NOTES TO CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1—BASIS OF PRESENTATION

We are a publicly traded (OTC: ATLS) Delaware limited liability company formed in October 2011. Unless the context otherwise requires, references to “Atlas Energy Group, LLC,” “the Company,” “we,” “us,” “our” and “our company,” refer to Atlas Energy Group, LLC, and our combined and consolidated subsidiaries.

On February 27, 2015, our former owner, Atlas Energy, L.P. (“Atlas Energy”), transferred its assets and liabilities, other than those related to its midstream assets, to us, and effected a pro rata distribution of our common units representing a 100% interest in us, to Atlas Energy’s unitholders (the “Separation”). Concurrently with the distribution of our units, Atlas Energy and its remaining midstream interests merged with Targa Resources Corp. (“Targa”; NYSE: TRGP) and ceased trading.

At June 30, 2016, our operations primarily consisted of our ownership interests in the following:

At June 30, 2016, we had 26,037,992 common limited partner units issued and outstanding. The common units are a class of limited liability company interests in us. The holders of common units are entitled to participate in company distributions and exercise the rights or privileges available to holders of common units as outlined in the limited liability company agreement.

The accompanying condensed combined consolidated financial statements, which are unaudited except that the balance sheet at December 31, 2015, was derived from audited financial statements, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and are presented in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim reporting. They do not include all disclosures normally made in

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financial statements contained in Form 10-K. It is suggested that these interim condensed combined consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in our latest Annual Report on Form 10-K. In man agement’s opinion, all adjustments necessary for a fair presentation of our financial position, results of operations and cash flows for the periods disclosed have been made. Certain amounts in the prior year’s financial statements have been reclassified t o conform to the current year presentation due to the adoption of certain accounting standards (see Note 5). The results of operations for the interim periods presented may not necessarily be indicative of the results of operations for the full year.

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Combination

Our condensed combined consolidated financial statements for the six months ended June 30, 2016 and 2015, subsequent to the transfer of assets on February 27, 2015, include our accounts and accounts of our subsidiaries. Our condensed combined consolidated financial statements for the portion of 2015 which is prior to the transfer of assets on February 27, 2015, were derived from the separate records maintained by Atlas Energy and may not necessarily be indicative of the conditions or results of operations that would have existed if we had been operated as an unaffiliated entity. Because a direct ownership relationship did not exist among all the various entities comprising us, Atlas Energy’s net investment in us is shown as equity in the condensed combined consolidated financial statements. U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed combined consolidated balance sheets and related condensed combined consolidated statements of operations. Such estimates included allocations made from the historical accounting records of Atlas Energy, based on management’s best estimates, in order to derive the financial statements of us. Actual balances and results could be different from those estimates. Transactions between us and other Atlas Energy operations have been identified in the condensed combined consolidated financial statements as transactions between affiliates.

In connection with Atlas Energy’s merger with Targa and the concurrent Separation, we were required to repay $150.0 million of Atlas Energy’s term loan credit facility, which was issued in July 2013 for $240.0 million. In accordance with U.S. GAAP, we included $150.0 million of Atlas Energy’s original term loan at the time of issuance, and the related interest expense, within our historical financial statements. Atlas Energy’s other historical borrowings were allocated to our historical financial statements in the same ratio. We used proceeds from the issuance of our Series A preferred units (see Note 10) and borrowings under our term loan credit facilities to fund the $150.0 million payment.

We determined that ARP and AGP are variable interest entities (“VIE’s”) based on their respective partnership agreements, our power, as the general partner, to direct activities that most significantly impact each of their respective economic performance, and our ownership of each of their respective incentive distribution rights. Accordingly, we consolidate the financial statements of ARP and AGP into our condensed combined consolidated financial statements. Our VIE’s operating results and assets balances are presented separately in Note 12 – Operating Segment Information. As the general partner for both ARP and AGP, we have unlimited liability for the obligations of ARP and AGP except for those contractual obligations that are expressly made without recourse to the general partner. The non-controlling interests in ARP and AGP are reflected as (income) loss attributable to non-controlling interests in the condensed combined consolidated statements of operations and as a component of unitholders’ equity on the condensed combined consolidated balance sheets. All material intercompany transactions have been eliminated.

In accordance with established practice in the oil and gas industry, our condensed combined consolidated financial statements include our pro-rata share of assets, liabilities, income and lease operating and general and administrative costs and expenses of the Drilling Partnerships in which ARP has an interest. Such interests generally approximate 30%. Our condensed combined consolidated financial statements do not include proportional consolidation of the depletion or impairment expenses of ARP’s Drilling Partnerships. Rather, ARP calculates these items specific to its own economics.

On June 5, 2015, ARP completed the acquisition of our coal-bed methane producing natural gas assets in the Arkoma Basin in eastern Oklahoma for $31.5 million, net of purchase price adjustments (the “Arkoma Acquisition”). ARP funded the purchase price using proceeds from the issuance of 6,500,000 common limited partner units. The Arkoma Acquisition had an effective date of January 1, 2015. ARP accounted for the Arkoma Acquisition as a transaction between entities under common control in its standalone consolidated financial statements.

Liquidity and Capital Resources

Our primary sources of liquidity are cash distributions received with respect to our ownership interests in ARP, AGP, and Lightfoot. Our primary cash requirements, in addition to normal operating expenses, are for debt service, capital

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expenditures, and distributions to unitholders, which we expect to fund through op erating cash flow, and cash distributions received.

