Related Party Transactions

9 Months Ended

Sep. 30, 2012

Related Party Transactions [Abstract]

Related Party Transactions

Note 14 – RELATED PARTY TRANSACTIONS

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

As of September 30, 2012, affiliates of the Fund owned 100% of QRE GP, an aggregate38.8% limited partner interest in us represented by all of our preferred and subordinated units. In addition, QRE GP owned a 0.1% general partner interest in us, represented by 41,747 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 the activity of those agreements.

Services Agreement

Under the Services Agreement, until December 31, 2012, QRM will be entitled to a quarterly administrative services fee equal to 3.5% of the Adjusted EBITDA, as defined under the Services Agreement, generated by us during the preceding quarter, calculated prior to the payment of the fee. For the three and nine months ended September 30, 2012 we were charged $1.8 million and $5.4 million and for the three and nine months ended September 30, 2011, we were charged$0.7 million and  $0.8 million in administrative services fees in accordance with the Services Agreement.We will reimburse QRE GP for such payments it makes to QRM.

Beginning on January 1, 2013, QRM will be entitled to a quarterly administrative services fee based on the allocation of charges between the Fund and us based on the estimated use of such services by each party. The fee will include direct expenses plus an allocation of compensation costs based on employee time expended and other indirect expenses based on multiple operating metrics. If the Fund raises a second fund, the quarterly administrative services costs will be further divided to include the second fund as well. The allocation methodology was developed with the assistance of a third-party consultant with extensive experience in this area. These fees will be included in general and administrative expenses in our consolidated statement of operations. QRM will have discretion to determine in good faith the proper allocation of the charges pursuant to the Services Agreement.

 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 receivable balances during nine months endedSeptember 30, 2012 from the year ended December 31, 2011 are included below:

Net affiliate receivable as of December 31, 2011		3,734
Revenues and other increases		187,036
Expenditures		(155,351)
Settlements from the Fund		(26,100)
Net affiliate receivable as of September 30, 2012	$	9,319

Other Contributions to Partners’ Capital

Other contributions to partners’ capital for the ninemonths ended September 30, 2012 include non-cash general and administrative expense of $22.2 million contributed by the Fund, which represents our share of allocable general and administrative expenses incurred by QRM on our behalf but not reimbursable by us.

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 nine months ended September 30, 2012, the management incentive fee earned by QRE GP was $6.1 million.  For the nine months ended September 30, 2011, no management incentive fee was earned by or paid to our general partner.

Lease Guarantees

The Fund has entered into various lease contracts that can routinely extend beyond five years which list the Partnership as a guarantor. 

Long–Term Incentive Plan

The Plan provides compensation to employees, officers, consultants and directors of QRE GP and those of its affiliates, including QRM, who perform services for us. As of September 30, 2012 and December 31, 2011,  766,700 and 271,364restricted units with a grant date fair value of $14.4 million and $5.5 million were outstanding under the Plan. For additional discussion regarding the Plan see Note 13 – Unit-Based Compensation.

Distributions of Available Cash to QRE GP and Affiliates

We generally make cash distributions to our common and subordinated unitholders pro rata, including QRE GP and its affiliates. The Partnership paid a cash distribution on May 11, 2012 and August 31, 2012 for the quarters ended March 31, 2012 and June 30, 2012 and declared a third quarter 2012 distribution payable on November9, 2012.  Refer to Note 10 – Partners’ Capital for details on the distributions.

Our Relationship with Bank of America

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