NOTE 14 - RELATED PARTY TRANSACTIONS

Ownership in QRE GP by the Management of the Fund and its Affiliates

As of December 31, 2011, affiliates of the Fund owned 100% of QRE GP, an aggregate 67% limited partner interest in us represented by 11,297,737 of our common units and all of our preferred and subordinated units. In addition, QRE GP owned a 0.1% general partner interest in us, represented by 35,729 general partner units.

As of December 31, 2010, affiliates of the Fund owned 100% of QRE GP, an aggregate 55.1% limited partner interest in us represented by 11,297,737 of our common units and all of our subordinated units. In addition, QRE GP owned a 0.1% general partner interest in us, represented by 35,729 general partner units.

Contracts with QRE GP and Its Affiliates

We have entered into agreements with QRE GP and its affiliates. The following is a description of those agreements.

Contribution Agreement

On December 22, 2010, in connection with the closing of the IPO, the following transactions, among others, occurred pursuant to the Contribution Agreement by and among the Partnership, QRE GP, OLLC and the Fund:

QRE GP agreed to contribute $0.7 million to the Partnership to maintain its 0.1% general partner interest in the Partnership, represented by 35,729 general partner units; and

The Fund contributed net assets of $223.7 million to the Partnership in exchange for 11,297,737 common and 7,145,866 subordinated limited partner units and a $300 million cash distribution. See Note 1.

QRE GP's capital contribution remained as a receivable on the Partnership's books as of December 31, 2010 and was received by the Partnership in January 2011.

Services Agreement

On December 22, 2010, in connection with the closing of the IPO, we entered into the Services Agreement with QRM, QRE GP and OLLC, pursuant to which QRM will provide the administrative and acquisition advisory services necessary to allow QRE GP to manage, operate and grow our business. We do not have any employees. The Services Agreement requires that employees of QRM (including the persons who are executive officers of QRE GP devote such portion of their time as may be reasonable and necessary for the operation of our business. The executive officers of QRE GP currently devote a majority of their time our business, and we expect them to continue to do so for the foreseeable future.

Under the Services Agreement, from the closing of the IPO through December 31, 2012, QRM will be 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.

The term of the Services Agreement comprises an initial term from December 22, 2010 to December 31, 2010 and continues on a year-to-year basis thereafter unless terminated after the initial term by us or QRM. After the term of the Services Agreement ends, 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. These expenses include salary, bonus, incentive compensation and other amounts paid to persons who perform services for us or on our behalf and expenses allocated by QRM to its affiliates.

For the year ended December 31, 2011 and for the period from December 22, 2010 to December 31, 2010, the Fund charged us $2.5 million and $0.1 million in administrative services fee in accordance with the Services Agreement, and we will reimburse QRE GP for such payments it makes to QRM.

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 year ended December 31, 2011 and the period from December 22, 2010 to December 31, 2010 are included below:

Beginning balance as of December 22, 2010	$	-
Ad valorem taxes paid by the Fund on our behalf		(22	)
Interest paid by the Fund on our behalf		(263	)
Debt issue costs paid by the Fund on our behalf		(102	)
Intercompany financing from the Fund		(387	)
Administrative services fee due to the Fund		(55	)
Net affiliate payable as of December 31, 2010		(442	)
Revenues and other increases (1) (2)		130,946
Expenditures		(70,367	)
Settlements from the Fund		(56,403	)
Net affiliate receivable as of December 31, 2011	$	3,734

(1)

Includes $1.6 million in overhead producing credits and $1.3 million of proceeds from the sale of oil and gas leases received by the Fund on our behalf.

(2)

Includes $2.7 million in purchase price adjustments receivable from the Fund related to natural gas imbalances included with the Transferred Properties on October 3, 2011.

Other Contributions to Partners' Capital

Other contributions to partners' capital for the year ended December 31, 2011 include the following items:

			December 22 to
	2011		December 31, 2010
Noncash general and administrative expense contributed by the Fund(1)	$	17,364	$	184
Noncash general and administrative expense contributed by the Predecessor(2)		11,708		482
Fair value of interest rate derivatives novated to us from the Fund(3)		2,600		-
Prepaid insurance incurred by the Fund on our behalf(4)		224		-
Total other contributions from affiliates	$	31,896	$	666

(1)

Represents our share of allocable general and administrative expenses incurred by QRM on our behalf, but not reimbursable by us for the IPO Assets during 2011 and for the Transferred Properties effective October 1, 2011 through December 31, 2011.