We rely on the cash flows from the distributions received on our ownership interests in ARP, AGP, and Lightfoot. The amount of cash that ARP and AGP can distribute to their partners, including us, principally depends upon the amount of cash they each generate from their operations. ARP’s and AGP’s future cash flows are subject to a number of variables, including oil and natural gas prices. Prices for oil and natural gas began to decline significantly during the fourth quarter of 2014 and have continued to decline and remain low in 2016. These lower commodity prices have negatively impacted ARP’s and AGP’s revenues, earnings and cash flows. Sustained low commodity prices will have a material and adverse effect on ARP’s and AGP’s liquidity position and ability to make distributions. Reductions of such distributions to us would adversely affect our ability to fund our cash requirements and obligations and meet our financial covenants under our credit agreements.

On May 5, 2016, the Board of Directors elected to suspend ARP’s common unit and Class C preferred distributions, beginning with the month of March of 2016, due to the continued lower commodity price environment.

Ability for the Company and ARP to Continue as a Going Concern

On July 25, 2016, ARP and certain of its subsidiaries and us, solely with respect to certain sections thereof, entered into a Restructuring Support Agreement (the “Restructuring Support Agreement”) with (i) lenders holding 100% of ARP’s senior secured revolving credit facility (the “First Lien Lenders”), (ii) lenders holding 100% of ARP’s second lien term loan (the “Second Lien Lenders”) and (iii) holders (the “Consenting Noteholders” and, collectively with the First Lien Lenders and the Second Lien Lenders, and their respective successors or permitted assigns that become party to the Restructuring Support Agreement, the “Restructuring Support Parties”) of approximately 80% of the aggregate principal amount outstanding of the 7.75% ARP Senior Notes due 2021 (the “7.75% ARP Senior Notes”) and the 9.25% ARP Senior Notes due 2021 (the “9.25% ARP Senior Notes” and, together with the 7.75% ARP Senior Notes, the “Notes”) of ARP’s subsidiaries, Atlas Resource Partners Holdings, LLC and Atlas Resource Finance Corporation (together, the “Issuers”). Under the Restructuring Support Agreement, the Restructuring Support Parties have agreed, subject to certain terms and conditions, to support ARP’s restructuring (the “Restructuring”) pursuant to a pre-packaged plan of reorganization (the “Plan”). See Note 3, “ ARP Restructuring Support Agreement ,” for further information.

On July 27, 2016, ARP and certain of its subsidiaries filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code (“Chapter 11”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court,” and the cases commenced thereby, the “Chapter 11 Filings”). The cases commenced thereby are being jointly administered under the caption “In re: ATLAS RESOURCE PARTNERS, L.P., et al.”

The Restructuring, including as a result of ARP monetizing certain hedges to pay down borrowings outstanding under ARP’s senior secured credit facility, will result in a reduction of ARP’s existing debt by approximately $900 million and elimination of approximately $80 million of ARP’s annual debt service obligations. Pursuant to the Plan, ARP’s business assets and operations will vest in a limited liability company, which will be classified as a corporation for U.S. federal income tax purposes (“New Holdco”). ARP expects to consummate the Plan and emerge from Chapter 11 before the end of the third quarter of 2016. Interested parties should refer to the information and the limitations and qualifications discussed in ARP’s disclosure statement related to ARP’s Restructuring (the “ARP Disclosure Statement”) which was filed as Exhibit 99.1 to ARP’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 25, 2016.

ARP intends to continue to operate its businesses as “debtors in possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of Chapter 11 and the orders of the Bankruptcy Court. Under the Plan, it is contemplated that all of ARP’s suppliers, vendors, employees, royalty owners, trade partners and landlords will be unimpaired by the Plan and will be satisfied in full in the ordinary course of business, and ARP’s existing trade contracts and terms will be maintained. To assure ordinary course operations, ARP obtained interim approval from the Bankruptcy Court on a variety of “first day” motions, including motions seeking authority to use cash collateral on a consensual basis, pay wages and benefits for individuals who provide services to ARP, and pay vendors, oil and gas obligations and other creditor claims in the ordinary course of business.

The Chapter 11 Filings constituted an event of default that accelerated all of ARP’s outstanding debt obligations under the ARP First Lien Credit Facility (as defined below), the ARP Second Lien Term Loan (as defined below) and the indenture governing the ARP Notes. Any efforts to enforce such payments are automatically stayed as a result of ARP’s Chapter 11 Filings, and the holders’ rights of enforcement are subject to the applicable provisions of Chapter 11.  Accordingly, we classified all of ARP’s outstanding debt obligations as a current liability on our condensed combined consolidated balance sheet as of June 30, 2016. See Note 5, Debt , for further information.

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ARP’s Restructuring is not expected to materially impact us or our ownership interest in AGP or Lightfoot. We are not a party to ARP’s Restructuring. We remain controlled by the same ow nership group and management team and thus, we expect that ARP’s Restructuring will not have a material impact on the ability of management to operate us or the other businesses.

The significant risks and uncertainties related to ARP’s Chapter 11 Filings raise substantial doubt about ARP’s and our ability to continue as a going concern. Our condensed consolidated financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities and commitments in the normal course of business. Our condensed consolidated financial statements do not include any adjustments that might result from the outcome of the going concern uncertainty. If we and ARP cannot continue as a going concern, adjustments to the carrying values and classification of our and ARP’s assets and liabilities and the reported amounts of income and expenses could be required and could be material.

Atlas Growth Partners - Liquidity and Capital Resources

AGP has historically funded its operations, acquisitions and cash distributions primarily through cash generated from operations and financing activities, including its private placement offering completed in 2015. AGP’s future cash flows are subject to a number of variables, including oil and natural gas prices. Prices for oil and natural gas began to decline significantly during the fourth quarter of 2014 and have continued to decline and remain low in 2016. These lower commodity prices have negatively impacted AGP’s revenues, earnings and cash flows. Sustained low commodity prices will have a material and adverse effect on AGP’s liquidity position.

