and the General Partner		70,858			96,069			93,594			(189,663	)		70,858
Other comprehensive income adjustment for realized losses on derivatives reclassified to net income		3,333			3,333			—			(3,333	)		3,333

Comprehensive income (loss)	$	74,191		$	99,402		$	93,594		$	(192,996	)	$	74,191


Statements of Cash Flows	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
Nine Months Ended September 30, 2013

Net cash provided by (used in):
Operating activities	$	(392,444	)	$	100,288		$	191,958		$	245,319		$	145,121
Investing activities		(818,206	)		(822,467	)		(455,359	)		757,883			(1,338,149	)
Financing activities		1,210,650			722,188			270,433			(1,003,202	)		1,200,069

Net change in cash and cash equivalents		—			9			7,032			—			7,041
Cash and cash equivalents, beginning of period		—			157			3,241			—			3,398


Cash and cash equivalents, end of period	$	—		$	166		$	10,273		$	—		$	10,439


Nine Months Ended September 30, 2012

Net cash provided by (used in):
Operating activities	$	(141,785	)	$	84,601		$	141,149		$	41,558		$	125,523
Investing activities		(13,266	)		84,747			(233,233	)		(116,973	)		(278,725	)
Financing activities		155,051			(170,516	)		93,249			75,415			153,199
Net change in cash and cash equivalents		—			(1,168	)		1,165			—			(3	)
Cash and cash equivalents, beginning of period		—			168			—			—			168

Cash and cash equivalents, end of period	$	—		$	(1,000	)	$	1,165		$	—		$	165

NOTE 19 – SUBSEQUENT EVENTS

On October 24, 2013, the Partnership declared a cash distribution of $0.62 per unit on its outstanding common limited partner units, representing the cash distribution for the quarter ended September 30, 2013. The $55.3 million distribution, including $6.0 million to the General Partner for its general partner interest and incentive distribution rights, will be paid on November 14, 2013 to unitholders of record at the close of business on November 7, 2013 (see Note 5). Based on this declaration, the Partnership estimates that approximately 234,000 Class D Preferred Units will be distributed to the holders of the Class D Preferred Units as a preferred unit distribution for this quarter.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

When used in this Form 10-Q, the words “believes,” “anticipates,” “expects” and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties more particularly described in Item 1A, under the caption “Risk Factors”, in our Annual Report on Form 10-K for the year ended December 31, 2012. These risks and uncertainties could cause actual results to differ materially from the results stated or implied in this document. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly release the results of any revisions to forward-looking statements which we may make to reflect events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events.

General

The following discussion provides information to assist in understanding our financial condition and results of operations. This discussion should be read in conjunction with our consolidated financial statements and related notes thereto appearing elsewhere in this report and with our Annual Report on Form 10-K for the year ended December 31, 2012.

Overview

We are a publicly-traded Delaware limited partnership formed in 1999 whose common units are listed on the New York Stock Exchange under the symbol “APL.” We are a leading provider of natural gas gathering, processing and treating services in the Anadarko, Arkoma and Permian Basins located in the southwestern and mid-continent regions of the United States; a provider of natural gas gathering services in the Appalachian Basin in the northeastern region of the United States; and a provider of NGL transportation services in the southwestern region of the United States.

We conduct our business in the midstream segment of the natural gas industry through two reportable segments: Gathering and Processing; and Transportation and Treating.

The Gathering and Processing segment consists of (1) the Arkoma, SouthTX, WestOK, WestTX and Velma operations, which are comprised of natural gas gathering and processing assets servicing drilling activity in the Eagle Ford Shale play in Texas and the Anadarko, Arkoma and Permian Basins; and (2) natural gas gathering assets located in the Barnett Shale play in Texas and the Appalachian Basin in Tennessee. Gathering and Processing revenues are primarily derived from the sale of residue gas and NGLs and the gathering and processing of natural gas.

As of September 30, 2013, our Gathering and Processing operations, own, have interests in and operate fourteen natural gas processing plants with aggregate capacity of approximately 1,490 MMCFD located in Oklahoma and Texas; a gas treating facility located in Oklahoma; and approximately 10,600 miles of active natural gas gathering systems located in Oklahoma, Kansas, Tennessee and Texas. Our gathering systems gather natural gas from oil and natural gas wells and central delivery points and deliver this gas to processing plants, as well as third-party pipelines.

Our Gathering and Processing operations are all located in or near areas of abundant and long-lived natural gas production, including the Golden Trend, Mississippian Limestone and Hugoton field in the Anadarko Basin; the Woodford Shale; the Spraberry Trend, which is an oil play with associated natural gas in the Permian Basin; the Barnett Shale; and the Eagle Ford Shale. Our gathering systems are connected to approximately 8,600 receipt points, consisting primarily of individual well connections and, secondarily, central delivery points, which are linked to multiple wells. We believe we have significant scale in each of our primary service areas. We provide gathering, processing and treating services to the wells connected to our systems, primarily under long-term contracts. As a result of the location and capacity of our gathering, processing and treating assets, we believe we are strategically positioned to capitalize on the drilling activity in our service areas.

Our Transportation and Treating operations consist of (1) seventeen gas treating facilities used to provide contract treating services to natural gas producers located in Arkansas, Louisiana, Oklahoma and Texas; and (2) a 20% interest in West Texas LPG Pipeline Limited Partnership (“WTLPG”), which owns a common-carrier pipeline system that transports NGLs from New Mexico and Texas to Mont Belvieu, Texas for fractionation. The contract gas treating operations are located in various shale plays, including the Avalon, Eagle Ford, Granite Wash, Haynesville, Fayetteville and Woodford. WTLPG is operated by Chevron Pipeline Company, an affiliate of Chevron Corporation, a Delaware corporation (“Chevron” –NYSE: CVX), which owns the remaining 80% interest.

Recent Events

On January 7, 2013, we paid $6.0 million for the first of two contingent payments related to the acquisition of a gas gathering system and related assets in February 2012. We agreed to pay up to an additional $12.0 million, payable in two equal amounts, if certain volumes were achieved on the acquired gathering system within specified periods of time. Sufficient volumes were achieved in December 2012 to meet the required volumes for the first contingent payment.

On February 11, 2013, we issued $650.0 million of 5.875% unsecured senior notes due August 1, 2023 (“5.875% Senior Notes”) in a private placement transaction. The 5.875% Senior Notes were issued at par. We received net proceeds of $637.3 million and utilized the proceeds to redeem our outstanding 8.75% senior unsecured notes due June 15, 2018 (“8.75% Senior Notes”) and repay a portion of our outstanding indebtedness under our revolving credit facility (see “Item 1. Notes to Consolidated Financial Statements (Unaudited) – Note 13 – Senior Notes”).

Prior to issuance of the 5.875% Senior Notes and in anticipation thereof, on January 28, 2013, we commenced a cash tender offer for any and all of our outstanding $365.8 million 8.75% Senior Notes, and a solicitation of consents to eliminate most of the restrictive covenants and certain of the events of default contained in the indenture governing the 8.75% Senior Notes (“8.75% Senior Notes Indenture”). Approximately $268.4 million aggregate principal amount of the 8.75% Senior Notes (representing approximately 73.4% of the outstanding 8.75% Senior Notes), were validly tendered as of the expiration date of the consent solicitation. In February 2013, we accepted for purchase all 8.75% Senior Notes validly tendered as of the expiration of the consent solicitation and entered into a supplemental indenture amending and supplementing the 8.75% Senior Notes Indenture. We also redeemed all the 8.75% Senior Notes not purchased in connection with the tender offer.

On March 12, 2013, we paid $105.6 million to redeem the remaining $97.3 million outstanding 8.75% Senior Notes plus a $6.3 million make-whole premium and $2.0 million in accrued interest. We funded the redemption with a portion of the net proceeds from the issuance of the 5.875% Senior Notes.

On April 12, 2013, we placed in service a new 200 MMCFD cryogenic processing plant, known as the Driver Plant in our WestTX system in the Permian Basin of Texas, increasing the WestTX system capacity to 455 MMCFD.

On April 17, 2013, we sold 11,845,000 of our common units in a registered public offering at a price of $34.00 per unit, yielding net proceeds of $388.4 million after underwriting commissions and expenses. We also received a capital contribution from the General Partner of $8.3 million to maintain its 2.0% general partnership interest. (See “Item 1. Notes to Consolidated Financial Statements (Unaudited) – Note 5 – Common Units”). We used the proceeds from this offering to fund a portion of the purchase price of the TEAK Acquisition (See “Item 1. Notes to Consolidated Financial Statements (Unaudited) – Note 3 – Teak Midstream, LLC”).

On April 19, 2013, we entered into an amendment to our revolving credit agreement, which among other changes:

•

allowed the TEAK Acquisition to be a Permitted Investment, as defined in the credit agreement;

•

did not require the joint venture interests acquired in the TEAK Acquisition to be guarantors;

•

permitted the payment of cash distributions, if any, on our Class D convertible preferred units (“Class D Preferred Units”) so long as we have a pro forma Minimum Liquidity, as defined in the credit agreement, of greater than or equal to $50 million; and

•

modified the definition of Consolidated Funded Debt Ratio, Interest Coverage Ratio and Consolidated EBITDA to allow for an Acquisition Period whereby the terms for calculating each of these ratios have been adjusted.

On May 7, 2013, we completed a private placement of $400.0 million of our Class D Preferred Units to third party investors, at a negotiated price per unit of $29.75 for net proceeds of $397.7 million pursuant to the Class D preferred unit purchase agreement dated April 16, 2013. We also received a capital contribution from the General Partner of $8.2 million to maintain its 2.0% general partner interest in us. (See “Item 1. Notes to Consolidated Financial Statements (Unaudited) – Note 5 – Class D Preferred Units”). We used the proceeds to fund a portion of the purchase price of 100% of the equity interests held by TEAK Midstream, LLC (“TEAK”) (the “TEAK Acquisition”) (See “Item 1. Notes to Consolidated Financial Statements (Unaudited) – Note 3 – Teak Midstream, LLC”).

On May 7, 2013, we completed the TEAK Acquisition for $1.0 billion in cash, subject to customary purchase price adjustments, less cash received (See “Item 1. Notes to Consolidated Financial Statements (Unaudited) – Note 3 – Teak Midstream, LLC”).

On May 10, 2013, we issued $400.0 million of the 4.75% unsecured senior notes due November 15, 2021 (“4.75% Senior Notes”) in a private placement transaction. The 4.75% Senior Notes were issued at par. We received net proceeds of $391.5 million after underwriting commissions and other transactions costs (see “Item 1. Notes to Consolidated Financial Statements (Unaudited) – Note 13 – Senior Notes”). We utilized the proceeds repay a portion of our outstanding indebtedness under the revolving credit agreement as part of the TEAK acquisition (see “Item 1. Notes to Consolidated Financial Statements (Unaudited) – Note 3 – Teak Midstream, LLC”).