(2)

Represents our share of allocable general and administrative expenses incurred by QRM on our behalf, but not reimbursable by us for the Transferred Properties from January 1 to December 31, 2011.

(3)

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.

(4)

QRM also incurred prepaid insurance on our behalf, but not reimbursable by us.

Cash Contributions from the Predecessor

The following table presents cash received and payments made by the Predecessor on our behalf as well as allocated cost from the Predecesser's aquisition of the Melrose Properties related to the Transferred Properties for the following periods prior to our acquisition of the net assets on October 3, 2011:

				December 22
	Year ended			to
	2011			December 31, 2010
Cash receipts	$	(103,862	)	$	(3,670	)
Borrowings under Predecessor's credit facility		-			(23,000	)
Production expdenditures paid		36,719			1,416
Derivative buyup payment		42,653			-
Interest paid		5,598			207
Acquisition of Melrose Properties		-			77,763
Capital expenditures paid		27,878			318
Cash contributions from the Predecessor	$	8,986		$	53,034

Omnibus Agreement

On December 22, 2010, in connection with the closing of our IPO, we entered into an Omnibus Agreement (the “Omnibus Agreement”) by and among us, QRE GP, OLLC, the Fund, the Predecessor and QA Global.

Under the terms of the Omnibus Agreement, the Fund will offer us the first option to purchase properties that it may offer for sale, so long as the properties consist of at least 70% proved developed producing reserves. The 70% threshold is a value-weighted determination made by the Fund. Additionally, the Fund will allow us to participate in acquisition opportunities to the extent that it invests any of the remaining approximately $193.2 million of its unfunded committed equity capital. Specifically, the Fund will offer us the first opportunity to participate in at least 25% of each acquisition opportunity available to it, so long as at least 70% of the allocated value is attributable to proved developed producing reserves. In addition to opportunities to purchase proved reserves from, and to participate in future acquisition opportunities with, the Fund, if QA Global or its affiliate establishes another fund to acquire oil and natural gas properties within two years of the closing of the IPO, QA Global will cause such fund to provide us with a similar right to participate in such fund's acquisition opportunities. These contractual obligations will remain in effect until December 21, 2015.

The Omnibus Agreement provides that the Fund will indemnify us against: (i) title defects, subject to a $75,000 per claim de minimus exception, for amounts in excess of a $4.0 million threshold, and (ii) income taxes attributable to pre-closing operations as of the Closing Date of our IPO. The Fund indemnification obligation will (i) survive for one year after the closing of our IPO with respect to title, and (ii) terminate upon the expiration of the applicable statute of limitations with respect to income taxes. We will indemnify the Fund against certain potential environmental claims, losses and expenses associated with the operation of our business that arise after the consummation of our IPO.

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 “Target Distribution”), or $0.4744 per unit, QRE GP will be 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,

· adjusted for our commodity derivative contracts; 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 year ended December 31, 2011 the management incentive fee earned by our QRE GP was $1.6 million. For the period from December 22, 2010 to December 31, 2010, no management incentive fees were earned by or paid to our QRE GP.

Purchase and Sale Agreement

On October 3, 2011 (effective October 1, 2011) we completed an acquisition of certain oil and gas properties located in the Permian Basin, Ark-La-Tex and Mid-Continent areas from the Fund for an aggregate purchase price of $578.8 million, pursuant to a Purchase and Sale Agreement (the “Purchase Agreement”) dated September 12, 2011. In exchange for the assets, we assumed $227.0 million in debt from the Fund which was repaid at closing and issued to the Fund 16,666,667 unregistered Preferred Units. See Note 1 for further discussion.

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 of QRE GP and those of its affiliates, including QRM, who perform services for us. As of December 31, 2011 and 2010, 271,364 and 148,150 restricted unit awards with a fair value of $4.8 million and $2.8 million were granted under the Plan. For additional discussion regarding the Plan see Note 11.

Distributions of available cash to our QRE GP and affiliates

We will generally make cash distributions to our unitholders and QRE GP pro rata, including our QRE GP and our affiliates. As of December 31, 2011 and 2010, QRE GP and its affiliates held 11,297,737 common units, all of the subordinated units and 35,729 QRE GP units. We distributed less than $0.1 million to QRE GP during the year ended December 31, 2011. No cash distributions were made from December 22, 2010 through December 31, 2010. The Partnership made a cash distribution on February 10, 2012 as discussed in Note 9.

Our relationship with Bank of America

Don Powell, one of our independent directors, is also a director of Bank of America (“BOA”). BOA is a lender under our Credit Agreement.