AGP is not a party to the Restructuring Support Agreement, and ARP’s Restructuring is not expected to materially impact AGP.

Use of Estimates

The preparation of our condensed combined consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities that exist at the date of our condensed combined consolidated financial statements, as well as the reported amounts of revenue and costs and expenses during the reporting periods. Our condensed combined consolidated financial statements are based on a number of significant estimates, including revenue and expense accruals, depletion, depreciation and amortization, fair value of derivative and other financial instruments and fair value of certain gas and oil properties and asset retirement obligations. Such estimates included estimated allocations made from the historical accounting records of Atlas Energy in order to derive the historical financial statements of us. The natural gas industry principally conducts its business by processing actual transactions as many as 60 days after the month of delivery. Consequently, the most recent two months’ financial results were recorded using estimated volumes and contract market prices. Actual results could differ from those estimates.

Net Income (Loss) Per Common Unit

Basic net income (loss) attributable to common unitholders per unit is computed by dividing net income (loss) attributable to common unitholders, which is determined after the deduction of net income attributable to participating securities and the preferred unitholders’ interests, if applicable, by the weighted average number of common unitholders units outstanding during the period.

Unvested unit-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities. A portion of our phantom unit awards, which consist of common units issuable under the terms of our long-term incentive plans and incentive compensation agreements, contain non-forfeitable rights to distribution equivalents. The participation rights result in a non-contingent transfer of value each time we declare 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. As such, the net income utilized in the calculation of net income (loss) per unit must be after the allocation of only net income to the phantom units on a pro-rata basis.

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The following is a reconciliation of net income (loss) allocated to the common unitholders for purposes of calculating net income (loss) attributable to common unit holders per unit (in thousands, except unit data):

Diluted net income (loss) attributable to common limited partners per unit is calculated by dividing net income (loss) attributable to common limited partners, less income allocable to participating securities, by the sum of the weighted average number of common limited partner units outstanding and the dilutive effect of unit option awards and convertible preferred units, as calculated by the treasury stock or if converted methods, as applicable. Unit options consist of common units issuable upon payment of an exercise price by the participant under the terms of our long-term incentive plan.

The following table sets forth the reconciliation of our weighted average number of common unitholder units used to compute basic net loss attributable to common unitholders per unit with those used to compute diluted net loss attributable to common unitholders per unit (in thousands):

Rabbi Trust

In 2011, we established an excess 401(k) plan relating to certain executives. In connection with the plan, we established a “rabbi” trust for the contributed amounts. At June 30, 2016 and December 31, 2015, we reflected $4.1 million and $5.6 million, respectively, related to the value of the rabbi trust within other assets, net on our condensed combined

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consolidated balance sheets, and recorded corresponding liabilities of $4.1 million and $5.6 million as of those same dates, respectively, within asset retirement obligations and other on our condensed combined con solidated balance sheets. During the six months ended June 30, 2016, a $2.3 million distribution was made to participants related to the rabbi trust.  No distributions were made to participants related to the rabbi trust for the six months ended June 30, 2 015.

Recently Issued Accounting Standards

In February 2016, the Financial Accounting Standards Board (“FASB”) updated the accounting guidance related to leases. The updated accounting guidance requires lessees to recognize a lease asset and liability at the commencement date of all leases (with the exception of short-term leases), initially measured at the present value of the lease payments. The updated guidance is effective for us as of January 1, 2019 and requires a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest period presented.  We are currently in the process of determining the impact that the updated accounting guidance will have on our condensed combined consolidated financial statements.

In August 2015, the FASB updated the accounting guidance related to the balance sheet presentation of debt issuance costs specific to line-of-credit arrangements. The updated accounting guidance allows the option of presenting deferred debt issuance costs related to line-of-credit arrangements as an asset, and subsequently amortizing over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings. We adopted the updated accounting guidance effective January 1, 2016 and it did not have a material impact on our condensed combined consolidated financial statements.

In February 2015, the FASB updated the accounting guidance related to consolidation under the variable interest entity and voting interest entity models. The updated accounting guidance modifies the consolidation guidance for variable interest entities, limited partnerships and similar legal entities. We adopted this accounting guidance upon its effective date of January 1, 2016, and it did not have a material impact on our condensed combined consolidated financial statements.

In August 2014, the FASB updated the accounting guidance related to the evaluation of whether there is substantial doubt about an entity’s ability to continue as a going concern. The updated accounting guidance requires an entity’s management to evaluate whether there are conditions or events that raise substantial doubt about its ability to continue as a going concern within one year from the date the financial statements are issued and provide footnote disclosures, if necessary.  We adopted this accounting guidance on January 1, 2016, and provided enhanced disclosures, as applicable, within our condensed combined consolidated financial statements. 

In May 2014, the FASB updated the accounting guidance related to revenue recognition. The updated accounting guidance provides a single, contract-based revenue recognition model to help improve financial reporting by providing clearer guidance on when an entity should recognize revenue, and by reducing the number of standards to which an entity has to refer. In July 2015, the FASB voted to defer the effective date by one year to December 15, 2017 for annual reporting periods beginning after that date. The updated accounting guidance provides companies with alternative methods of adoption. We are currently in the process of determining the impact that the updated accounting guidance will have on our condensed combined consolidated financial statements and our method of adoption.

