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 2007. 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.

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 appearing elsewhere in this report.

General

We are a publicly-traded Delaware limited partnership (NYSE: AHD). Our wholly-owned subsidiary, Atlas Pipeline Partners GP, LLC ("Atlas Pipeline GP"), a Delaware limited liability company, is the general partner of Atlas Pipeline Partners, L.P. ("APL" - NYSE: APL). APL is a midstream energy service provider engaged in the transmission, gathering and processing of natural gas

in the Mid-Continent and Appalachian regions. Our cash generating assets currently consist solely of our interests in APL, a publicly traded Delaware limited partnership. Our interests in APL consist of a 100% ownership in Atlas Pipeline GP, their general partner, which owns:

• a 2.0% general partner interest in APL, which entitles it to receive 2.0% of the cash distributed by APL;

• all of the incentive distribution rights in APL, which entitle it to receive increasing percentages, up to a maximum of 48.0%, of any cash distributed by APL as it reaches certain target distribution levels in excess of $0.42 per APL common unit in any quarter. In connection with APL's acquisition of control of the Chaney Dell and Midkiff/Benedum systems (see "-Atlas Pipeline Partners, L.P."), we, the holder of all the incentive distribution rights in APL, agreed to allocate up to $5.0 million of our incentive distribution rights per quarter back to APL through the quarter ended June 30, 2009, and up to $3.75 million per quarter thereafter. We also agreed that the resulting allocation of incentive distribution rights back to APL would be after we receive the initial $3.7 million per quarter of incentive distribution rights through the quarter ended December 31, 2007, and $7.0 million per quarter thereafter; and

• 5,754,253 common units of APL, representing approximately 12.5% of the outstanding common units of APL, or a 12.0% limited partner interest in APL.

While we, like APL, are structured as a limited partnership, our capital structure and cash distribution policy differ materially from those of APL. Most notably, our general partner does not have an economic interest in us and is not entitled to receive any distributions from us, and our capital structure does not include incentive distribution rights. Therefore, all of our distributions are made on our common units, which is our only class of security outstanding.

Our ownership of APL's incentive distribution rights entitles us to receive an increasing percentage of cash distributed by APL as it reaches certain target distribution levels. The rights entitle us, subject to the IDR Adjustment Agreement, to receive the following:

• 13.0% of all cash distributed in a quarter after each APL common unit has received $0.42 for that quarter;

• 23.0% of all cash distributed after each APL common unit has received $0.52 for that quarter; and

• 48.0% of all cash distributed after each APL common unit has received $0.60 for that quarter.

These amounts are partially offset by our July 2007 agreement to allocate up to $5.0 million of incentive distributions per quarter back to APL through the quarter ended June 30, 2009, and up to $3.75 million per quarter thereafter.

We pay to our unitholders, on a quarterly basis, distributions equal to the cash we received from APL, less certain reserves for expenses and other uses of cash, including:

• our general and administrative expenses, including expenses as a result of being a publicly traded partnership;

• capital contributions to maintain or increase our ownership interest in APL; and

• reserves our general partner believes prudent to maintain for the proper conduct of our business or to provide for future distributions.

Financial Presentation

We currently have no separate operating activities apart from those conducted by APL, and our cash flows consist of distributions from APL on our partnership interests in it, including the incentive distribution rights that we own. The non-controlling limited partner interest in APL is reflected as an expense in our consolidated results of operations and as a liability on our consolidated balance sheet. Throughout this section, when we refer to "our" consolidated financial statements, we are referring to the consolidated results for us and Atlas Pipeline GP, including APL's financial results, adjusted for non-controlling partners' interest in APL's net income (loss).

Atlas Pipeline Partners, L.P.

APL is a publicly-traded Delaware limited partnership whose common units are listed on the New York Stock Exchange under the symbol "APL". APL's principal business objective is to generate cash for distribution to its unitholders. APL is a leading provider of natural gas gathering services in the Anadarko, Arkoma and Permian Basins and the Golden Trend in the southwestern and mid-continent United States and the Appalachian Basin in the eastern United States. In addition, APL is a leading provider of natural gas processing and treatment services in Oklahoma and Texas. APL also provides interstate gas transmission services in southeastern Oklahoma, Arkansas, southern Kansas and southeastern Missouri. APL's business is conducted in the midstream segment of the natural gas industry through two reportable segments: its Mid-Continent operations and its Appalachian operations.

