NOTE 10 — PARTNERS’ CAPITAL

Units Outstanding

The table below details the outstanding units as of December 31, 2012, 2011 and 2010. As of December 31, 2012, the Fund owned all preferred units.


	Class C	General		Affiliated
	Preferred Units	Partner	Public Common	Common	Subordinated
Balance - December 22, 2010	-	-	-	-	-
Units issued to the Predecessor
in exchange for IPO Assets	-	-	-	11,297,737	7,145,866
Initial public offering	-	-	15,000,000	-	-
Units issued to the general partner	-	35,729	-	-	-
Balance - December 31, 2010	-	35,729	15,000,000	11,297,737	7,145,866
Underwriters' exercise of over-allotment	-	-	2,250,000	-	-
Vested units awarded under our Long Term Incentive
Performance Plan	-	-	52,798	-	-
Reduction in units to cover individuals'
tax withholdings	-	-	(10,519)	-	-
Preferred Units issued to Predecessor
in exchange for Transferred October 2011 Properties	16,666,667	-	-	-	-
Balance - December 31, 2011	16,666,667	35,729	17,292,279	11,297,737	7,145,866
Vested units awarded under our Long Term Incentive
Performance Plan	-	-	96,890	-	-
Reduction in units to cover individuals'
tax withholdings	-	-	(14,891)	-	-
Issuance of units to the General Partner	-	15,307	-	-	-
Affiliated unit sale to the public	-	-	11,297,737	(11,297,737)	-
Conversion of Subordinated Units	-	-	-	7,145,866	(7,145,866)
Unit offerings	-	-	22,627,263	-	-
Balance - December 31, 2012	16,666,667	51,036	51,299,278	7,145,866	-

On December 22, 2012, in connection with the expiration of the subordination period, the subordinated units held by the Fund were converted into affiliated common units and continued to be held by the Fund. The converted units will participate pro rata with the other common units in distributions of available cash.

On December 12, 2012, we issued 12,000,000 common units representing limited partnership interests in us to the public pursuant to a registration statement filed with the SEC (the “December 2012 Equity Offering”). In connection with the December 2012 Equity Offering, the Partnership granted the underwriters an option for 30 days to purchase up to an additional 1,800,000 common units from the Partnership, which they exercised in full. The common units, including the units issued pursuant to the underwriters’ full exercise of their option, were issued by us at a public offering price of $16.24 per unit. Proceeds from the December 2012 Equity Offering, net of transaction costs of $0.2 million and underwriter’s discount of $9.0 million, were approximately $214.9 million.

In connection with the December 2012 Equity Offering, QRE GP purchased 9,289 general partner units in order to maintain its 0.1% ownership percentage in us. The units were purchased at a price of $16.91 per unit for $0.2 million.

On June 1, 2012, we filed a registration statement on Form S-3 with the SEC to register, among other securities, our debt securities, which may be co-issued by QRE FC. The registration statement also registered guarantees of debt securities by OLLC. Refer to Note 18 – Subsidiary Guarantors for details.

On April 17, 2012, we issued 6,202,263 common units representing limited partnership interests in us, and the Fund sold 11,297,737 of its common units it held in us to the public pursuant to a registration statement filed on Form S-1 with the SEC (the “April 2012 Equity Offering”). In connection with the April 2012 Equity Offering, the Partnership granted the underwriters an option for 30 days to purchase up to an additional 2,625,000 common units from the Partnership, which they exercised in full. The common units, including the units issued pursuant to the underwriters’ full exercise of their option, were issued by us or sold by the Fund at $19.18 per unit. Proceeds from the April 2012 Equity Offering, net of transaction costs of $0.5 million and underwriter’s discount of $6.8 million, were approximately $162 million.

On April 25, 2012, QRE GP purchased 6,018 general partner units in order to maintain its 0.1% ownership percentage in us. The units were purchased at a price of $19.18 per unit for $0.1 million.

On October 3, 2011, we issued 16,666,667 of Preferred Units to the Fund in connection with the October 2011 Transaction. See Class C Preferred Units below for further details.

On January 3, 2011, the underwriters exercised their over-allotment option in full for 2,250,000 common units issued by the Partnership at $20.00 per unit.

On December 22, 2010, we completed our IPO of 15,000,000 common units representing limited partner interests in us. In connection with the IPO, we issued 11,297,737 common units and 7,145,866 subordinated units in exchange for oil and gas assets.

Common Units

The common units have limited voting rights as set forth in our partnership agreement.