NOTE 3—RESTRUCTURING SUPPORT AGREEMENT

As disclosed in Note 2, on July 25, 2016, ARP and certain of its subsidiaries and us, solely with respect to certain sections thereof, entered into the Restructuring Support Agreement with the Restructuring Support Parties.  On July 27, 2016, ARP and certain of its subsidiaries filed voluntary petitions for relief under Chapter 11 in the Bankruptcy Court. Under the Restructuring Support Agreement, the Restructuring Support Parties have agreed, subject to certain terms and conditions, to support ARP’s Restructuring pursuant to the Plan.

In particular, under the Plan, on the Plan’s effective date (the “Plan Effective Date”), the First Lien Lenders will receive cash payment of all obligations owed to them by ARP pursuant to the senior secured revolving credit facility (other than $440 million of principal and face amount of letters of credit) and become lenders under an exit facility credit agreement (the “First Lien Exit Facility”), composed of a $410 million conforming reserve-based tranche and a $30 million non-conforming tranche. The non-conforming tranche will mature on May 1, 2017 and the conforming reserve-based tranche will mature on August 23, 2019. In addition, ARP will enter into a new second lien credit agreement (the “Second Lien Exit Facility” and, together with the First Lien Exit Facility, the “Exit Facilities”). The Second Lien Lenders will receive a pro rata share of the Second Lien Exit Facility, which will have an aggregate principal amount of $250 million plus the amounts resulting from the accrual of paid in kind interest on the principal amount of $250 million from the commencement of ARP’s Chapter 11 Filings, with interest expense paid in cash to be reduced to 2% and the remainder to be paid-in-kind from the

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commencement date through May 1, 2017 at a rate equal to Adjusted LIBO Rate plus 9% per annum. During the next 15-month period, cash and in-kind interest will vary based on a pricing grid tied to ARP’s leverage ratio under the ARP revolving credit facil ity. After such 15-month period, interest will accrue at a rate equal to Adjusted LIBO Rate plus 9% per annum and will be payable in cash. In addition to the Second Lien Exit Facility, the Second Lien Lenders will receive a pro rata share of 10% of the com mon equity interests of New HoldCo, subject to dilution by a management incentive plan. Holders of the Notes, in exchange for 100% of the $668 million aggregate principal amount of Notes outstanding plus accrued but unpaid interest as of the commencement o f the Chapter 11 cases, will receive, on the Plan Effective Date, 90% of the common equity interests of New HoldCo as of the Plan Effective Date, subject to dilution by a management incentive plan.

Under the Plan, holders of ARP’s limited partnership units will receive no recovery. On the Plan Effective Date, all of ARP’s preferred limited partnership units and common limited partnership units will be cancelled without the receipt of any consideration.

ARP intends to continue to operate its businesses as “debtors in possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of Chapter 11 and the orders of the Bankruptcy Court. Under the Plan, all suppliers, vendors, employees, royalty owners, trade partners and landlords will be unimpaired by the Plan and will be satisfied in full in the ordinary course of business, and ARP’s existing trade contracts and terms will be maintained. To assure ordinary course operations, ARP obtained interim approval from the Bankruptcy Court on a variety of “first day” motions, including motions seeking authority to use cash collateral on a consensual basis, pay wages and benefits for individuals who provide services to ARP, and pay vendors, oil and gas obligations and other creditor claims in the ordinary course of business.

Under the Plan, on the Plan Effective Date, a wholly owned subsidiary of the Company (“ARP Mgt LLC”) will receive a preferred share of New HoldCo. The preferred share will entitle ARP Mgt LLC to receive 2% of the economics of New HoldCo (subject to dilution if catch-up contributions are not made with respect to future equity issuances, other than pursuant to the management incentive plan) and certain other rights as provided for in the Restructuring Support Agreement. Four of the seven initial members of the board of directors of New HoldCo are representatives of ARP Mgt LLC (the “New HoldCo Class A Directors”). For so long as ARP Mgt LLC holds such preferred share, the New HoldCo Class A Directors will be appointed by a majority of ARP’s Class A Directors then in office. New HoldCo will have a continuing right to purchase the preferred share at fair market value (as determined pursuant to the methodology provided for in New HoldCo's limited liability company agreement), subject to the receipt of certain approvals, including the holders of at least 67% of the outstanding common shares of New HoldCo unaffiliated with ARP Mgt LLC voting in favor of the exercise of the right to purchase the preferred share.

In accordance with, and subject to the terms and conditions of, the Restructuring Support Agreement, each of the Restructuring Support Parties has agreed, among other things, to: (i) support and take all commercially reasonable actions necessary or reasonably requested by ARP to facilitate consummation of the Restructuring in accordance with the Plan and the related term sheets, including without limitation, if applicable, to timely vote to accept the Plan; (ii) use commercially reasonable efforts to support the confirmation of the Plan and approval of the Disclosure Statement and the solicitation procedures; (iii) not object to, delay, interfere, impede, or take any other action to delay, interfere or impede, directly or indirectly, with the Restructuring, confirmation of the Plan, or approval of the Disclosure Statement or the solicitation procedures; and (iv) not object to our efforts to enter into the Exit Facilities, and not object to, or support the efforts of any other person to oppose or object to, the Exit Facilities.

In accordance with, and subject to the terms and conditions of, the Restructuring Support Agreement, ARP has agreed, subject to applicable fiduciary duties, among other things, to: (i) support and complete the Restructuring and all transactions set forth in the Plan and the Restructuring Support Agreement; (ii) complete the Restructuring and all transactions set forth or described in the Plan; (iii) take any and all necessary actions in furtherance of the Restructuring, the Restructuring Support Agreement and the Plan; (iv) make commercially reasonable efforts to obtain any and all required regulatory and/or third-party approvals for the Restructuring; and (v) operate the business in the ordinary course, taking into account the Restructuring.