Through its Mid-Continent operations, APL owns and operates:

• a FERC-regulated, 565-mile interstate pipeline system ("Ozark Gas Transmission") that extends from southeastern Oklahoma through Arkansas and into southeastern Missouri and which has throughput capacity of approximately 400 MMcfd;

• eight active natural gas processing plants with aggregate capacity of approximately 750 MMcfd and one treating facility with a capacity of approximately 200 MMcfd, located in Oklahoma and Texas; and

• 7,870 miles of active natural gas gathering systems located in Oklahoma, Arkansas, Kansas and Texas, which transport gas from wells and central delivery points in the Mid-Continent region to APL's natural gas processing and treating plants or Ozark Gas Transmission, as well as third party pipelines.

Through its Appalachian operations, APL owns and operates 1,600 miles of natural gas gathering systems located in eastern Ohio, western New York, western Pennsylvania and northeastern Tennessee. Through an omnibus agreement and other agreements between APL and Atlas America, Inc. and its affiliates, a publicly traded company (NASDAQ: ATLS - "Atlas America") and holder of a 64.4% ownership interest in us, including Atlas Energy Resources, LLC and subsidiaries ("Atlas Energy"), a leading sponsor of natural gas drilling investment partnerships in the Appalachian Basin and a publicly-traded company (NYSE: ATN), APL gathers substantially all of the natural gas for its Appalachian Basin operations from wells operated by Atlas Energy. Among other things, the omnibus agreement requires Atlas Energy to connect to APL's gathering systems wells it operates that are located within 2,500 feet of APL's gathering systems. APL is also party to natural gas gathering agreements with Atlas America and Atlas Energy under which it receives gathering fees generally equal to a percentage, typically 16%, of the selling price of the natural gas it transports.

From the date of APL's initial public offering in January 2000 through June 2008, it has completed seven acquisitions at an aggregate purchase price of approximately $2.4 billion. Most recently, in July 2007, APL acquired control of Anadarko Petroleum Corporation's ("Anadarko" - NYSE: APC) 100% interest in the Chaney Dell natural gas gathering system and processing plants located in Oklahoma and its 72.8% undivided joint venture interest in the Midkiff/Benedum natural gas gathering system and

processing plants located in Texas (the "Anadarko Assets"). The Chaney Dell system includes 3,470 miles of gathering pipeline and three processing plants, while the Midkiff/Benedum system includes 2,500 miles of gathering pipeline and two processing plants. The transaction was effected by the formation of two joint venture companies which own the respective systems, to which APL contributed $1.9 billion and Anadarko contributed the Anadarko Assets.

APL funded the purchase price, in part, from its private placement of $1.125 billion of its common units to investors at a negotiated purchase price of $44.00 per unit. Of the $1.125 billion, we purchased $168.8 million of these APL units, which was funded through our issuance of 6,249,995 million common units in a private placement at a negotiated purchase price of $27.00 per unit (see "-Our Common Equity Offerings"). We, as general partner and holder all of APL's incentive distribution rights, have also agreed to allocate up to $5.0 million of our incentive distribution rights per quarter back to APL through the quarter ended June 30, 2009, and up to $3.75 million per quarter thereafter. We also agreed that the resulting allocation of incentive distribution rights back to APL would be after we receive the initial $3.7 million per quarter of incentive distribution rights through the quarter ended December 31, 2007, and $7.0 million per quarter thereafter (see "-APL's Partnership Distributions"). APL funded the remaining purchase price from $830.0 million of proceeds from a senior secured term loan which matures in July 2014 and borrowings under our senior secured revolving credit facility that matures in July 2013 (see "-APL Term Loan and Credit Facility").