The registration statement we filed with the SEC for the exchange offer for $500.0 million of the 6.625% unsecured Senior Notes due October 2020 (“6.625% Senior Notes”) in satisfaction of the registration requirements of the registration rights agreements was declared effective on September 17,

2013. We commenced an exchange offer for the 6.625% Senior Notes on September 18, 2013 and the exchange offer was consummated on October 16, 2013. Pursuant to the terms of the registration rights agreements relating to the 6.625% Senior Notes, because the exchange offer was not completed by the September 22, 2013 deadline for the 6.625% Senior Notes issued in September 2012, we incurred a 0.25% additional interest penalty from September 23, 2013 through consummation of the exchange offer on October 16, 2013 (see “Item 1. Notes to Consolidated Financial Statements (Unaudited) – Note 13 – Debt”).

Subsequent Events

On October 24, 2013, we declared a cash distribution of $0.62 per unit on our outstanding common limited partner units, representing the cash distribution for the quarter ended September 30, 2013. The $55.3 million distribution, including $6.0 million to our General Partner for its general partner interest and incentive distribution rights, will be paid on November 14, 2013 to unitholders of record at the close of business on November 7, 2013 (see “Item 1. Notes to Consolidated Financial Statements (Unaudited) – Note 5 – Cash Distributions”). We estimate that approximately 234,000 Class D Preferred Units will be distributed in kind on November 14, 2013 to the holders of the Class D Preferred Units at the close of business on November 7, 2013 (see “Item 1. Notes to Consolidated Financial Statements (Unaudited) – Note 5 – Class D Preferred Units”).

Acquisitions

SouthTX:

On May 7, 2013, we completed the TEAK Acquisition. The assets acquired are referenced as the SouthTX system and include the following gas gathering and processing facilities:

•

the Silver Oak I plant, which is a 200 MMCFD cryogenic processing facility;

•

a second 200 MMCFD cryogenic processing facility, the Silver Oak II plant, scheduled to be placed in service the second quarter of 2014;

•

265 miles of primarily 20-24 inch gathering and residue lines;

•

approximately 275 miles of low pressure gathering lines;

•

a 75% interest in T2 LaSalle Gathering Company L.L.C., which owns a 62 mile 24 inch gathering line;

•

a 50% interest in T2 Eagle Ford Gathering Company L.L.C., which owns a 45 mile 16 inch gathering pipeline and is currently building a 71 mile 24 inch gathering line; and

•

a 50% interest in T2 EF Cogeneration Holdings L.L.C., which is building a cogeneration facility.

Arkoma:

In December 2012, we acquired 100% of the equity interests held by Cardinal Midstream, LLC (“Cardinal”) in three wholly-owned subsidiaries for $599.1 million in cash, including purchase price adjustments, less cash received (the “Cardinal Acquisition”). The assets of these companies represented

the majority of the operating assets of Cardinal and include gas gathering, processing and treating facilities in Arkansas, Louisiana, Oklahoma and Texas (which are referenced as the “Arkoma system”) as follows:

•

the Tupelo plant, which is a 120 MMCFD cryogenic processing facility;

•

approximately 60 miles of gathering pipeline;

•

the East Rockpile treating facility, a 250 GPM amine treating plant;

•

a fixed fee contract gas treating business that includes 15 amine treating plants and two propane refrigeration plants; and

•

a 60% interest in a joint venture known as Centrahoma Processing, LLC (“Centrahoma”). The remaining 40% interest is owned by MarkWest Oklahoma Gas Company, LLC, (“MarkWest”), a wholly-owned subsidiary of MarkWest Energy Partners, L.P. (NYSE: MWE). Centrahoma owns the following assets:

•

the Coalgate and Atoka plants, which are cryogenic processing facilities with a combined current processing capacity of approximately 100 MMCFD;

•

the prospective Stonewall plant, for which construction has been approved, with anticipated processing capacity of 120 MMCFD; and

•

15 miles of NGL pipeline.

How We Evaluate Our Operations

Our principal revenue is generated from the gathering, processing and treating of natural gas and the sale of natural gas, NGLs and condensate. Our profitability is a function of the difference between the revenues we receive and the costs associated with conducting our operations, including the cost of natural gas, NGLs and condensate we purchase as well as operating and general and administrative costs and the impact of our commodity hedging activities. Because commodity price movements tend to impact both revenues and costs, increases or decreases in our revenues alone are not necessarily indicative of increases or decreases in our profitability. Variables that affect our profitability are:

•

the volumes of natural gas we gather, process and treat, which in turn, depend upon the number of wells connected to our gathering systems, the amount of natural gas the wells produce, and the demand for natural gas, NGLs and condensate;

•

the price of the natural gas we gather, process and treat, and the NGLs and condensate we recover and sell, which is a function of the relevant supply and demand in the mid-continent and northeastern areas of the United States;

•

the NGL and BTU content of the gas gathered and processed;

•

the contract terms with each producer; and

•

the efficiency of our gathering systems and processing and treating plants.

Revenue consists of the sale of natural gas, NGLs and condensate; and the fees earned from our gathering, processing and treating operations. Under certain agreements, we purchase natural gas from producers and move it into receipt points on our pipeline systems and then sell the natural gas, NGLs and condensate off delivery points on our systems. Under other agreements, we gather natural gas across our systems, from receipt to delivery point, without taking title to the natural gas. (See “Item 1. Notes to Consolidated Financial Statements (Unaudited) – Note 2 – Revenue Recognition” for further discussion of contractual revenue arrangements).

Our management uses a variety of financial measures and operational measurements other than our GAAP financial statements to analyze our performance. These include: (1) volumes, (2) operating expenses and (3) the following non-GAAP measures – gross margin, EBITDA, adjusted EBITDA and distributable cash flow. Our management views these measures as important performance measures of core profitability for our operations and as key components of our internal financial reporting. We believe investors benefit from having access to the same financial measures that our management uses.

Volumes. Our profitability is impacted by our ability to add new sources of natural gas supply to offset the natural decline of existing volumes from natural gas wells that are connected to our gathering, processing and treating systems. This is achieved by connecting new wells and adding new volumes in existing areas of production. Our performance at our plants is also significantly impacted by the quality of the natural gas we process, the NGL content of the natural gas and the plant’s recovery capability. In addition, we monitor fuel consumption and losses because they have a significant impact on the gross margin realized from our processing operations.

Operating Expenses. Plant operating, transportation and compression expenses generally include the costs required to operate and maintain our pipelines and processing facilities, including salaries and wages, repair and maintenance expense, ad valorem taxes and other overhead costs.

Gross Margins. We define gross margin as natural gas and liquids sales plus transportation, processing and other fees less purchased product costs, subject to certain non-cash adjustments. Product costs include the cost of natural gas, NGLs and condensate we purchase from third parties. Gross margin, as we define it, does not include plant operating expenses; transportation and compression expenses; and derivative gain (loss) related to undesignated hedges, as movements in gross margin generally do not result in directly correlated movements in these categories.

Gross margin is a non-GAAP measure. The GAAP measure most directly comparable to gross margin is net income. Gross margin is not an alternative to GAAP net income and has important limitations as an analytical tool. Investors should not consider gross margin in isolation or as a substitute for analysis of our results as reported under GAAP. Because gross margin excludes some, but not all, items that affect net income and is defined differently by different companies in our industry, our definition of gross margin may not be comparable to gross margin measures of other companies, thereby diminishing its utility.

EBITDA and Adjusted EBITDA. EBITDA represents net income (loss) before interest expense, income taxes, depreciation and amortization. Adjusted EBITDA is calculated by adding to EBITDA other non-cash items such as compensation expenses associated with unit issuances, principally to directors and employees, impairment charges and other cash items such as non-recurring cash derivative early termination expense. The GAAP measure most directly comparable to EBITDA and Adjusted EBITDA is net income. EBITDA and Adjusted EBITDA are not intended to represent cash flow and do not represent the measure of cash available for distribution. Our method of computing Adjusted EBITDA may not be the same method used to compute similar measures reported by other companies. The Adjusted EBITDA calculation is similar to the Consolidated EBITDA calculation utilized within the financial covenants under our credit facility, with the exception that Adjusted EBITDA includes certain non-cash items specifically excluded under our credit facility and excludes the capital expansion add back included in Consolidated EBITDA as defined in the credit facility (see “–Revolving Credit Facility”).

Certain items excluded from EBITDA and Adjusted EBITDA are significant components in understanding and assessing an entity’s financial performance, such as cost of capital and historic costs of depreciable assets. We have included information concerning EBITDA and Adjusted EBITDA because they provide investors and management with additional information to better understand our operating performance and are presented solely as a supplemental financial measure. EBITDA and Adjusted EBITDA should not be considered as alternatives to, or more meaningful than, net income or cash flow as determined in accordance with GAAP or as indicators of our operating performance or liquidity. The economic substance behind our use of Adjusted EBITDA is to measure the ability of our assets to generate cash sufficient to pay interest costs, support our indebtedness and make distributions to our unit holders.

Distributable Cash Flow. We define distributable cash flow as net income plus tax, depreciation and amortization; amortization of deferred financing costs included in interest expense; and non-cash gain (losses) on derivative contracts, less income attributable to non-controlling interests, preferred unit dividends, maintenance capital expenditures, gain (losses) on asset sales and other non-cash gain (losses).

Distributable cash flow is a significant performance metric used by our management and by external users of our financial statements, such as investors, commercial banks and research analysts, to compare basic cash flows generated by us to the cash distributions we expect to pay our unitholders. Using this metric, management and external users of our financial statements can compute the ratio of distributable cash flow per unit to the declared cash distribution per unit to determine the rate at which the distributable cash flow covers the distribution. Distributable cash flow is also an important financial measure for our unitholders since it serves as an indicator of our success in providing a cash return on investment. Specifically, this financial measure indicates to investors whether or not we are generating cash flow at a level that can sustain or support an increase in our quarterly distribution rates. Distributable cash flow is also a quantitative standard used throughout the investment community with respect to publicly-traded partnerships because the value of a unit of such an entity is generally determined by the unit’s yield, which in turn is based on the amount of cash distributions the entity pays to a unitholder.

The GAAP measure most directly comparable to distributable cash flow is net income. Distributable cash flow should not be considered as an alternative to GAAP net income or GAAP cash flows from operating activities. Distributable cash flow is not a presentation made in accordance with GAAP and has important limitations as an analytical tool. Investors should not consider distributable cash flow in isolation or as a substitute for analysis of our results as reported under GAAP. Because distributable cash flow excludes some, but not all, items that affect net income and is defined differently by different companies in our industry, our definition of distributable cash flow may not be comparable to similarly titled measures of other companies, thereby diminishing its utility.

Non-GAAP Financial Measures

The following tables reconcile the non-GAAP financial measurements used by management to their most directly comparable GAAP measures for the three and nine months ended September 30, 2013 and 2012 (in thousands):

RECONCILIATION OF GROSS MARGIN


	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012

Net income (loss)	$	(25,564	)	$	(6,356	)	$	(42,965	)	$	74,966
Adjustments:
Derivative gain, net		24,517			18,907			9,493			(36,905	)
Other income, net		(2,943	)		(2,585	)		(8,661	)		(7,588	)
Operating expenses⁽¹⁾		25,491			15,592			91,020			44,354
General and administrative expense⁽²⁾		17,887			12,123			44,231			32,513
Depreciation and amortization		51,080			23,161			127,921			65,715
Interest		24,347			9,692			65,614			27,669
Income tax benefit		(817	)		—			(854	)		—
Equity (income) loss in joint ventures		1,882			(1,422	)		314			(4,235	)
Loss on early extinguishment of debt		—			—			26,601			—
Loss on asset sales and other		—			—			1,519			—
Non-cash linefill loss⁽³⁾		(1,039	)		(375	)		332			2,120

Gross margin	$	114,841		$	68,737		$	314,565		$	198,609

(1)	Operating expenses include plant operating expenses; transportation and compression expenses; and other costs.