The Restructuring Support Agreement may be terminated upon the occurrence of certain events, including the failure to meet specified milestones related to filing, confirmation and consummation of the Plan, among other requirements, and in the event of certain breaches by the parties under the Restructuring Support Agreement. There can be no assurance that the restructuring transactions will be consummated.

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During the six months ended June 30, 2016 and 2015, we recognized $18.7 million and $29.0 million, respectively, of non-cash property, plant and equipment additions, within the changes in accounts payable and accrued liabilities on our condensed combined consolidated statements of cash flows.

ARP 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 rates used to capitalize interest on combined borrowed funds by ARP was 6.6% for both the three months ended June 30, 2016 and 2015.  The weighted average interest rates used to capitalize interest on combined borrowed funds by ARP were 6.7% and 6.4% for the six months ended June 30, 2016 and 2015, respectively. The amounts of interest capitalized by ARP were $2.4 million and $4.1 million for the three months ended June 30, 2016 and 2015, respectively. The amounts of interest capitalized by ARP were $4.8 million and $8.0 million for the six months ended June 30, 2016 and 2015, respectively.

For the three months ended June 30, 2016 and 2015, we recorded $1.7 million and $1.6 million, respectively, of accretion expense related to ARP and AGP’s asset retirement obligations within depreciation, depletion and amortization in our condensed combined consolidated statements of operations. For the six months ended June 30, 2016 and 2015, we recorded $3.3 million and $3.2 million, respectively, of accretion expense related to ARP and AGP’s asset retirement obligations within depreciation, depletion and amortization in our condensed combined consolidated statements of operations.  For the three months ended June 30, 2016 and 2015, ARP recorded liabilities of $9.9 million and $0.2 million, respectively, in asset retirement obligations in our condensed consolidated balance sheet due to the liquidation of some of ARP’s Drilling Partnerships.  For the six months ended June 30, 2016 and 2015, ARP recorded liabilities of $12.9 million and $0.5 million, respectively, in asset retirement obligations in our condensed consolidated balance sheet due to the liquidation of some of ARP’s Drilling Partnerships.

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In April 2015, the FASB updated the accounting guidance related to the balance sheet presentation of debt issuance costs. The updated accounting guidance requires that debt issuance costs be presented as a direct deduction from the associated debt obligation. We adopted this accounting guidance upon its effective date of January 1, 2016. The retrospective effect of the reclassification resulted in the following changes:

Cash Interest .  Cash payments for interest by us and our subsidiaries on our/their respective borrowings were $16.4 million and $13.2 million for the three months ended June 30, 2016 and 2015, respectively, and $59.1 million and $51.7 million for the six months ended June 30, 2016 and 2015, respectively.

Term Loan Facilities

First Lien Credit Facility . On March 30, 2016, we, together with New Atlas Holdings, LLC (the “Borrower”) and Atlas Lightfoot, LLC, entered into a third amendment (the “Third Amendment”) to our credit agreement with Riverstone Credit Partners, L.P., as administrative agent (“Riverstone”), and the lenders (the “Lenders”) from time to time party thereto (the “First Lien Credit Agreement”).

The outstanding loans under the First Lien Credit Agreement were bifurcated between the existing First Lien Credit Agreement and the new Second Lien Credit Agreement (defined below), with $35.0 million and $35.8 million (including $2.4 million in deemed prepayment premium) in borrowings outstanding, respectively. In connection with the execution of the Third Amendment, the Borrower made a prepayment of approximately $4.25 million of the outstanding principal, which was classified as current portion of long-term debt on our condensed combined consolidated balance sheet at December 31, 2015, and $0.5 million of interest. The Third Amendment amended the First Lien Credit Agreement to, among other things:

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Second Lien Credit Agreement . Also on March 30, 2016, we and the Borrower entered into a new second lien credit agreement (the “Second Lien Credit Agreement”) with Riverstone and the Lenders. As described above, $35.8 million of the indebtedness previously outstanding under the First Lien Credit Agreement was moved under the Second Lien Credit Agreement. The Second Lien Credit Agreement is presented in the table above net of an unamortized discount of $1.9 million as of June 30, 2016, related to the 4,668,044 warrants issued in connection with the Second Lien Credit Agreement (see Note 10).

The Second Lien Credit Agreement matures on March 30, 2019, subject to an optional extension (the “Extension Option”) to March 30, 2020, assuming certain conditions are met, including a Total Leverage Ratio (as defined in the Second Lien Credit Agreement) of not more than 6:00 to 1:00 and a 5% extension fee. Borrowings under the Second Lien Credit Agreement are secured on a second priority basis by security interests in the same collateral that secures borrowings under the First Lien Credit Agreement.

Borrowings under the Second Lien Credit Agreement bear interest at a rate of 30%, payable in-kind through an increase in the outstanding principal. If the First Lien Credit Agreement is repaid in full prior to March 30, 2018, the rate will be reduced to 20%. If the Extension Option is exercised, the rate will again be increased to 30%. If our market capitalization is greater than $75 million, we can issue common units in lieu of increasing the principal to satisfy the interest obligation.

The Borrower may prepay the borrowings under the Second Lien Credit Agreement without premium at any time. The Second Lien Credit Agreement includes the same mandatory prepayment events as the First Lien Credit Agreement, subject to the Borrower’s discretion to prepay either the First Lien Credit Agreement or the Second Lien Credit Agreement.

The Second Lien Credit Agreement contains the same negative and affirmative covenants and events of default as the First Lien Credit Agreement, including customary covenants that limit the Borrower’s ability to incur additional indebtedness, grant liens, make loans or investments, make distributions if a default exists or would result from the distribution, merge into or consolidate with other persons, enter into swap agreements that do not conform to specified terms or that exceed specified amounts, or engage in certain asset dispositions. In addition, the Second Lien Credit Agreement requires that we maintain an Asset Coverage Ratio (as defined in the Second Lien Credit Agreement) of not less than 2.00 to 1.00 as of September 30, 2017 and each fiscal quarter ending thereafter.