In connection with this acquisition, APL reached an agreement with Pioneer Natural Resources Company ("Pioneer" - NYSE: PXD), which currently holds an approximate 27.2% undivided joint venture interest in the Midkiff/Benedum system, whereby Pioneer has an option to buy up to an additional 14.6% interest in the Midkiff/Benedum system, which began on June 15, 2008 and ended on November 1, 2008, and up to an additional 7.4% interest beginning on June 15, 2009 and ending on November 1, 2009 (the aggregate 22.0% additional interest can be entirely purchased during the period beginning June 15, 2009 and ending on November 1, 2009). If the option is fully exercised, Pioneer would increase its interest in the system to approximately 49.2%. Pioneer would pay approximately $230 million, subject to certain adjustments, for the additional 22% interest if fully exercised. APL will manage and control the Midkiff/Benedum system regardless of whether Pioneer exercised the purchase options.

Recent Events

In June 2008, we sold 308,109 common units through a private placement to Atlas America at a price of $32.50 per unit, for net proceeds of approximately $10.0 million. We utilized the net proceeds from the sale to purchase 278,000 common units of APL (see "Our Common Equity Offerings"), which in turn utilized the proceeds to partially fund the early termination of certain derivative agreements. Following our private placement, Atlas America had a 64.4% ownership interest in us.

In June 2008, APL sold 5,750,000 common units in a public offering at a price of $37.52 per unit, yielding net proceeds of approximately $206.6 million. Also in June 2008, APL sold 1,112,000 common units to Atlas America and 278,000 common units to us in a private placement at a net price of $36.02 per unit, resulting in net proceeds of approximately $50.1 million. APL also received a capital contribution from us of $5.4 million for it to maintain its 2.0% general partner interest in APL. APL utilized the net proceeds from both sales and the capital contribution to fund the early termination of certain derivative agreements.

The net proceeds from the public and private placement offerings of APL's common units were utilized to fund the early termination of a majority of its crude oil derivative contracts that it entered into as proxy hedges for the prices it receives for the ethane and propane portion of its NGL equity volume. These hedges, which related to production periods ranging from the end of second quarter of 2008 through the fourth quarter of 2009, were put in place simultaneously with APL's acquisition of the Chaney Dell and Midkiff/Benedum systems in July 2007 (see "Atlas Pipeline Partners, L.P.") and had become less effective as a result of significant increases in the price of crude oil and less significant increases in the price of ethane and propane. APL estimates that it incurred a charge during the second quarter 2008 of approximately $10.6 million due to the decline in the price correlation of

crude oil and ethane and propane. APL terminated these derivative contracts during June and July 2008 at an aggregate net cost of approximately $264.0 million. Our net income for the nine months ended September 30, 2008 includes our ownership interest in a $187.6 million cash derivative expense resulting from APL's aggregate net payments of $264.0 million to unwind a portion of these derivative contracts.

In June 2008, APL issued $250.0 million of 10-year, 8.75% senior unsecured notes (the "APL 8.75% Notes") in a private placement transaction. The sale of the APL 8.75% Senior Notes generated net proceeds of approximately $244.9 million, which APL utilized to repay indebtedness under its senior secured term loan and revolving credit facility.

In June 2008, APL obtained $80.0 million of increased commitments to its senior secured revolving credit facility, increasing its aggregate lender commitments to $380.0 million. In connection with this and the previously mentioned transactions, APL also amended its senior secured credit facility to, among other things, exclude from the calculation of Consolidated EBITDA the costs associated with its termination of hedging agreements to the extent such costs are financed with or paid out of the net proceeds of an equity offering. In addition, consistent with several other recent energy master limited partnership agreements, APL's general partner's managing board and conflicts committee approved an amendment to its limited partnership agreement which will allow the cash expenditure to terminate derivative contracts to not reduce APL's distributable cash flow.

Contractual Revenue Arrangements

APL's principal revenue is generated from the transportation and sale of natural gas and NGLs. Variables that affect its revenue are:

• the volumes of natural gas APL gathers, transports and processes which, in turn, depends upon the number of wells connected to its gathering systems, the amount of natural gas they produce, and the demand for natural gas and NGLs; and

• the transportation and processing fees APL receives which, in turn, depends upon the price of the natural gas and NGLs it transports and processes, which itself is a function of the relevant supply and demand in the mid-continent, mid-Atlantic and northeastern areas of the United States.