(2)	General and administrative includes compensation reimbursement to affiliates.

(3)	Represents the non-cash impact of commodity price movements on pipeline linefill.

RECONCILIATION OF EBITDA, ADJUSTED EBITDA AND DISTRIBUTABLE CASH FLOW


	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Net income (loss)	$	(25,564	)	$	(6,356	)	$	(42,965	)	$	74,966
Adjustments:
Interest expense		24,347			9,692			65,614			27,669
Income tax benefit		(817	)		—			(854	)		—
Depreciation and amortization		51,080			23,161			127,921			65,715

EBITDA		49,046			26,497			149,716			168,350
Adjustments:

Income attributable to non-controlling interests⁽¹⁾		(1,514	)		(1,511	)		(4,693	)		(4,108	)

Non-controlling interest depreciation, amortization and interest expense⁽²⁾		(917	)		—			(2,888	)		—
Equity (income) loss in joint ventures		1,882			(1,422	)		314			(4,235	)
Distributions from joint ventures		1,800			1,800			5,400			5,400
Loss on early extinguishment of debt		—			—			26,601			—
Loss on asset disposition		—			—			1,519			—
Non-cash (gain) loss on derivatives		23,610			22,477			13,066			(31,568	)
Premium expense on derivative instruments		4,824			4,855			11,844			12,591

Unrecognized economic impact of acquisitions		42			—			1,168			—
Acquisition costs		685			—			19,585			—
Non-cash compensation		5,998			3,620			13,818			7,538
Non-cash line fill (gain) loss⁽³⁾		(1,039	)		(375	)		332			2,120
Minimum volume adjustment⁽⁴⁾		(216	)		—			2,437			—

Adjusted EBITDA		84,201			55,941			238,219			156,088
Adjustments:
Interest expense		(24,347	)		(9,692	)		(65,614	)		(27,669	)
Amortization of deferred finance costs		1,836			1,061			5,119			3,356

Premium expense on derivative instruments		(4,824	)		(4,855	)		(11,844	)		(12,591	)
Other costs		—			(108	)		—			(303	)
Maintenance capital⁽⁵⁾		(6,232	)		(4,732	)		(13,759	)		(13,242	)

Distributable Cash Flow	$	50,634		$	37,615		$	152,121		$	105,639

(1)	Represents Anadarko Petroleum Corporation’s (“Anadarko” – NYSE: APC) non-controlling interest in the operating results of Atlas Pipeline Mid-Continent WestOk, LLC (“WestOK”) and Atlas Pipeline Mid-Continent WestTex, LLC (“WestTX”); and MarkWest’s non-controlling interest in Centrahoma.

(2)	Represents the depreciation, amortization and interest expense included in income attributable to non-controlling interest for MarkWest’s interest in Centrahoma.

(3)	Represents the non-cash impact of commodity price movements on pipeline linefill.

(4)	Represents minimum volume adjustments on certain producer throughput contracts.

(5)	Net of non-controlling interest maintenance capital of $184 thousand and $360 thousand for the three and nine months ended September 30, 2013, respectively.

Results of Operations

The following table illustrates selected pricing before the effect of derivatives and volumetric information for the periods indicated:


	Three Months Ended September 30,							Nine Months Ended September 30,
	2013		2012		Percent Change			2013		2012		Percent Change
Pricing:
Weighted Average Market Prices:
NGL price per gallon – Conway hub	$	0.81	$	0.70		15.7	%	$	0.80	$	0.78		2.6	%
NGL price per gallon – Mt. Belvieu hub		0.85		0.86		(1.2	)%		0.83		0.99		(16.2	)%
Natural gas sales ($/Mcf):
Velma		3.37		2.64		27.7	%		3.47		2.41		44.0	%
WestOK		3.30		2.62		26.0	%		3.45		2.43		42.0	%
WestTX		3.32		2.54		30.7	%		3.40		2.32		46.6	%
Weighted Average		3.34		2.60		28.5	%		3.46		2.39		44.8	%
NGL sales ($/gallon):
Arkoma		0.89		—		—			0.73		—		—
SouthTX		0.75		—		—			0.73		—		—
Velma		0.81		0.73		11.0	%		0.77		0.79		(2.5	)%
WestOK		1.08		0.86		25.6	%		1.01		0.86		17.4	%
WestTX		0.92		0.96		(4.2	)%		0.90		1.01		(10.9	)%
Weighted Average		0.92		0.87		5.7	%		0.87		0.90		(3.3	)%
Condensate sales ($/barrel):
Arkoma		99.94		—		—			87.94		—		—
SouthTX		92.94		—		—			91.05		—		—
Velma		104.29		91.40		14.1	%		96.80		96.93		(0.1	)%
WestOK		96.86		82.06		18.0	%		88.10		87.29		0.9	%
WestTX		106.27		90.41		17.5	%		98.78		90.81		8.8	%
Weighted Average		101.48		86.65		17.1	%		92.82		90.07		3.1	%


	Three Months Ended September 30,							Nine Months Ended September 30,
	2013		2012		Percent Change			2013		2012		Percent Change
Operating data:
Arkoma system⁽¹⁾:
Gathered gas volume (MCFD)		265,992		—		—			270,007		—		—
Processed gas volume (MCFD)		245,496		—		—			249,111		—		—
Residue gas volume (MCFD)		211,438		—		—			209,162		—		—
NGL volume (BPD)		16,171		—		—			20,756		—		—
Condensate volume (BPD)		85		—		—			131		—		—
SouthTX system:
Gathered gas volume (MCFD)		141,282		—		—			131,815		—		—
Processed gas volume (MCFD)		140,557		—		—			131,000		—		—
Residue gas volume (MCFD)		114,287		—		—			105,495		—		—
NGL volume (BPD)		17,990		—		—			16,524		—		—
Condensate volume (BPD)		108		—		—			85		—		—
Velma system:
Gathered gas volume (MCFD)		157,330		136,939		14.9	%		142,708		134,248		6.3	%
Processed gas volume (MCFD)		151,862		133,166		14.0	%		136,743		128,398		6.5	%
Residue gas volume (MCFD)		126,931		108,609		16.9	%		113,642		105,135		8.1	%
NGL volume (BPD)		16,780		14,866		12.9	%		15,669		14,306		9.5	%
Condensate volume (BPD)		356		283		25.8	%		382		427		(10.5	)%
WestOK system:
Gathered gas volume (MCFD)		505,222		403,304		25.3	%		488,219		346,318		41.0	%
Processed gas volume (MCFD)		479,270		380,113		26.1	%		462,932		326,337		41.9	%
Residue gas volume (MCFD)		442,304		360,688		22.6	%		428,056		302,486		41.5	%
NGL volume (BPD)		21,522		12,998		65.6	%		20,021		13,810		45.0	%
Condensate volume (BPD)		1,759		1,341		31.2	%		1,892		1,318		43.6	%
WestTX system⁽¹⁾:
Gathered gas volume (MCFD)		383,466		288,607		32.9	%		349,894		268,456		30.3	%
Processed gas volume (MCFD)		355,203		255,709		38.9	%		316,760		241,710		31.0	%
Residue gas volume (MCFD)		265,648		189,549		40.1	%		235,310		172,150		36.7	%
NGL volume (BPD)		47,663		28,499		67.2	%		40,322		31,441		28.2	%
Condensate volume (BPD)		2,598		2,132		21.9	%		1,881		1,672		12.5	%
Barnett system:
Average throughput volumes		22,727		22,789		(0.3	)%		21,408		23,084		(7.3	)%
Tennessee system:
Average throughput volumes		8,052		8,387		(4.0	)%		8,565		8,320		2.9	%
WTLPG system⁽¹⁾:
Average NGL volumes (BPD)		247,856		256,579		(3.4	)%		248,468		247,568		0.4	%

(1)	Operating data for Arkoma, WestTX and WTLPG represent 100% of operating activity for the respective systems. Arkoma gathered volumes include volumes gathered by MarkWest and processed through the Arkoma facilities.

Three Months Ended September 30, 2013 Compared to Three Months Ended September 30, 2012

The following table and discussion is a summary of our consolidated results of operations for the three months ended September 30, 2013 and 2012 (in thousands):


	Three Months Ended
	September 30,									Percent
	2013			2012			Variance			Change
Gross margin⁽¹⁾
Natural gas and liquids sales	$	535,719		$	274,618		$	261,101			95.1	%
Transportation, processing and other fees		43,725			19,272			24,453			126.9	%
Less: non-cash line fill gain⁽²⁾		1,039			375			664			177.1	%
Less: natural gas and liquids cost of sales		463,564			224,778			238,786			106.2	%

Gross margin		114,841			68,737			46,104			67.1	%
Expenses:
Operating expenses		24,806			15,700			9,106			58.0	%
General and administrative⁽³⁾		17,887			12,123			5,764			47.5	%
Other costs		685			(108	)		793			734.3	%
Depreciation and amortization		51,080			23,161			27,919			120.5	%
Interest expense		24,347			9,692			14,655			151.2	%

Total expenses		118,805			60,568			58,237			96.2	%
Other income items:
Derivative loss, net		(24,517	)		(18,907	)		(5,610	)		(29.7	)%
Other income, net		2,943			2,585			358			13.8	%
Non-cash line fill loss⁽²⁾		1,039			375			664			177.1	%
Equity income (loss) in joint ventures		(1,882	)		1,422			(3,304	)		(232.3	)%
Income tax benefit		817			—			817			100.0	%
Income attributable to non-controlling interests⁽⁴⁾		(1,514	)		(1,511	)		(3	)		(0.2	)%
Preferred unit imputed dividend effect		(11,378	)		—			(11,378	)		(100.0	)%
Preferred unit dividends in kind		(9,072	)		—			(9,072	)		(100.0	)%

Net loss attributable to common limited partners and General Partner	$	(47,528	)	$	(7,867	)	$	(39,661	)		(504.1	)%

Non-GAAP financial data:
EBITDA⁽¹⁾	$	49,046		$	26,497		$	22,549			85.1	%
Adjusted EBITDA⁽¹⁾		84,201			55,941			28,260			50.5	%
Distributable cash flow⁽¹⁾		50,634			37,615			13,019			34.6	%

(1)	Gross Margin, EBITDA, Adjusted EBITDA and Distributable cash flow are non-GAAP financial measures (see “–How We Evaluate Our Operations” and “–Non-GAAP Financial Measures”).

(2)	Includes the non-cash impact of commodity price movements on pipeline linefill.

(3)	General and administrative also includes any compensation reimbursement to affiliates.