As a result of the cross-default, on July 11, 2016, we entered into waiver agreements (the “Waivers”) with Riverstone and the Lenders in connection with the First Lien Credit Agreement and the Second Lien Credit Agreement. Pursuant to the Waivers, Riverstone and the Lenders agreed to waive under the First Lien Credit Agreement and the Second Lien Credit Agreement:

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We and ARP’s future debt maturities, excluding any future payment-in-kind interest pa yments, are as follows: $1,580.5 million, $35.0 million and $35.8 million, respectively, for the years ending December 31, 2016, 2017 and 2019, respectively.

In connection with the Term Loan Facilities, the lenders thereunder syndicated participations in loans underlying the facilities. As a result, certain of the Company’s current and former officers participated in approximately 12% of the loan syndication and warrants and a foundation affiliated with a 5% or more unitholder participated in approximately 12% of the loan syndication.

ARP First Lien Credit Facility

ARP is party to a Second Amended and Restated Credit Agreement, dated as of July 31, 2013 by and among ARP, the lenders from time to time party thereto, and Wells Fargo Bank, National Association, as administrative agent, as amended, supplemented or modified from time to time (the “ARP First Lien Credit Facility”), which provides for a senior secured revolving credit facility with a maximum borrowing base of $1.5 billion scheduled to mature in July 2018.

On June 8, 2016, ARP received notice from Wells Fargo Bank, National Association, as administrative agent under the ARP First Lien Credit Facility that its borrowing base had been redetermined in accordance with the ARP First Lien Credit Facility and reduced from $700.0 million to $530.0 million. As of June 30, 2016, $669.5 million in borrowings were outstanding (which includes $4.2 million in letters of credit) under the ARP First Lien Credit Facility, resulting in a borrowing base deficiency of $143.7 million. The ARP First Lien Credit Facility provides that within 30 days after ARP’s receipt of a notification of a borrowing base deficiency, ARP must elect to cure the borrowing base deficiency through any combination of the following actions: (i) repay amounts outstanding under the ARP First Lien Credit Facility sufficient to cure the borrowing base deficiency, either within 30 days after receipt of the borrowing base deficiency notice or in four equal monthly installments beginning on July 11, 2016; or (ii) pledge as collateral additional oil and gas properties acceptable to the administrative agent and lenders sufficient to cure the borrowing base deficiency within 60 days after receipt of the borrowing base deficiency notice. As part of the discussions with ARP’s lenders and noteholders (see Notes 1 and 3), ARP determined not to make the first installment payment that was due on July 11, 2016.

In connection therewith and in support of negotiations with ARP’s First Lien Lenders, Second Lien Lenders, and Consenting Noteholders, on July 11, 2016, ARP and certain of its subsidiaries entered into two forbearance agreements: (i) with Wells Fargo Bank, National Association, as administrative agent, and the other lenders under the ARP First Lien Credit Facility (the “ARP First Lien Credit Forbearance”) and (ii) with the Consenting Noteholders of the 7.75% ARP Senior Notes and the 9.25% ARP Senior Notes (the “ARP Notes Forbearance”).

Pursuant to the ARP First Lien Credit Forbearance, the administrative agent and the lenders representing approximately 81% of the outstanding indebtedness under the ARP First Lien Credit Facility agreed to forbear from exercising their rights and remedies arising from non-payment of the first installment of the borrowing base deficiency cure due on July 11, 2016 and related cross-defaults (the “ARP Specified Default”) until the earliest to occur of (i) July 27, 2016, (ii) the occurrence of an event of default under the ARP First Lien Credit Facility (unrelated to the ARP Specified Default) or (iii) the exercise by any holder of indebtedness outstanding under the ARP Second Lien Term Loan, the ARP Notes or any other material indebtedness of ours of rights or remedies against us or the other loan parties or their respective property.

Pursuant to the ARP Notes Forbearance, the holders of approximately 78% of the aggregate outstanding principal amount of the 7.75% ARP Senior Notes and approximately 82% of the 9.25% ARP Senior Notes agreed to forbear from exercising their rights and remedies arising from the cross-default that resulted from the ARP Specified Default until the earliest to occur of (i) July 27, 2016, (ii) another event of default under the 7.75% ARP Senior Notes indenture or the 9.25% ARP Senior Notes indenture or (iii) any other holder of the ARP Notes commences a legal proceeding against us or the other loan parties or their respective property. The holders of a majority of the Second Lien Term Loan were supportive of the forbearance.

ARP’s borrowing base is scheduled for semi-annual redeterminations in May and November of each year. Up to $20.0 million of the ARP First Lien Credit Facility may be in the form of standby letters of credit, of which $4.2 million was outstanding at June 30, 2016. ARP’s obligations under the ARP First Lien Credit Facility are secured by mortgages on ARP’s oil and gas properties and first priority security interests in substantially all of ARP’s assets. Additionally, obligations under the ARP First Lien Credit Facility are guaranteed by certain of ARP’s material subsidiaries, and any non-guarantor subsidiaries of ARP are minor. At June 30, 2016, the weighted average interest rate on outstanding borrowings under the ARP First Lien Credit Facility was 4.0%.