In APL's Appalachian region, substantially all of the natural gas it transports is for Atlas Energy under percentage-of-proceeds ("POP") contracts, as described below, in which APL earns a fee equal to a percentage, generally 16%, of the gross sales price for natural gas subject, in most cases, to a minimum of $0.35 to $0.40 per thousand cubic feet, or mcf, depending on the ownership of the well. Since APL's inception in January 2000, its Appalachian system transportation fee has exceeded this minimum generally. The balance of the Appalachian system natural gas APL transports is for third-party operators generally under fixed-fee contracts.

APL's Mid-Continent segment revenue consists of the fees earned from its transmission, gathering and processing operations. Under certain agreements, APL 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 of delivery points on its systems. Under other agreements, APL transports natural gas across its systems, from receipt to delivery point, without taking title to the natural gas. Revenue associated with APL's FERC-regulated transmission pipeline is comprised of firm transportation rates and, to the extent capacity is available following the reservation of firm system capacity, interruptible transportation rates and is recognized at the time transportation service is provided. Revenue associated with the physical sale of natural gas is recognized upon physical delivery of the natural gas. In connection with APL's gathering and processing operations, it enters into the following types of contractual relationships with its producers and shippers:

Fee-Based Contracts. These contracts provide for a set fee for gathering and processing raw natural gas. APL's revenue is a function of the volume of natural gas that it gathers and processes and is not directly dependent on the value of the natural gas.

POP Contracts. These contracts provide for APL to retain a negotiated percentage of the sale proceeds from residue natural gas and NGLs it gathers and processes, with the remainder being remitted to the producer. In this situation, APL and the producer are directly dependent on the volume of the commodity and its value; APL owns a percentage of that commodity and is directly subject to its market value.

Keep-Whole Contracts. These contracts require APL, as the processor, to purchase raw natural gas from the producer at current market rates. Therefore, APL bears the economic risk (the "processing margin risk") that the aggregate proceeds from the sale of the processed natural gas and NGLs could be less than the amount that it paid for the unprocessed natural gas. However, because the natural gas purchases contracted under keep-whole agreements are generally low in liquids content and 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 of margin risk. Therefore, the processing margin risk associated with a portion of APL's keep-whole contracts is minimized.

Recent Trends and Uncertainties

The midstream natural gas industry links the exploration and production of natural gas and the delivery of its components to end-use markets and provides natural gas gathering, compression, dehydration, treating, conditioning, processing, fractionation and transportation services. This industry group is generally characterized by regional competition based on the proximity of gathering systems and processing plants to natural gas producing wells.

APL faces competition for natural gas transportation and in obtaining natural gas supplies for its processing and related services operations. Competition for natural gas supplies is based primarily on the location of gas-gathering facilities and gas-processing plants, operating efficiency and reliability, and the ability to obtain a satisfactory price for products recovered. Competition for customers is based primarily on price, delivery capabilities, flexibility, and maintenance of high-quality customer relationships. Many of APL's competitors operate as master limited partnerships and enjoy a cost of capital comparable to and, in some cases lower than, APL. Other competitors, such as major oil and gas and pipeline companies, have capital resources and control supplies of natural gas substantially greater than APL. Smaller local distributors may enjoy a marketing advantage in their immediate service areas. We believe the primary difference between APL and some of its competitors is that APL provides an integrated and responsive package of midstream services, while some of its competitors provide only certain services. We believe that offering an integrated package of services, while remaining flexible in the types of contractual arrangements that APL offers producers, allows APL to compete more effectively for new natural gas supplies in its regions of operations.

As a result of APL's POP and keep-whole contracts, its results of operations and financial condition substantially depend upon the price of natural gas and NGLs. We believe that future natural gas prices will be influenced by supply deliverability, the severity of winter and summer weather and the level of United States economic growth. Based on historical trends, we generally expect NGL prices to follow changes in crude oil prices over the long term, which we believe will in large part be determined by the level of production from major crude oil exporting countries and the demand generated by growth in the world economy. The number of active oil and gas rigs has increased in recent years, mainly due to recent significant increases in natural gas prices, which could result in sustained increases in drilling activity during the current and future periods. However, energy market uncertainty could negatively impact North American drilling activity in the short term. Lower drilling levels over a sustained period would have a negative effect on natural gas volumes gathered and processed.