(4)	Represents Anadarko’s non-controlling interest in the operating results of the WestOK and WestTX systems and MarkWest’s non-controlling interest in the operating results of Centrahoma.

Gross margin:

Gross margin from natural gas and liquids sales and the related natural gas and liquids cost of sales for the three months ended September 30, 2013 increased primarily due to higher production volumes, including the new volumes from the Arkoma system due to the Cardinal Acquisition and from the SouthTX system due to the TEAK Acquisition, partially offset by lower commodity prices.

•

Volumes on the Velma system for the three months ended September 30, 2013 increased from the prior year period volumes primarily due to increased production from the V-60 plant, which was placed into service in July 2012;

•

Volumes on the WestOK system increased for the three months ended September 30, 2013 compared to the prior year primarily due to increased production on the gathering systems, which continue to be expanded to meet producer demand; and the start-up of the Waynoka II plant, which was placed into service in September 2012; and

•

WestTX system gathering and processing volumes for the three months ended September 30, 2013 increased compared to the prior year period due to the startup of our Driver Plant in April 2013 (see “–Recent Events”) and due to increased volumes from Pioneer Natural Resources Company (NYSE: PXD) and others as a result of their continued drilling programs.

Transportation, processing and other fees for the three months ended September 30, 2013 increased primarily due to $12.0 million in additional fee-based revenues generated on the Arkoma systems due to the Cardinal Acquisition (see “–Acquisitions”); $9.5 million in additional fee-based revenues generated on the SouthTX systems due to the TEAK Acquisition (see “–Acquisitions”); and due to increased processing fee revenue of $1.9 million on the WestOK system related to the increased volumes gathered on the system.

Expenses:

Operating expenses, comprised primarily of plant operating expenses and transportation and compression expenses, for the three months ended September 30, 2013 increased mainly due to $3.7 million in additional expenses from the Arkoma systems and gas treating facilities acquired in the Cardinal Acquisition (see “–Acquisitions”); a $1.1 million increase on the WestOK system primarily due to increased gathered volumes in comparison to the prior year period, as discussed above in “Gross margin”; $3.0 million in additional expenses from the SouthTX systems acquired in the TEAK Acquisition (see “–Acquisitions”); and a $1.5 million increase on the WestTX system primarily due to the start-up of the Driver Plant (see “–Recent Events”).

General and administrative expense, including amounts reimbursed to affiliates, increased for the three months ended September 30, 2013 mainly due to increased expenses related to the Cardinal and TEAK Acquisitions (see “–Acquisitions”); and due to $2.3 million of additional expenses in share-based compensation related to phantom units granted to employees (see “Item 1. Notes to Consolidated Financial Statements (Unaudited) – Note 15”).

Other costs for the three months ended September 30, 2013 increased mainly due to $0.7 million of acquisition costs related to the TEAK Acquisition, which were recorded in the current year period (see “–Acquisitions”).

Depreciation and amortization expense for the three months ended September 30, 2013 increased primarily due to $10.6 million additional expense related to assets acquired in the Cardinal Acquisition

(see “–Acquisitions”); $13.0 million additional expense related to assets acquired in the TEAK Acquisition (see “–Acquisitions”); and due to growth capital expenditures incurred subsequent to September 30, 2012.

Interest expense for the three months ended September 30, 2013 increased primarily due to $9.5 million additional interest related to the 5.875% Senior Notes; $7.9 million increase in interest expense associated with the 6.625% unsecured senior notes due 2020 (“6.625% Senior Notes) and $4.8 million additional interest related to the 4.75% Senior Notes, partially offset by $7.8 million reduced interest on the 8.75% Senior Notes. The increase in the interest on the 5.875% Senior Notes and the 4.75% Senior Notes is due to their issuance after September 30, 2012 (see “Senior Notes”). The increase in the interest on the 6.625% Senior Notes is due to an additional issuance of $175.0 million after September 30, 2012. The decrease in the interest for the 8.75% Senior Notes is due to their redemption prior to the three months ended September 30, 2013 (see “–Senior Notes”).

Other income items:

Derivative loss, net for the three months ended September 30, 2013 had a $3.4 million unfavorable variance in derivative cash settlements and a $0.5 million unfavorable variance on the fair value revaluation of commodity derivative contracts in the current period compared to the prior year period. While we utilize either quoted market prices or observable market data to calculate the fair value of natural gas and crude oil derivatives, valuations of NGL fixed price swaps are based on a forward price curve modeled on a regression analysis of quoted price curves for NGLs for similar geographic locations, and valuations of NGL options are based on forward price curves developed by third-party financial institutions. The use of unobservable market data for NGL fixed price swaps and NGL options has no impact on the settlement of these derivatives. However, a change in management’s estimated fair values for these derivatives could impact net income, although it would have no impact on liquidity or capital resources (see “Item 1: Notes to Consolidated Financial Statements (Unaudited) – Note 11” for further discussion of derivative instrument valuations). We recognized a $21.5 million and $11.2 million mark-to-market loss on derivatives that were valued based upon unobservable inputs for the three months ended September 30, 2013 and 2012, respectively. We enter into derivative instruments solely to hedge our forecasted natural gas, NGLs and condensate sales against the variability in expected future cash flows attributable to changes in market prices. See further discussion of derivatives under “Item 3: Quantitative and Qualitative Disclosures About Market Risk.”

Non-cash line fill loss had a favorable variance for the three months ended September 30, 2013 compared to the prior year period primarily due to NGL prices increasing less in the prior year period than the current year period.

Equity income (loss) in joint ventures decreased for the three months ended September 30, 2013 primarily due to a $3.3 million loss in the current period from the SouthTX equity method investments. The T2 LaSalle and T2 Eagle Ford joint ventures are structured to earn revenues equal to their operating costs, exclusive of depreciation expense. The loss primarily represents depreciation expense and timing of recovery of other expenses.

Income tax benefit for the three months ended September 30, 2013 represents the accrued income tax related to the income earned on APL Arkoma, Inc., which was acquired as part of the Cardinal Acquisition (see “–Acquisitions”).

Preferred unit imputed dividend effect for the current period represents the accretion of the beneficial conversion discount of the Class D Preferred Units (see “Item 1. Notes to Consolidated Financial Statements (Unaudited) – Note 5 – Preferred Units”).

Preferred unit dividends for the current period represent the distributions to the Class D Preferred Units, which have been declared. For the current period these distributions are paid in kind (see “Item 1. Notes to Consolidated Financial Statements (Unaudited) – Note 5 – Preferred Units”).

Non-GAAP financial data:

EBITDA was greater for the three months ended September 30, 2013 compared to the prior year period mainly due to the improved gross margin as discussed above in “–Gross Margin”, partially offset by higher operating expenses as discussed above in “–Expenses.”

Adjusted EBITDA had a favorable variance for the three months ended September 30, 2013 compared to the prior year period mainly due to the improved gross margin, as discussed above in “–Gross Margin,” partially offset by higher operating expenses as discussed above in “–Expenses” and higher derivative losses as discussed above in “–Other income items.”

Distributable cash flow had a favorable variance for the three months ended September 30, 2013 compared to the prior year period mainly due to the favorable Adjusted EBITDA variance, as discussed above, partially offset by higher interest expense as discussed above in “–Expenses.”

Nine Months Ended September 30, 2013 Compared to Nine Months Ended September 30, 2012

The following table and discussion is a summary of our consolidated results of operations for the nine months ended September 30, 2013 and 2012 (in thousands):


	Nine Months Ended
	September 30,									Percent
	2013			2012			Variance			Change
Gross margin⁽¹⁾
Natural gas and liquids sales	$	1,410,797		$	802,644		$	608,153			75.8	%
Transportation, processing and other fees		116,756			46,831			69,925			149.3	%
Less: non-cash line fill loss⁽²⁾		(332	)		(2,120	)		1,788			84.3	%
Less: natural gas and liquids cost of sales		1,213,320			652,986			560,334			85.8	%

Gross margin		314,565			198,609			115,956			58.4	%
Expenses:
Operating expenses		71,435			44,657			26,778			60.0	%
General and administrative⁽³⁾		44,231			32,513			11,718			36.0	%
Other costs		19,585			(303	)		19,888			6,563.7	%
Depreciation and amortization		127,921			65,715			62,206			94.7	%
Interest expense		65,614			27,669			37,945			137.1	%

Total expenses		328,786			170,251			158,535			93.1	%
Other income items:
Derivative gain (loss), net		(9,493	)		36,905			(46,398	)		(125.7	)%
Other income, net		8,661			7,588			1,073			14.1	%
Non-cash line fill loss⁽²⁾		(332	)		(2,120	)		1,788			84.3	%
Equity income (loss) in joint ventures		(314	)		4,235			(4,549	)		(107.4	)%
Loss on asset disposition		(1,519	)		—			(1,519	)		(100.0	)%
Loss on early extinguishment of debt		(26,601	)		—			(26,601	)		(100.0	)%
Income tax benefit		854			—			854			100.0	%
Income attributable to non-controlling interests⁽⁴⁾		(4,693	)		(4,108	)		(585	)		(14.2	)%
Preferred unit imputed dividend effect		(18,107	)		—			(18,107	)		(100.0	)%
Preferred unit dividends in kind		(14,413	)		—			(14,413	)		(100.0	)%

Net income (loss) attributable to common limited partners and General Partner	$	(80,178	)	$	70,858		$	(151,036	)		(213.2	)%

Non-GAAP financial data:
EBITDA⁽¹⁾	$	149,716		$	168,350		$	(18,634	)		(11.1	)%
Adjusted EBITDA⁽¹⁾		238,219			156,088			82,131			52.6	%
Distributable cash flow⁽¹⁾		152,121			105,639			46,482			44.0	%

(1)	Gross Margin, EBITDA, Adjusted EBITDA and Distributable cash flow are non-GAAP financial measures (see “–How We Evaluate Our Operations” and “–Non-GAAP Financial Measures”).

(2)	Includes the non-cash impact of commodity price movements on pipeline linefill.

(3)	General and administrative also includes any compensation reimbursement to affiliates.

(4)	Represents Anadarko’s non-controlling interest in the operating results of the WestOK and WestTX systems and MarkWest’s non-controlling interest in the operating results of Centrahoma.

Gross margin:

Gross margin from natural gas and liquids sales and the related natural gas and liquids cost of sales for the nine months ended September 30, 2013 increased primarily due to higher production volumes, including the new volumes from the Arkoma system due to the Cardinal Acquisition and from the SouthTX system due to the TEAK Acquisition, partially offset by lower commodity prices.

•

Volumes on the Velma system for the nine months ended September 30, 2013 increased from the prior year period volumes primarily due to increased production from the V-60 plant, which was placed into service in July 2012;

•

Volumes on the WestOK system increased for the nine months ended September 30, 2013 compared to the prior year primarily due to increased production on the gathering systems, which continue to be expanded to meet producer demand; and the start-up of the Waynoka II plant, which was placed into service in September 2012; and

•

WestTX system gathering and processing volumes for the nine months ended September 30, 2013 increased compared to the prior year period due to increased volumes from Pioneer Natural Resources Company (NYSE: PXD) and others as a result of their continued drilling programs; and the start-up of the Driver plant in April 2013(see “–Recent Events”).