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The ARP First Lien Credit Facility contains customary covenants including, without limitation, covenants that limit ARP’s ability to incur additional indebtedness (but which permits second li en debt in an aggregate principal amount of up to $300.0 million and third lien debt that satisfies certain conditions including pro forma financial covenants), grant liens, make loans or investments, make distributions if a borrowing base deficiency or de fault exists or would result from the distribution, merge or consolidate with other persons, or engage in certain asset dispositions including a sale of all or substantially all of its assets.  The ARP First Lien Credit Facility also requires that ARP main tain a ratio of First Lien Debt to EBITDA (ratio as defined in the ARP First Lien Credit Facility ) of not greater than 2.75 to 1.00, and a ratio of current assets to current liabilities (ratio as defined in the ARP First Lien Credit Facility ) of not less t han 1.0 to 1.0 as of the last day of any fiscal quarter. ARP was not in compliance with these covenants as of June 30, 2016.  

ARP’s Chapter 11 Filings constituted an event of default that accelerated ARP’s obligations under the ARP First Lien Credit Facility and as a result, we classified $669.5 million of ARP’s outstanding amounts under the ARP First Lien Credit Facility as current portion of long-term debt and $12.2 million of deferred financing costs related to the ARP First Lien Credit Facility as current assets within our condensed combined consolidated balance sheet as of June 30, 2016.Any efforts to enforce such payments are automatically stayed as a result of the Chapter 11 Filings, and the holders’ rights of enforcement are subject to the applicable provisions of Chapter 11.

Pursuant to the ARP Restructuring Support Agreement, ARP completed the sale of substantially all of its commodity hedge positions on July 25, 2016 and July 26, 2016 and used the proceeds to repay $233.5 million of borrowings outstanding under the ARP First Lien Credit Facility. Accordingly, approximately $440 million remained outstanding under the ARP First Lien Credit Facility as of July 27, 2016, the date of ARP’s Chapter 11 Filings.

On the Plan Effective Date, ARP expect to enter into the new ARP First Lien Exit Facility, which will replace the ARP First Lien Credit Facility (see Note 3).

ARP Second Lien Term Loan

ARP is party to a Second Lien Credit Agreement, dated as of February 23, 2015 by and among ARP, the lenders from time to time party thereto, and Wilmington Trust, National Association, as administrative agent, as amended, supplemented or modified from time to time (the “ARP Second Lien Term Loan”), which provides for a second lien term loan in an original principal amount of $250.0 million. The ARP Second Lien Term Loan matures on February 23, 2020. The Second Lien Term Loan is presented in the table above net of unamortized discount of $5.5 million as of June 30, 2016.

ARP’s obligations under the ARP Second Lien Term Loan are secured on a second priority basis by security interests in all of ARP’s assets and those of its restricted subsidiaries that guarantee the ARP First Lien Credit Facility. In addition, the obligations under the ARP Second Lien Term Loan are guaranteed by ARP’s material restricted subsidiaries. At June 30, 2016, the weighted average interest rate on outstanding borrowings under the ARP Second Lien Term Loan was 10.0%.

The ARP Second Lien Term Loan contains customary covenants including, without limitation, covenants that limit ARP’s ability to make restricted payments, take on indebtedness, issue preferred units, grant liens, conduct sales of assets and subsidiary stock, make distributions from restricted subsidiaries, conduct affiliate transactions and engage in other business activities. In addition, the ARP Second Lien Term Loan contains covenants substantially similar to those in the ARP First Lien Credit Facility, including, among others, restrictions on swap agreements, debt of unrestricted subsidiaries, drilling and operating agreements and the sale or discount of receivables. ARP was not in compliance with the financial covenants as of June 30, 2016.  

ARP’s Chapter 11 Filings constituted an event of default that accelerated ARP’s obligations under the ARP Second Lien Term Loan and as a result, we classified $244.5 million of ARP’s outstanding amounts under the ARP Second Lien Term Loan, which is net of $5.5 million unamortized discount and $9.4 million deferred financing costs, as current portion of long-term debt within our condensed combined consolidated balance sheet as of June 30, 2016.  Any efforts to enforce such payments are automatically stayed as a result of the Chapter 11 Filings, and the holders’ rights of enforcement are subject to the applicable provisions of Chapter 11.

On the Plan Effective Date, ARP expects to enter into the new ARP Second Lien Exit Facility, which will replace the ARP Second Lien Term Loan (see Note 3).

ARP Senior Notes

At June 30, 2016, ARP had $354.4 million outstanding of its 7.75% ARP Senior Notes due 2021. The 7.75% ARP Senior Notes were presented net of a $0.3 million unamortized discount as of June 30, 2016.

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At June 30, 2016, ARP had $312.1 million outstanding of its 9.25% ARP Senior Notes due 2021. The 9.25% ARP Senior Notes were presented net of a $0.8 million unamortized discount as of June 30, 2016.

In January and February 2016, ARP executed transactions to repurchase $20.3 million of its 7.75% Senior Notes and $12.1 million of its 9.25% Senior Notes for $5.5 million, which included $0.6 million of interest. As a result of these transactions, we recognized $26.5 million as gain on early extinguishment of debt, net of accelerated amortization of deferred financing costs of $0.9 million, in our condensed combined consolidated statement of operations for the six months ended June 30, 2016.

The 7.75% ARP Senior Notes and 9.25% ARP Senior Notes are guaranteed by certain of ARP’s material subsidiaries. The guarantees under the 7.75% ARP Senior Notes and 9.25% ARP Senior Notes are full and unconditional and joint and several, subject to certain customary automatic release provisions, including, in certain circumstances, the sale or other disposition of all or substantially all the assets of, or all of the equity interests in, the subsidiary guarantor, or the subsidiary guarantor is declared “unrestricted” for covenant purposes, and any subsidiaries of ARP, other than the subsidiary guarantors, are minor. There are no restrictions on ARP’s ability to obtain cash or any other distributions of funds from the guarantor subsidiaries.