APL is 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. We closely monitor the risks associated with commodity price changes on APL's future operations and, where appropriate, use various commodity instruments such as natural gas, crude oil and NGL contracts to hedge a portion of the value of APL's assets and operations from such price risks. APL does not realize the full impact of commodity price changes because some of its sales volumes were previously hedged at prices different than actual market prices. A 10% change in the average price of NGLs, natural gas and condensate APL processes and sells, based on estimated unhedged market prices of $0.78, $6.77 and $65.00 for NGLs, natural gas and condensate, respectively, would result in a change to our gross margin, excluding the effect of minority interest in APL net income (loss), for the twelve-month period ending September 30, 2009 of approximately $18.4 million.

Currently, there is an unprecedented uncertainty in the financial markets. This uncertainty presents additional potential risks to us and APL. These risks include the availability and costs associated with our and APL's borrowing capabilities and APL's raising additional capital, and an increase in the volatility of our and APL's common units. While we and APL have no plans to access debt or equity in the capital markets, should we and APL decide to do so in the near future, the terms, size, and cost of new debt or equity could be less favorable than in previous transactions.

Results of Operations

The following table illustrates selected volumetric information related to APL's
reportable segments for the periods indicated:



                                                           Three Months Ended     Nine Months Ended
                                                             September 30,          September 30,
                                                            2008        2007       2008       2007
Operating data(1):
Appalachia:
Average throughput volume - mcfd                             91,829     71,876     84,007     66,888
Mid-Continent:
Velma system:
Gathered gas volume - mcfd                                   64,386     63,757     64,103     62,531
Processed gas volume - mcfd                                  60,902     61,968     60,972     60,555
Residue gas volume - mcfd                                    48,300     49,502     48,158     47,487
NGL volume - bpd                                              6,595      6,215      6,758      6,386
Condensate volume - bpd                                         308        254        286        222
Elk City/Sweetwater system:
Gathered gas volume - mcfd                                  279,145    299,450    292,307    298,724
Processed gas volume - mcfd                                 243,409    231,152    236,520    224,521
Residue gas volume - mcfd                                   219,945    211,368    213,668    206,011
NGL volume - bpd                                             11,486      9,782     10,874      9,351
Condensate volume - bpd                                         251        143        299        228
Chaney Dell system(2):
Gathered gas volume - mcfd                                  300,467    255,649    278,906    255,649
Processed gas volume - mcfd                                 234,529    249,982    246,365    249,982
Residue gas volume - mcfd                                   250,994    222,508    238,264    222,508
NGL volume - bpd                                             14,128     12,678     13,299     12,678
Condensate volume - bpd                                         759        564        774        564
Midkiff/Benedum system(2):
Gathered gas volume - mcfd                                  143,224    150,061    145,300    150,061
Processed gas volume - mcfd                                 136,656    144,280    138,178    144,280
Residue gas volume - mcfd                                    84,372     93,859     92,352     93,859
NGL volume - bpd                                             18,920     20,702     20,029     20,702
Condensate volume - bpd                                       1,573      1,754      1,288      1,754
NOARK system:
Average Ozark Gas Transmission throughput volume - mcfd     445,708    325,652    412,634    311,562

(1) "Mcf" represents thousand cubic feet; "Mcfd" represents thousand cubic feet per day; "Bpd" represents barrels per day.

(2) The Chaney Dell and Midkiff/Benedum systems were acquired on July 27, 2007.

Three Months Ended September 30, 2008 Compared to Three Months Ended September 30, 2007

Revenue. Natural gas and liquids revenue was $404.2 million for the three months ended September 30, 2008, an increase of $174.3 million from $229.9 million for the three months ended September 30, 2007. The increase was primarily attributable to higher revenue contribution from APL's Chaney Dell and Midkiff/Benedum systems, which APL acquired in late July 2007, of $115.9 million . . .