Transportation, processing and other fees for the nine months ended September 30, 2013 increased primarily due to $37.9 million in additional fee-based revenues generated on the Arkoma systems acquired in the Cardinal Acquisition (see “–Acquisitions”); increased processing fee revenue of $12.5 million on the WestOK system related to the increased volumes gathered on the systems; and $15.0 million in additional fee-based revenues generated on the SouthTX system acquired in the TEAK Acquisition (see “–Acquisitions”).

Expenses:

Operating expenses, comprised primarily of plant operating expenses and transportation and compression expenses, for the nine months ended September 30, 2013 increased mainly due to $11.5 million in additional expenses from the Arkoma systems acquired in the Cardinal Acquisition (see “–Acquisitions”); a $6.8 million increase on the WestOK system primarily due to increased gathered volumes in comparison to the prior year period, as discussed above in “Gross margin”; $4.1 million in additional expenses from the SouthTX systems acquired in the TEAK Acquisition (see “–Acquisitions”); and a $3.2 million increase on the WestTX system primarily due to increased gathered volumes from Pioneer Natural Resources Company and other producers.

General and administrative expense, including amounts reimbursed to affiliates, increased for the nine months ended September 30, 2013 mainly due to a $6.3 million increase in share-based compensation related to phantom units granted to employees (see “Item 1. Notes to Consolidated Financial Statements (Unaudited) – Note 15”); a $3.3 million increase in salaries and wages partially due to the increase in the number of employees as a result of the Cardinal and TEAK Acquisitions (see “–Acquisitions”); and increased expenses related to the TEAK Acquisition (see “–Acquisitions”).

Other costs for the nine months ended September 30, 2013 increased mainly due to $18.8 million in acquisition costs related to the TEAK Acquisition and $0.7 million in acquisition costs related to the Cardinal Acquisition, which were recorded in the current year period (see “–Acquisitions”).

Depreciation and amortization expense for the nine months ended September 30, 2013 increased primarily due to $32.0 million additional expense related to assets acquired in the Cardinal Acquisition; $17.4 million additional expense related to assets acquired in the TEAK Acquisition (see “–Acquisitions”) and due to growth capital expenditures incurred subsequent to September 30, 2012.

Interest expense for the nine months ended September 30, 2013 increased primarily due to a $24.2 million increase in interest expense associated with 6.625% Senior Notes; $24.4 million additional interest related to the 5.875% Senior Notes; and $7.4 million additional interest related to the 4.75% Senior Notes; partially offset by $19.2 million reduced interest on the 8.75% Senior Notes. The increase in the interest on the 5.875% Senior Notes and the 4.75% Senior Notes is due to their issuance after September 30, 2012 (see “–Senior Notes”). The increase in the interest on the 6.625% Senior Notes is due to an additional issuance of $175.0 million after September 30, 2012. The decrease in the interest for the 8.75% Senior Notes is due to their redemption during the nine months ended September 30, 2013 (see “–Senior Notes”).

Other income items:

Derivative gain (loss), net for the nine months ended September 30, 2013 had a $42.9 million unfavorable variance on the fair value revaluation of commodity derivative contracts in the current period compared to the prior year period mainly due to a $29.8 million gain in the prior year period, partially offset by a $13.1 million loss in the current year period. We recognized a $6.1 million mark-to-market loss and a $33.2 million mark-to-market gain on derivatives that were valued based upon unobservable inputs for the nine months ended September 30, 2013 and 2012, respectively.

Other income, net for the nine months ended September 30, 2013 had a favorable variance primarily due to a $1.0 million settlement of business interruption insurance related to a loss of revenue in our WestOK system in May 2011 due to storm damage at the Chester plant.

Non-cash line fill loss had a favorable variance for the nine months ended September 30, 2013 compared to the prior year period primarily due to the settlement of line fill on the Velma system during the prior year period as well as a greater reduction in forward curve prices during the prior year period.

Equity income (loss) in joint ventures decreased for the nine months ended September 30, 2013 primarily due to a $5.4 million loss in the current period from the SouthTX equity method investments. The T2 LaSalle and T2 Eagle Ford joint ventures are structured to earn revenues equal to their operating costs, exclusive of depreciation expense. The loss primarily represents depreciation expense and timing of recovery of other expenses.

Loss on asset disposition in the current year period pertained to management’s decision to not pursue a project to lay pipe in an area where acquired rights of way had expired in the Velma area.

Loss on early extinguishment of debt for the nine months ended September 30, 2013 represents $17.5 million premiums paid; $8.0 million consent payment made; and $5.3 million write off of deferred financing costs, offset by $4.2 million recognition of unamortized premium related to the redemption of the 8.75% Senior Notes (see “–Senior Notes”).

Income tax benefit for the nine months ended September 30, 2013 represents the accrued income tax related to the income earned on APL Arkoma, Inc., which was acquired as part of the Cardinal Acquisition (see “–Acquisitions”).

Income attributable to non-controlling interests increased primarily due to Anadarko’s non-controlling interest in higher net income for the WestOK and WestTX joint ventures. The increase in net income of the WestOK and WestTX joint ventures was principally due to higher gross margins on the sale of commodities, resulting from higher volumes.

Non-GAAP financial data:

EBITDA was lower for the nine months ended September 30, 2013 compared to the prior year period mainly due to the unfavorable variance on the derivative gain (loss), net and the loss on early extinguishment of debt recognized during the nine months ended September 30, 2013, as discussed above in “–Other income items,” combined with higher other costs and operating expenses as discussed above in “–Expenses;” partially offset by improved gross margin as discussed above in “–Gross Margin.”

Adjusted EBITDA had a favorable variance for the nine months ended September 30, 2013 compared to the prior year period mainly due to the improved gross margin variance, as discussed above in “–Gross Margin”, partially offset by higher operating expenses as discussed above in “–Expenses.”

Distributable cash flow had a favorable variance for the nine months ended September 30, 2013 compared to the prior year period mainly due to the favorable Adjusted EBITDA variance, as discussed above, partially offset by higher interest expense as discussed above in “–Expenses.”

Liquidity and Capital Resources

Our primary sources of liquidity are cash generated from operations and borrowings under our revolving credit facility. Our primary cash requirements, in addition to normal operating expenses, are for debt service, capital expenditures and quarterly distributions to our common unitholders and General Partner. In general, we expect to fund:

•

cash distributions and maintenance capital expenditures through existing cash and cash flows from operating activities;

•

expansion capital expenditures and working capital deficits through the retention of cash and additional capital raising; and

•

debt principal payments through operating cash flows and refinancings as they become due, or by the issuance of additional limited partner units or asset sales.

At September 30, 2013, we had $100.0 million outstanding borrowings under our $600.0 million senior secured revolving credit facility and $0.4 million of outstanding letters of credit, which are not reflected as borrowings on our consolidated balance sheets, with $499.6 million of remaining committed capacity under the revolving credit facility, (see “–Revolving Credit Facility”). We were in compliance with the credit facility’s covenants at September 30, 2013. We had a working capital deficit of $43.6 million at September 30, 2013 compared with a $33.4 million working capital deficit at December 31, 2012. We believe we will have sufficient liquid assets, cash from operations and borrowing capacity to meet our financial commitments, debt service obligations, contingencies and anticipated capital

expenditures for at least the next twelve-month period. However, we are subject to business, operational and other risks that could adversely affect our cash flows. We may need to supplement our cash generation with proceeds from financing activities, including borrowings under our revolving credit facility and other borrowings, the issuance of additional limited partner units and sales of our assets.

Instability in the financial markets, as a result of recession or otherwise, may cause volatility in the markets and may impact the availability of funds from those markets. This may affect our ability to raise capital and reduce the amount of cash available to fund our operations. We rely on our cash flows from operations and our revolving credit facility to execute our growth strategy and to meet our financial commitments and other short-term liquidity needs. We cannot be certain additional capital will be available to the extent required and on acceptable terms.

Cash Flows – Nine Months Ended September 30, 2013 Compared to Nine Months Ended September 30, 2012

The following table details the cash flow changes between the nine months ended September 30, 2013 and 2012 (in thousands):


	Nine Months Ended
	September 30,									Percent
	2013			2012			Variance			Change
Net cash provided by (used in):
Operating activities	$	145,121		$	125,523		$	19,598			15.6	%
Investing activities		(1,338,149	)		(278,725	)		(1,059,424	)		(380.1	)%
Financing activities		1,200,069			153,199			1,046,870			683.3	%

Net change in cash and cash equivalents	$	7,041		$	(3	)	$	7,044			—

Net cash provided by operating activities for the nine months ended September 30, 2013 increased compared to the prior year period due to a $27.3 million increase in net earnings from continuing operations excluding non-cash charges and a $7.7 million favorable variance in the change in working capital. The increase in net earnings from continuing operations excluding non-cash charges is primarily due to increased gross margins from the sale of natural gas and NGLs (see “–Results of Operations”). The change in working capital is primarily due to a $20.2 million increase in accrued interest primarily related to the issuance of our 6.625% Senior Notes, 5.875% Senior Notes, and 4.75% Senior Notes (see “–Senior Notes”), partially offset by a net increase in working capital due to the increased gross margins.

Net cash used in investing activities for the nine months ended September 30, 2013 increased compared to the prior year period mainly due to the $1.0 billion Teak Acquisition (see “–Acquisitions”); an $85.4 million increase in capital expenditures in the current year period compared to the prior year period (see further discussion of capital expenditures under “–Capital Requirements”); and a $9.8 million increase in contributions to the T2 Joint Ventures (see “Item 1. Notes to Consolidated Financial Statements (Unaudited) – Note 4 – Equity Method Investments”); partially offset by $36.7 million cash paid for acquisition of assets in the prior year period.

Net cash provided by financing activities for the nine months ended September 30, 2013 increased compared to the prior year period mainly due to (i) $637.3 million provided by the issuance of the 5.875% Senior Notes in the current period; (ii) $391.5 million provided by the issuance of the 4.75% Senior Notes (see “–Senior Notes”); (iii) $397.7 million provided by the issuance of Class D Preferred Units (see “–Preferred Unit Offerings”); (iv) $388.4 million provided by the issuance of common units

(see “–Common Unit Offerings”); and (v) $102.7 million provided by the sale of common units under our equity distribution program (see “–Common Unit Offerings”); partially offset by the $391.4 million redemption of the 8.75% Senior Notes, including the cost of early retirement of debt; $319.1 million provided by the issuance of the 6.625% Senior Notes in the prior year; and $193.0 million, net used in the current period to reduce outstanding borrowings on the revolving credit facility.

Capital Requirements

Our operations require continual investment to upgrade or enhance existing operations and to ensure compliance with safety, operational, and environmental regulations. Our capital requirements consist primarily of:

•

maintenance capital expenditures to maintain equipment reliability and safety and to address environmental regulations; and

•

expansion capital expenditures to acquire complementary assets and to expand the capacity of our existing operations.