The indentures governing the 7.75% ARP Senior Notes and 9.25% ARP Senior Notes contain covenants including, without limitation, covenants that limit ARP’s ability to incur certain liens, 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 of ARP’s assets. ARP was in compliance with these covenants as of June 30, 2016.

On June 6, 2016, ARP and certain of its subsidiaries, Wells Fargo Bank, National Association, as resigning trustee (“Wells Fargo”) and U.S. Bank National Association, as successor trustee (“U.S. Bank”), entered into an Instrument of Resignation, Appointment and Acceptance (the “Instrument”). In connection with the Instrument, Wells Fargo resigned as trustee, note custodian, registrar and paying agent under the Indenture dated as of July 30, 2013, as supplemented and amended and ARP accepted such resignation and appointed U.S. Bank as the successor trustee, note custodian, registrar and paying agent under the such indenture.

ARP’s Chapter 11 Filings constituted an event of default that accelerated ARP’s obligations under the 7.75% ARP Senior Notes and the 9.25% ARP Senior Notes and as a result, we classified $354.4 million of ARP’s outstanding amounts under the 7.75% ARP Senior Notes, which is net of $0.3 million unamortized discount and $9.5 million deferred financing costs, and $312.1 million of ARP’s outstanding amounts under the 9.25% ARP Senior Notes, which is net of $0.8 million unamortized discount and $8.3 million deferred financing costs, as current portion of long-term debt within our condensed combined consolidated balance sheet as of June 30, 2016. Any efforts to enforce such payments are automatically stayed as a result of the Chapter 11 Filings, and the holders’ rights of enforcement are subject to the applicable provisions of Chapter 11.

On the Plan Effective Date, the 7.75% Senior Notes and the 9.25% Senior Notes (together with accrued but unpaid interest) will be cancelled and the holders will receive 90% of the common equity interests of New HoldCo (see Note 3).

NOTE 6—DERIVATIVE INSTRUMENTS

ARP and AGP use a number of different derivative instruments, principally swaps and options, in connection with their commodity price risk management activities.  ARP and AGP do not apply hedge accounting to any of their derivative instruments. As a result, gains and losses associated with derivative instruments are recognized in earnings.

ARP and AGP enter into commodity future option contracts to achieve more predictable cash flows by hedging their exposure to changes in commodity prices. At any point in time, such contracts may include regulated New York Mercantile Exchange (“NYMEX”) futures and options contracts and non-regulated over-the-counter futures contracts with qualified counterparties. NYMEX contracts are generally settled with offsetting positions, but may be settled by the physical delivery of the commodity. Crude oil contracts are based on a West Texas Intermediate (“WTI”) index. Natural gas liquids fixed price swaps are priced based on a WTI crude oil index, while ethane, propane, butane and iso butane contracts are based on the respective Mt. Belvieu price.  These contracts were recorded at their fair values.

We recorded net derivative assets on our condensed combined consolidated balance sheets of $234.6 million and $358.1 million at June 30, 2016 and December 31, 2015, respectively. Of the $2.3 million of net gain in accumulated other comprehensive income within unitholders’ equity on our condensed combined consolidated balance sheet related to derivatives at June 30, 2016, we expect to reclassify $1.5 million of gains to our condensed combined consolidated statement of operations over the next twelve-month period as these contracts expire. Aggregate gains of $0.8 million of gas and oil

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production revenues will be reclassified to our condensed combined consolidated statements of operations in later periods as the remaining contracts expire.

Pursuant to the ARP Restructuring Support Agreement, ARP completed the sale of certain of substantially all of its commodity hedge positions on July 25, 2016 and July 26, 2016 and used the proceeds to repay $233.5 million of borrowings outstanding under the ARP First Lien Credit Facility.

The following table summarizes the commodity derivative activity and presentation in our condensed combined consolidated statement of operations for the periods indicated (in thousands):

During the three and six months ended June 30, 2015, we received approximately $4.9 million in net proceeds from the early termination of our remaining natural gas and oil derivative positions for production periods from 2015 through 2018. The net proceeds from the early termination of these derivatives were used to reduce indebtedness under our Term Loan Facilities.

Atlas Growth Partners

On May 1, 2015, AGP entered into a secured credit facility agreement with a syndicate of banks. As of June 30, 2016, the lenders under the credit facility have no commitment to lend to AGP under the credit facility, but AGP and its subsidiaries have the ability to enter into derivative contracts to manage their exposure to commodity price movements which will benefit from the collateral securing the credit facility. Obligations under the credit facility are secured by mortgages on AGP’s oil and gas properties and first priority security interests in substantially all of its assets. The credit facility may be amended in the future if AGP and the lenders agree to increase the borrowing base and the lenders’ commitments thereunder. The secured credit facility agreement contains covenants that limit AGP and its subsidiaries ability to incur indebtedness, grant liens, make loans or investments, make distributions, merge into or consolidate with other persons, enter into commodity or interest rate swap agreements that do not conform to specified terms or that exceed specified amounts, or engage in certain asset dispositions, including a sale of all or substantially all of its assets. AGP was in compliance with these covenants as of June 30, 2016. In addition, AGP’s credit facility includes customary events of default, including failure to timely pay, breach of covenants, bankruptcy, cross-default with other material indebtedness (including obligations under swap agreements in excess of any agreed upon threshold amount), and change of control provisions.

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The following table summarizes the gross fair values of AGP’s derivative instruments, presenting the impact of offsetting the derivative assets and liabilities on ou r condensed combined consolidated balance sheets as of the dates indicated (in thousands):

At June 30, 2016, AGP had the following commodity derivatives: