RELATED PARTY TRANSACTIONS

9 Months Ended

Sep. 30, 2011

RELATED PARTY TRANSACTIONS [Abstract]

RELATED PARTY TRANSACTIONS

NOTE 13 – RELATED PARTY TRANSACTIONS

In connection with the closing of the IPO, we entered into agreements with QRE GP and its affiliates. The following is a description of those agreements.

Services Agreement

On December 22, 2010, in connection with the closing of the IPO, we entered into a service agreement (the “Services Agreement”) with QRM, QRE GP and OLLC, pursuant to which QRM agreed to provide the administrative and acquisition advisory services necessary to allow QRE GP to manage, operate and grow our business.  Under the Services Agreement, from the closing of the IPO through December 31, 2012, QRM is entitled to a quarterly administrative services fee equal to 3.5% of the Adjusted EBITDA generated by us during the preceding quarter, calculated prior to the payment of the fee. After December 31, 2012, in lieu of the quarterly administrative services fee, QRE GP will reimburse QRM, on a quarterly basis, for the allocable expenses QRM incurs in its performance under the Services Agreement, and we will reimburse QRE GP for such payments it makes to QRM.

For the nine months ended September 30, 2011 the Fund charged us $0.8 million in administrative service fees in accordance with the Services Agreement. For the three months ended September 30, 2011, we recognized $0.7 million in administrative service fees primarily as a result of an increase in adjusted EBITDA due to the realized gain on oil and gas derivatives during the quarter.  The administrative service fee is recorded in general and administrative and other in the consolidated statement of operations. The settlement of the administrative service fee for each quarter is made in the subsequent quarter.

In connection with the management of our business, QRM provides services for invoicing and collection of our revenues as well as processing of payments to our vendors. Periodically QRM remits cash to us for the net working capital received on our behalf. Changes in the affiliate (payable)/receivable balances during the nine months ended September 30, 2011 are included below:

Balance at December 31, 2010	$	(442	)
Revenues and other increases (1)		83,841
Expenditures and other		(42,718	)
Settlements from the Fund		(34,202	)
Balance at September 30, 2011	$	6,479

(1) Includes $0.7 millionin overhead producing credits and $1.3 million of proceeds from the sale of oil and gas leases received by the Fund on our behalf.

Other Contributions to Partners' Capital

Other contributions to partners' capital for the nine months ended September 30, 2011 include the following items:

Noncash general and administrative expense contributed by the Fund (1)	$	9,544
Fair value of interest rate derivatives novated to us from the Fund (2)		2,600
Prepaid insurance incurred by the Fund on our behalf (3)		224
Total other contributions from the Fund	$	12,368

(1) Represents our share of allocable general and administrative expenses incurred by QRM on our behalf, but not reimbursable by us.

(2) On February 28, 2011, the Fund novated to us fixed-for-floating interest rate swaps covering $225.0 million of borrowings under our revolving credit facility. The Fund also novated to us on July 1, 2011 natural gas basis swaps with contract dates until 2015. The fair value of these derivative instruments was a net asset position.

(3) QRM also incurred repaid insurance on our behalf, but not reimbursable by us.

Other Related Party Activity

On September 30, 2011, the Predecessor novated to us fixed-for-floating interest rate swaps covering and additional $120.0 million in weighted-average borrowings under our credit facility from October 1, 2011 to December 31, 2015. The fair value of these derivative instruments was an $8.5 million liability position. As a result of this novation, we recorded an $8.5 million adjustment to other assets as these novated interest rates derivatives are part of the purchase of oil and gas properties on October 3, 2011 (see Note 15). The other asset is a deferred reduction to the net asset contribution effective October 1, 2011 and will be recorded as part of the closing to partners' capital.

Omnibus Agreement

We entered into an omnibus agreement (the “Omnibus Agreement”) by and among QRE GP, OLLC, the Fund and QA Global GP, LLC. The Omnibus Agreement provides for, among other items, the following:

· The Fund agreed to provide us, for a period of five years from the Closing Date, with the first opportunity to purchase certain oil and natural gas assets it may offer for sale that consist of at least 70% proved developed producing reserves.

· The Fund agreed to provide us, for a period of five years from the Closing Date, the first option to participate in certain of its acquisition opportunities so long as 70% of the allocated value of the acquisition is attributable to proved developed producing reserves.

· Should QA Global or any of its affiliates close any new investment fund within two years from the Closing Date, the Omnibus Agreement shall be amended to include such new investment fund as a party to the terms in the first two points above.

Management Incentive Fee

Under our partnership agreement, for each quarter for which we have paid distributions that equaled or exceeded 115% of our minimum quarterly distribution (which amount we refer to as our “TargetDistribution”), or $0.4744 per unit, QRE GP is entitled to a quarterly management incentive fee, payable in cash, equal to 0.25% of our management incentive fee base, which will be an amount equal to the sum of:

· the future net revenue of our estimated proved oil and natural gas reserves, discounted to present value at 10% per annum and calculated based on SEC methodology,

· the value of our commodity derivative contracts valued at SEC strip prices and discounted at 10% per annum, and

· the fair market value of our assets, other than our estimated oil and natural gas reserves and our commodity derivative contracts, that principally produce qualifying income for federal income tax purposes, at such value as may be determined by the board of directors of QRE GP and approved by the conflicts committee of QRE GP's board of directors.

For the three and nine months ended September 30, 2011, no management incentive fees were earned by or paid to QRE GP.

Long–Term Incentive Plan

On December 22, 2010, in connection with the closing of the IPO, the Board of Directors of QRE GP adopted the Plan to compensate employees, officers, consultants and directors and consultants of QRE GP and those of its affiliates, including QRM, who perform services for us. As of September 30, 2011, 140,170 restricted unit awards with a grant date fair value totaling $2.8 million were outstanding under the Plan. For additional discussion regarding the Plan see Note 12.

Distributions of available cash to QRE GP and affiliates

We will generally make cash distributions to our unitholders and QRE GP pro rata, including QRE GP and our affiliates. As of September 30, 2011, QRE GP and its affiliates held 11,297,737 common units, all of the subordinated units and 35,729 general partner units. We distributed less than $0.1 million to QRE GP during the nine months ended September 30, 2011.

Our Relationship with Bank of America

Don Powell, one of our independent directors, is also a director of Bank of America Corporation (“BOA”). An affiliate of BOA is a lender under our credit facility.