The following table summarizes maintenance and expansion capital expenditures, excluding amounts paid for acquisitions, for the periods presented (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Expansion capital expenditures	$	105,736	$	91,292	$	313,742	$	229,170
Maintenance capital expenditures		6,416		4,732		14,119		13,242

Total	$	112,152	$	96,024	$	327,861	$	242,412

Expansion capital expenditures increased for the three months ended September 30, 2013 primarily due to construction costs for the Stonewall Plant within Arkoma, the Silver Oak II plant within SouthTX, and the Edward Plant within WestTX. Expansion capital expenditures increased for the nine months ended September 30, 2013 primarily due to the completion of the Driver Plant within WestTX in April 2013 (see “–Recent Events”) and construction costs for the Stonewall Plant within Arkoma, the Silver Oak II Plant within SouthTX, and the Edward Plant within WestTX. As of September 30, 2013, we had approved additional expenditures of approximately $364.1 million on processing facility expansions, pipeline extensions and compressor station upgrades, of which approximately $166.2 million purchase commitments had been made. We expect to fund these projects through operating cash flows and borrowings under our existing revolving credit facility.

Partnership Distributions

Our partnership agreement requires that we distribute 100% of available cash to our common unitholders (subject to the rights of any other class or series of our securities with the right to share in our cash distributions) and to our General Partner within 45 days following the end of each calendar quarter in accordance with their respective percentage interests. Available cash consists generally of all our cash receipts, less cash disbursements and net additions to reserves, including any reserves required under debt instruments for future principal and interest payments.

Our General Partner is granted discretion by our partnership agreement to establish, maintain and

adjust reserves for future operating expenses, debt service, maintenance capital expenditures and distributions for the next four quarters. These reserves are not restricted by magnitude, but only by type of future cash requirements with which they can be associated. When our General Partner determines our quarterly distributions, it considers current and expected reserve needs along with current and expected cash flows to identify the appropriate sustainable distribution level.

Available cash is initially distributed 98% to our common limited partners and 2.0% to our General Partner. These distribution percentages are modified to provide for incentive distributions to be paid to our General Partner if quarterly distributions to common limited partners exceed specified targets. Incentive distributions are generally defined as all cash distributions paid to our General Partner that are in excess of 2.0% of the aggregate amount of cash being distributed. Our General Partner, holder of all our incentive distribution rights, has agreed to allocate up to $3.75 million of its incentive distribution rights per quarter back to us after the General Partner receives the initial $7.0 million of incentive distribution rights per quarter. Incentive distributions of $4.8 million and $1.6 million were paid during the three months ended September 30, 2013 and 2012, respectively, and $10.1 million and $4.5 million were paid during the nine months ended September 30, 2013 and 2012, respectively.

Off Balance Sheet Arrangements

As of September 30, 2013, our off balance sheet arrangements include our letters of credit, issued under the provisions of our revolving credit facility, totaling $0.4 million. These are in place to support various performance obligations as required by (1) statutes within the regulatory jurisdictions where we operate, (2) surety and (3) counterparty support.

We have certain long-term unconditional purchase obligations and commitments, primarily throughput contracts. These agreements provide transportation services to be used in the ordinary course of our operations.

Common Equity Offerings

In April 2013, we sold 11,845,000 of our common units at a price to the public of $34.00 per unit, yielding net proceeds of $388.4 million after underwriting commissions and expenses. We also received a capital contribution from the General Partner of $8.3 million to maintain its 2.0% general partnership interest (see “Item 1. Notes to Consolidated Financial Statements (Unaudited) – Note 5 – Common Units”). We used the proceeds from this offering to fund a portion of the purchase price of the TEAK Acquisition (see “Item 1. Notes to Consolidated Financial Statements (Unaudited) – Note 3 – Teak Midstream, LLC”).

We have an equity distribution program with Citigroup, through which we may offer and sell common units having an aggregate value of up to $150.0 million. Such sales will be at market prices prevailing at the time of the sale. There will be no specific date on which the offering will end and there will be no minimum purchase requirements. During the three and nine months ended September 30, 2013, we issued 1,772,800 and 2,863,080 common units, respectively, under the equity distribution program for net proceeds of $63.7 million and $102.7 million, respectively, net of $1.3 million and $2.1 million, respectively, in commissions paid to Citigroup. We also received capital contributions from the General Partner of $1.3 million and $2.1 million during the three and nine months ended September 30, 2013, respectively, to maintain its 2.0% general partner interest in us. The net proceeds from the common unit offerings were utilized for general partnership purposes. As of September 30, 2013, we had $36.3 million remaining dollar capacity under the equity distribution program (see “Item 1. Notes to Consolidated Financial Statements (Unaudited) – Note 5 – Common Units”).

Preferred Unit Offerings

On May 7, 2013 we completed the private placement of $400.0 million of our Class D Preferred Units to third party investors, at a negotiated price per unit of $29.75 for net proceeds of $397.7 million pursuant to the Class D Preferred Unit Purchase Agreement. The Class D Preferred Units were offered and sold in a private transaction exempt from registration under Section 4(2) of the Securities Act of 1933, as amended. We also received a capital contribution from the General Partner of $8.2 million to maintain its 2.0% general partner interest in us (see “Item 1. Notes to Consolidated Financial Statements (Unaudited) – Note 5 – Class D Preferred Units”). We used the proceeds to fund a portion of the purchase price of the TEAK Acquisition (see “Item 1. Notes to Consolidated Financial Statements (Unaudited) – Note 3 – Teak Midstream, LLC”). For the three and nine months ended September 30, 2013, we recorded costs related to preferred unit distributions of $9.1 million and $14.4 million, respectively, on our consolidated statements of operations. During the three and nine months ended September 30, 2013, we distributed 138,598 additional Class D Preferred Units to the holders of the Class D Preferred Units as a distribution for the quarter ended June 30, 2013.

Revolving Credit Facility

At September 30, 2013, we had a $600.0 million senior secured revolving credit facility with a syndicate of banks, which matures in May 2017. Borrowings under the revolving credit facility bear interest, at our option, at either (1) the higher of (a) the prime rate, (b) the federal funds rate plus 0.50% or (c) three-month LIBOR plus 1.0%, or (2) the LIBOR rate for the applicable period (each plus the applicable margin). The weighted average interest rate for borrowings on the revolving credit facility, at September 30, 2013, was 3.2%. Up to $50.0 million of the revolving credit facility may be utilized for letters of credit, of which $0.4 million was outstanding at September 30, 2013. These outstanding letter of credit amounts were not reflected as borrowings on our consolidated balance sheets.

On April 19, 2013, we entered into an amendment to our credit agreement, which among other changes, allowed the TEAK Acquisition to be a permitted investment and did not require the joint venture interests acquired in the TEAK Acquisition to be guarantors (see “–Recent Events”).

Borrowings under the revolving credit facility are secured by a lien on and security interest in all our property and that of our subsidiaries, except for the assets owned by the WestOK, WestTX and Centrahoma joint ventures and their respective subsidiaries. Borrowings are also secured by the guaranty of each of our consolidated subsidiaries other than the joint venture companies. The revolving credit facility contains customary covenants, including covenants to maintain specified financial ratios, restrictions on our ability to incur additional indebtedness; make certain acquisitions, loans or investments; make distribution payments to our unitholders if an event of default exists; or enter into a merger or sale of assets, including the sale or transfer of interests in our subsidiaries. We are also unable to borrow under our revolving credit facility to pay distributions of available cash to unitholders because such borrowings would not constitute “working capital borrowings” pursuant to our partnership agreement.

The events that constitute an event of default for our revolving credit facility include payment defaults, breaches of representations or covenants contained in the credit agreement, adverse judgments against us in excess of a specified amount, and a change of control of our General Partner. As of September 30, 2013, we were in compliance with all covenants under the revolving credit facility.

Senior Notes

At September 30, 2013, we had $500.0 million principal outstanding of 6.625% Senior Notes, $650.0 million principal outstanding of 5.875% Senior Notes, and $400.0 million principal outstanding of 4.75% Senior Notes (together with the 6.625% Senior Notes and 5.875% Senior Notes, the “Senior Notes”).

The 6.625% Senior Notes are presented combined with a net $4.7 million unamortized premium as of September 30, 2013. Interest on the 6.625% Senior Notes is payable semi-annually in arrears on April 1 and October 1. On October 16, 2013, we consummated an exchange offer for the 6.625% Senior Notes, and we incurred a 0.25% additional interest penalty from September 23, 2013 through consummation of the exchange offer (see “–Recent Events”). The 6.625% Senior Notes are redeemable at any time after October 1, 2016, at certain redemption prices, together with accrued and unpaid interest to the date of redemption (see “Item 1. Notes to Consolidated Financial Statements (Unaudited) – Note 13-Senior Notes”).

On February 11, 2013, we issued $650.0 million of the 5.875% Senior Notes in a private transaction. The 5.875% Senior Notes were issued at par. We received net proceeds of $637.3 million after underwriting commissions and other transactions costs and utilized the proceeds to redeem the 8.75% Senior Notes and repay a portion of the outstanding indebtedness under the revolving credit agreement. Interest on the 5.875% Senior Notes is payable semi-annually in arrears on February 1 and August 1. The 5.875% Senior Notes are redeemable at any time after February 1, 2018, at certain redemption prices, together with accrued and unpaid interest to the date of redemption (See “Item 1. Notes to Consolidated Financial Statements (Unaudited) – Note 13 – Senior Notes”). We have filed a registration statement with the SEC relating to an exchange offer for the 5.875% Senior Notes.

On January 28, 2013, we commenced a cash tender offer for any and all of our outstanding 8.75% Senior Notes and a solicitation of consents to eliminate most of the restrictive covenants and certain of the events of default contained in the indenture 8.75% Senior Notes Indenture. Approximately $268.4 million aggregate principal amount of the 8.75% Senior Notes, were validly tendered as of the expiration date of the consent solicitation. In February 2013, we accepted for purchase all 8.75% Senior Notes validly tendered as of the expiration of the consent solicitation and paid $291.4 million to redeem the $268.4 million principal plus $11.2 million make-whole premium, $3.7 million accrued interest and $8.0 million consent payment. We entered into a supplemental indenture amending and supplementing the 8.75% Senior Notes Indenture. We also redeemed all of the 8.75% Senior Notes not purchased in connection with the tender offer.

On May 10, 2013, we issued $400.0 million of the 4.75% Senior Notes in a private placement transaction. The 4.75% Senior Notes were issued at par. We received net proceeds of $391.5 million after underwriting commissions and other transactions costs and utilized the proceeds repay a portion of the outstanding indebtedness under the revolving credit agreement as part of the TEAK Acquisition. Interest on the 4.75% Senior Notes is payable semi-annually in arrears on May 15 and November 15. The 4.75% Senior Notes are due on November 15, 2021 and are redeemable any time after March 15, 2016, at certain redemption prices, together with accrued and unpaid interest to the date of redemption (See “Item 1. Notes to Consolidated Financial Statements (Unaudited) – Note 13 – Senior Notes”). We have filed a registration statement with the SEC relating to an exchange offer for the 4.75% Senior Notes.

The Senior Notes are subject to repurchase by us at a price equal to 101% of their principal amount, plus accrued and unpaid interest, upon a change of control or upon certain asset sales if we do not reinvest the net proceeds within 360 days. The Senior Notes are junior in right of payment to our secured debt, including our obligations under the revolving credit facility.

Indentures governing the Senior Notes contain covenants, including limitations of our ability to: incur certain liens; engage in sale/leaseback transactions; incur additional indebtedness; declare or pay distributions if an event of default has occurred; redeem, repurchase or retire equity interests or subordinated indebtedness; make certain investments; or merge, consolidate or sell substantially all our assets. We were in compliance with these covenants as of September 30, 2013

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with GAAP requires making estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of actual revenue and expenses during the reporting period. Although we base our estimates on historical experience and various other assumptions we believe to be reasonable under the circumstances, actual results may differ from the estimates on which our financial statements are prepared at any given point of time. Changes in these estimates could materially affect our financial position, results of operations or cash flows. Significant items subject to such estimates and assumptions include revenue and expense accruals, depreciation and amortization, asset impairment, fair value of derivative instruments, the probability of forecasted transactions and the allocation of purchase price to the fair value of assets acquired. Discussion of our significant accounting policies we have adopted and followed in the preparation of our consolidated financial statements is included within Item 1. Notes to Consolidated Financial Statements (Unaudited) – Note 2. In addition to estimates discussed below, discussion of the potential impact of a change in critical accounting estimates is included within our Annual Report on Form 10-K for the year ended December 31, 2012.


Description	Judgments and Uncertainties	Effect if Actual Results Differ from Estimates and Assumptions

Derivative Instruments
Our derivative financial instruments are recorded at fair value in the consolidated balance sheets. Changes in fair value and settlements are reflected in our earnings in the consolidated statements of operations as gains and losses related to NGLs sales, interest expense and/or derivative loss, net. (See “Item 1. Notes to Consolidated Financial Statements (Unaudited) – Note 10” for further discussion)	When available, quoted market prices or prices obtained through external sources are used to determine a financial instrument’s fair value. The valuation of Level 2 financial instruments is based on quoted market prices for similar assets and liabilities in active markets and other inputs that are observable. However, for other financial instruments for which quoted market prices are not available, the fair value is based upon inputs that are largely unobservable. These instruments are classified as Level 3 under the fair value hierarchy. The fair value of these instruments are determined based on pricing models developed primarily from historical and expected correlations with quoted market prices. At September 30, 2013, approximately 24% of our net derivative assets are classified as Level 3 with the remainder classified as Level 2.	If the assumptions used in the pricing models for our financial instruments are inaccurate or if we had used an alternative valuation methodology, the estimated fair value may have been different, and we may be exposed to unrealized losses or gains that could be material. Of the $11.5 million and $31.0 million net derivative assets at September 30, 2013 and December 31, 2012, respectively, we had $2.7 million and $23.1 million net derivative assets at September 30, 2013 and December 31, 2012, respectively, that were classified as Level 3 fair value measurements, which rely on subjective forward developed price curves. Holding all other variables constant, a 10% change in the prices utilized in calculating the Level 3 fair value of derivatives at September 30, 2013 would have resulted in approximately a $14.3 million noncash change to net income for the nine months ended September 30, 2013.


Description	Judgments and Uncertainties	Effect if Actual Results Differ from Estimates and Assumptions

Acquisitions – Purchase Price Allocation
We allocate the purchase price of an acquired business to its identifiable assets and liabilities, including identifiable intangible assets, based upon estimated fair values. The excess of the purchase price over the amount allocated to the assets and liabilities is recorded as goodwill. For significant acquisitions, we engage outside appraisal firms to assist in the fair value determination of identifiable intangible assets such as customer relationships and contracts. We adjust the preliminary purchase price allocation, as necessary, after the acquisition closing date through the end of the measurement period of up to one year as we finalize valuations for the assets acquired and liabilities assumed.	Purchase price allocation methodology requires management to make assumptions and apply judgment to estimate the fair value of acquired assets and liabilities. Management estimates the fair value of assets and liabilities primarily using a market approach, income approach, or cost approach, as appropriate. Key inputs into the fair value determinations include estimates and assumptions related to future volumes, commodity prices, operating costs, replacement costs and construction costs, as well as an estimate of the expected term and profits of the related customer contracts.	If estimates or assumptions used to complete the purchase price allocation and estimate the fair value of acquired assets and liabilities significantly differs from assumptions made during the preliminary purchase price allocation, the allocation of purchase price between goodwill, intangibles and property plant and equipment could significantly differ. Such a difference would impact future earnings through depreciation and amortization expense. In addition, if forecasts supporting the valuation of the intangibles or goodwill are not achieved, impairments could arise.

Recently Adopted Accounting Standards

See “Item 1. Notes to Consolidated Financial Statements (Unaudited) – Note 2 – Recently Adopted Accounting Standards” for information regarding recently adopted accounting pronouncements.

Recently Issued Accounting Standards

See “Item 1. Notes to Consolidated Financial Statements (Unaudited) – Note 2 – Recently Issued Accounting Standards” for information regarding recently issued accounting pronouncements.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The primary objective of the following information is to provide forward-looking quantitative and qualitative information about our potential exposure to market risks. The term “market risk” refers to the risk of loss arising from adverse changes in interest rates and oil and natural gas prices. The disclosures are not meant to be precise indicators of expected future losses, but rather indicators of reasonable possible losses. This forward-looking information provides indicators of how we view and manage our ongoing market risk exposures. All our market risk sensitive instruments were entered into for purposes other than trading.

General

All our assets and liabilities are denominated in U.S. dollars, and as a result, we do not have exposure to currency exchange risks.

We are exposed to various market risks, principally fluctuating interest rates and changes in commodity prices. These risks can impact our results of operations, cash flows and financial position. We manage these risks through regular operating and financing activities and periodic use of derivative instruments. The following analysis presents the effect on our results of operations, cash flows and financial position as if the hypothetical changes in market risk factors occurred on September 30, 2013. Only the potential impact of hypothetical assumptions is analyzed. The analysis does not consider other possible effects that could impact our business.

Current market conditions elevate our concern over counterparty risks and may adversely affect the ability of these counterparties to fulfill their obligations to us, if any. The counterparties to our commodity-based derivatives are banking institutions, or their affiliates, currently participating in our revolving credit facility. The creditworthiness of our counterparties is constantly monitored, and we are not aware of any inability on the part of our counterparties to perform under our contracts.

Interest Rate Risk. At September 30, 2013, we had a $600.0 million senior secured revolving credit facility with $100.0 million in outstanding borrowings. Borrowings under the revolving credit facility bear interest, at our option, at either (1) the higher of (a) the prime rate, (b) the federal funds rate plus 0.50% or (c) three-month LIBOR plus 1.0%, or (2) the LIBOR rate for the applicable period (each plus the applicable margin). The weighted average interest rate for the revolving credit facility borrowings was 3.2% at September 30, 2013. Based upon the outstanding borrowings on the senior secured revolving credit facility and holding all other variables constant, a 100 basis-point, or 1%, change in interest rates would change our annual interest expense by approximately $1.0 million.

Commodity Price Risk. We are exposed to commodity prices as a result of being paid for certain services in the form of natural gas, NGLs and condensate rather than cash. For gathering services, we receive fees or commodities from the producers to bring the raw natural gas from the wellhead to the processing plant. For processing services, we either receive fees or commodities as payment for these services, based on the type of contractual agreement. We use a number of different derivative instruments in connection with our commodity price risk management activities. We enter into financial swap and option instruments to hedge our forecasted natural gas, NGLs and condensate sales against the variability in expected future cash flows attributable to changes in market prices. Swap instruments are contractual agreements between counterparties to exchange obligations of money as the underlying natural gas, NGLs and condensate are sold. Under swap agreements, we receive a fixed price and remit a floating price based on certain indices for the relevant contract period. Commodity-based option instruments are contractual agreements that grant the right to receive the difference between a fixed price and a floating price based on certain indices for the relevant contract period, if the floating price is lower than the fixed price. See “Item 1. Notes to Consolidated Financial Statements (Unaudited) – Note 10” for further discussion of our derivative instruments. Average estimated market prices for NGLs, natural gas and condensate, based upon twelve-month forward price curves as of October 15, 2013, were $0.97 per gallon, $3.79 per million BTU and $98.51 per barrel, respectively. A 10% change in these prices would change our forecasted net income for the twelve-month period ended September 30, 2014 by approximately $17.6 million.

ITEM 4.

CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934 reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our General Partner’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Under the supervision of our General Partner’s Chief Executive Officer and Chief Financial Officer and with the participation of our disclosure committee appointed by such officers, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report, excluding the assets acquired through the TEAK Acquisition, which was completed on May 7, 2013 (see “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Acquisitions”). Based upon that evaluation, our General Partner’s Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2013, our disclosure controls and procedures were effective at the reasonable assurance level. There have been no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1A.

RISK FACTORS

There have been no material changes in our risk factors from those disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2012.

ITEM 6.

EXHIBITS


Exhibit No.		Description

2.1		Securities Purchase Agreement dated November 30, 2012, by and among Cardinal Midstream, LLC, Cardinal Arkoma, Inc., Cardinal Arkoma Midstream, LLC, Cardinal Gas Treating LLC and Atlas Pipeline Mid-Continent Holdings, LLC. The schedules to the Securities Purchase Agreement have been omitted pursuant to Item 601(b) of Regulation S-K. A copy of the omitted schedules will be furnished to the U.S. Securities and Exchange Commission supplementally upon request.⁽³⁰⁾

2.2		Purchase and Sale agreement, dated as of April 16, 2013, among TEAK Midstream Holdings, LLC, TEAK Midstream, L.L.C. and Atlas Pipeline Mid-Continent Holdings, LLC. The schedules to the Purchase and Sale Agreement have been omitted pursuant to Item 601(b) of Regulation S-K. A copy of the omitted schedules will be furnished to the U.S. Securities and Exchange Commission supplementally upon request⁽³³⁾

3.1(a)		Certificate of Limited Partnership⁽¹⁾

3.1(b)		Amendment to Certificate of Limited Partnership⁽¹²⁾

3.2(a)		Second Amended and Restated Agreement of Limited Partnership⁽²⁾

3.2(b)		Amendment No. 1 to Second Amended and Restated Agreement of Limited Partnership⁽³⁾

3.2(c)		Amendment No. 2 to Second Amended and Restated Agreement of Limited Partnership⁽⁴⁾

3.2(d)		Amendment No. 3 to Second Amended and Restated Agreement of Limited Partnership⁽⁵⁾

3.2(e)		Amendment No. 4 to Second Amended and Restated Agreement of Limited Partnership⁽⁶⁾

3.2(f)		Amendment No. 5 to Second Amended and Restated Agreement of Limited Partnership⁽⁸⁾

3.2(g)		Amendment No. 6 to Second Amended and Restated Agreement of Limited Partnership⁽⁹⁾

3.2(h)		Amendment No. 7 to Second Amended and Restated Agreement of Limited Partnership⁽¹⁴⁾

3.2(i)		Amendment No. 8 to Second Amended and Restated Agreement of Limited Partnership⁽¹⁵⁾

3.2(j)		Amendment No. 9 to Second Amended and Restated Agreement of Limited Partnership⁽¹²⁾

3.2(k)		Amendment No. 10 to Second Amended and Restated Agreement of Limited Partnership⁽³⁶⁾

4.1		Common unit certificate (attached as Exhibit A to the Second Amended and Restated Agreement of Limited Partnership)⁽²⁾

4.2		8 3/4% Senior Notes Indenture dated June 27, 2008⁽⁷⁾

4.3(a)		6 5/8% Senior Notes Indenture dated September 28, 2012⁽²⁶⁾

4.3(b)		Supplemental Indenture dated as of December 20, 2012⁽³²⁾

4.4(a)		5 7/8% Senior Notes Indenture dated as of February 11, 2013⁽¹⁰⁾

4.4(b)		Supplemental Indenture dated as of February 11, 2013⁽¹⁰⁾

4.5		4 3/4% Senior Notes Indenture dated May 10, 2013⁽³⁷⁾

4.6		Certificate of Designation of Class D Convertible Preferred Units⁽³⁶⁾

4.7		Registration Rights Agreement, dated May 16, 2012, between Atlas Pipeline Partners, L.P., Wells Fargo Bank, National Association and the lenders named in the Credit Agreement dated May 16, 2012 by and among Atlas Energy, L.P. and the lenders named therein⁽²⁵⁾

10.1(a)		Amended and Restated Agreement of Limited Partnership of Atlas Pipeline Operating Partnership, L.P.⁽¹⁾

10.1(b)		Amendment No. 3 to Amended and Restated Agreement of Limited Partnership of Atlas Pipeline Operating Partnership, L.P.⁽¹⁴⁾

10.1(c)		Amendment No. 4 to Amended and Restated Agreement of Limited Partnership of Atlas Pipeline Operating Partnership, L.P.⁽¹²⁾

10.2(a)		Amended and Restated Limited Liability Company Agreement of Atlas Pipeline Partners GP, LLC.⁽¹⁹⁾

10.2(b)		Second Amended and Restated Limited Liability Company Agreement of Atlas Pipeline Partners GP, LLC.⁽³⁸⁾

10.3(a)		Amended and Restated Credit Agreement dated July 27, 2007, amended and restated as of December 22, 2010, by and among Atlas Pipeline Partners, L.P., Wells Fargo Bank, National Association and the several guarantors and lenders hereto⁽¹⁶⁾

10.3(b)		Amendment No. 1 to the Amended and Restated Credit Agreement dated as of April 19, 2011⁽²²⁾


Exhibit No.		Description

10.3(c)		Incremental Joinder Agreement to the Amended and Restated Credit Agreement dated as of July 8, 2011⁽²³⁾

10.3(d)		Amendment No. 2 to the Amended and Restated Credit Agreement dated as of May 31, 2012⁽²⁷⁾

10.3(e)		Amendment No. 3 to the Amended and Restated Credit Agreement⁽³¹⁾

10.3(f)		Amendment No. 4 to the Amended and Restated Credit Agreement⁽³⁴⁾

10.4		Long-Term Incentive Plan⁽³⁵⁾

10.5		Amended and Restated 2010 Long-Term Incentive Plan⁽²²⁾

10.6		Form of Grant of Phantom Units in Exchange for Bonus Units⁽¹⁷⁾

10.7		Form of 2010 Long-Term Incentive Plan Phantom Unit Grant Letter⁽¹⁸⁾

10.8		Form of 2004 Long-Term Incentive Plan Phantom Unit Grant Letter⁽²⁸⁾

10.9		Form of Grant of Phantom Units to Non-Employee Managers⁽¹¹⁾

10.10		Letter Agreement, by and between Atlas Pipeline Partners, L.P. and Atlas Pipeline Holdings, L.P., dated November 8, 2010⁽¹³⁾

10.11		Non-Competition and Non-Solicitation Agreement, by and between Chevron Corporation and Edward E. Cohen, dated as of November 8, 2010⁽²⁰⁾

10.12		Non-Competition and Non-Solicitation Agreement, by and between Chevron Corporation and Jonathan Z. Cohen, dated as of November 8, 2010⁽²⁰⁾

10.13		Employment Agreement between Atlas Energy, L.P. and Edward E. Cohen dated as of May 13, 2011⁽²⁴⁾

10.14		Employment Agreement between Atlas Energy, L.P. and Jonathan Z. Cohen dated as of May 13, 2011⁽²⁴⁾

10.15		Employment Agreement between Atlas Energy, L.P. and Eugene N. Dubay dated as of November 4, 2011⁽²¹⁾

10.16		Employment Agreement between Atlas Energy, L.P., Atlas Pipeline Partners, L.P. and Patrick J. McDonie dated as of July 3, 2012⁽²⁵⁾

10.17		Equity Distribution Agreement dated November 5, 2012, by and between Atlas Pipeline Partners, L.P. and Citigroup Global Markets Inc.⁽²⁹⁾

10.18		Class D preferred Unit Purchase Agreement, dated as of April 17, 2013, among Atlas Pipeline Partners, L.P. and the various purchasers party thereto⁽³³⁾

10.19		Registration Rights Agreement, dated February 11, 2013, by and among Atlas Pipeline Partners, L.P., Atlas Pipeline Finance Corporation, the subsidiaries named therein, and the initial purchasers listed therein⁽¹⁰⁾

10.20		Purchase Agreement dated January 28, 2013 by and among Atlas Pipeline Partners, L.P., Atlas Pipeline Finance Corporation, the subsidiaries listed therein, and Merrill Lynch, Pierce, Fenner & Smith Incorporated as representative of the several initial purchasers⁽²⁶⁾

10.21		Registration Rights Agreement, dated May 7, 2013 by and among Atlas Pipeline Partners, L.P. and the purchasers named therein⁽³⁶⁾

10.22		Registration Rights Agreement, dated May 10, 2013, by and among Atlas Pipeline Partners, L.P., Atlas Pipeline Finance Corporation, the guarantors named therein, and Citigroup Global Markets Inc. for itself and on behalf of the initial purchasers⁽³⁷⁾

10.23		Purchase Agreement dated May 7, 2013 among Atlas Pipeline Partners, L.P., Atlas Pipeline Finance Corporation, and Citigroup Global Markets Inc. as representatives of the several initial purchasers⁽³⁷⁾

12.1		Statement of Computation of Ratio of Earnings to Fixed Charges

31.1		Rule 13a-14(a)/15d-14(a) Certification

31.2		Rule 13a-14(a)/15d-14(a) Certification

32.1		Section 1350 Certification

32.2		Section 1350 Certification

101.INS		XBRL Instance Document⁽³⁸⁾

101.SCH		XBRL Schema Document⁽³⁸⁾

101.CAL		XBRL Calculation Linkbase Document⁽³⁸⁾

101.LAB		XBRL Label Linkbase Document⁽³⁸⁾

101.PRE		XBRL Presentation Linkbase Document⁽³⁸⁾

101.DEF		XBRL Definition Linkbase Document⁽³⁸⁾

(1)	Filed previously as an exhibit to registration statement on Form S-1 (Registration No. 333-85193).

(2)	Previously filed as an exhibit to registration statement on Form S-3 on April 2, 2004.

(3)	Previously filed as an exhibit to quarterly report on Form 10-Q for the quarter ended June 30, 2007.

(4)	Previously filed as an exhibit to current report on Form 8-K on July 30, 2007.

(5)	Previously filed as an exhibit to current report on Form 8-K on January 8, 2008.

(6)	Previously filed as an exhibit to current report on Form 8-K on June 16, 2008.

(7)	Previously filed as an exhibit to current report on Form 8-K on June 27, 2008.

(8)	Previously filed as an exhibit to current report on Form 8-K on January 6, 2009.

(9)	Previously filed as an exhibit to current report on Form 8-K on April 3, 2009.

(10)	Previously filed as an exhibit to current report on Form 8-K filed on February 12, 2013.

(11)	Previously filed as an exhibit to quarterly report on Form 10-Q for the quarter ended September 30, 2010.

(12)	Previously filed as an exhibit to current report on Form 8-K on December 13, 2011.

(13)	Previously filed as an exhibit to current report on Form 8-K on November 12, 2010.

(14)	Previously filed as an exhibit to current report on Form 8-K on April 2, 2010.

(15)	Previously filed as an exhibit to current report on Form 8-K on July 7, 2010.

(16)	Previously filed as an exhibit to current report on Form 8-K on December 23, 2010.

(17)	Previously filed as an exhibit to current report on Form 8-K filed on June 17, 2010.

(18)	Previously filed as an exhibit to current report on Form 8-K filed on June 23, 2010.

(19)	Previously filed as an exhibit to annual report on Form 10-K filed for the year ended December 31, 2011.

(20)	Previously filed as an exhibit to Atlas Energy, Inc.’s current report on Form 8-K filed on November 12, 2010.

(21)	Previously filed as an exhibit to quarterly report on Form 10-Q for the quarter ended September 30, 2011.

(22)	Previously filed as an exhibit to quarterly report on Form 10-Q for the quarter ended March 31, 2011.

(23)	Previously filed as an exhibit to current report on Form 8-K filed on July 11, 2011.

(24)	Previously filed as an exhibit to Atlas Energy, L.P.’s quarterly report on Form 10-Q for the quarter ended March 31, 2011.

(25)	Previously filed as an exhibit to quarterly report on Form 10-Q for the quarter ended June 30, 2012.

(26)	Previously filed as an exhibit to current report on Form 8-K filed on January 30, 2013.

(27)	Previously filed as an exhibit to current report on Form 8-K filed on May 31, 2012.

(28)	Previously filed as an exhibit to quarterly report on Form 10-Q for the quarter ended September 30, 2012.

(29)	Previously filed as an exhibit to current report on Form 8-K filed on November 6, 2012.

(30)	Previously filed as an exhibit to current report on Form 8-K filed on December 4, 2012.

(31)	Previously filed as an exhibit to current report on Form 8-K filed on December 13, 2012.

(32)	Previously filed as an exhibit to current report on Form 8-K filed on December 26, 2012.

(33)	Previously filed as an exhibit to current report on Form 8-K filed on April 17, 2013.

(34)	Previously filed as an exhibit to current report on Form 8-K filed on April 23, 2013.

(35)	Previously filed as an exhibit to annual report on Form 10-K filed for the year ended December 31, 2009.

(36)	Previously filed as an exhibit to current report on Form 8-K filed on May 8, 2013.

(37)	Previously filed as an exhibit to current report on Form 8-K filed on May 13, 2013.

(38)	Previously filed as an exhibit to current report on Form 8-K filed on October 29, 2013.

(39)	Attached as Exhibit 101 to this report are documents formatted in XBRL (Extensible Business Reporting Language). The financial information contained in the XBRL-related documents is “unaudited” or “unreviewed.”

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	ATLAS PIPELINE PARTNERS, L.P.
	By:	Atlas Pipeline Partners GP, LLC,
		its General Partner

Date: November 7, 2013	By:	/s/ EUGENE N. DUBAY
		Eugene N. Dubay
		Chief Executive Officer, President and Managing Board Member of the General Partner

Date: November 7, 2013	By:	/s/ ROBERT W. KARLOVICH, III
		Robert W. Karlovich, III
		Chief Financial Officer and Chief Accounting Officer of the General Partner