Pursuant to our partnership agreement, if at any time QRE GP and its affiliates own more than 80% of the outstanding common units, QRE GP has the right, but not the obligation, to purchase all of the remaining common units at a purchase price not less than the then-current market price of the common units, as calculated pursuant to the terms of our partnership agreement. QRE GP may assign this call right to any of its affiliates or to us.

Class B Units

Upon the expiration of the subordinated period on December 22, 2012, and subject to the limitations described below, our general partner has the continuing right, at any time when it has received all or any portion of the management incentive fee for three full consecutive quarters and shall be entitled to receive all or a portion of the management incentive fee for a fourth consecutive quarter, to convert into Class B units up to 80%, such percentage actually converted being referred to as the Applicable Conversion Percentage, of the management incentive fee for the fourth quarter in lieu of receiving a cash payment for such portion of the management incentive fee. Any conversion election made during a quarter must be made before payment of the management incentive fee in respect of the previous quarter and will be effective as of the first day of such quarter, and the Class B units issued upon such conversion will be entitled to distributions as if they were outstanding on the first day of such quarter.

On February 22, 2013, our general partner elected to convert the full 80% of the fourth quarter 2012 management incentive fee and, on March 4, 2013, received 6,133,558 Class B units which were issued and outstanding upon conversion. Our general partner will receive a reduced fourth quarter management incentive fee of $0.7 million and is eligible for a distribution on the Class B units related to the fourth quarter 2012. The Class B units are immediately convertible into common units at the election of our general partner.

Class C Preferred Units

On October 3, 2011 (the “Issue Date”), we amended our First Amended and Restated Agreement of Limited Partnership to designate and create the Preferred Units and set forth rights, preferences and privileges of such units including distribution rights held by the Preferred Units and us. For the period beginning on the Issue Date and ending on the December 31, 2014, we will distribute $0.21 per unit on a quarterly basis. Beginning on January 1, 2015, distributions on Preferred Units will be the greater of $0.475 per unit or the distribution payable on Common Units with respect to such quarter. The Preferred Units are only redeemable for cash in a complete liquidation. The Preferred Units are convertible into common units under specific circumstances at the option of either the holder or the Partnership. The Preferred Units have the same voting rights as common units. As of December 31, 2012 we have accrued a fourth quarter distributions payable of $3.5 million to Preferred Unit holders which were paid on February 15, 2013.

Holders may convert the Preferred Units to common units on a one-to-one basis prior to October 3, 2013, or if for 30 consecutive trading days during which the volume-weighted average price for our common units equals or exceeds $27.30 per common unit. In addition, holders may convert the Preferred Units to common units on a one-to-one basis anytime on or after October 3, 2014.

If the holders have not converted the Preferred Units to common units by October 3, 2014, we may force conversion on a one-to-one basis, provided that conversion is in the 30 calendar days following 30 consecutive trading days during which the volume-weighted average price for common units equals or exceeds (1) $30.03, provided that (a) an effective shelf registration statement covering resales for the converted units is in place or (2) $27.30, provided that (a) above is satisfied and (b) there exists an arrangement for one or more investment banks to underwrite the converted unit sale following conversion (with proceeds equal to not less than $27.30 less (i) a standard underwriting discount and (ii) a customary discount not to exceed 5% of $27.30).

We may force conversion on a one-to-one basis after October 3, 2016, provided the conversion is in the 30 calendar days following 30 consecutive trading days during which the volume-weighted average price for common units equals or exceeds $27.30 and an effective shelf registration statement covering resales for the converted units is in place.

Registration Rights Agreement

In connection with the acquisition of the October 2011 Transferred Properties, on October 3, 2011, we entered into a Registration Rights Agreement with the Fund (the “Registration Rights Agreement”), which granted certain registration rights to the Fund, including rights to (a) cause the Partnership to file with the SEC up to five shelf registration statements under the Securities Act for the resales of the common units to be issued upon conversion of the Preferred Units, and in certain circumstances, the resales of the Preferred Units, and (b) participate in future underwritten public offerings of the our common units.

The Fund may exercise its right to request that a shelf registration statement be filed any time after June 1, 2012. In addition, we agreed to use commercially reasonable efforts (a) to prepare and file a shelf registration statement within 60 days of receiving a request from the Fund and (b) to cause the shelf registration statement to be declared effective by the SEC no later than 180 days after its filing. The Registration Rights Agreement contains customary representations, warranties and covenants, and customary provisions regarding rights of indemnification between the parties with respect to certain applicable securities law liabilities.

These registration rights are subject to certain conditions and limitations, including the right of the underwriters to limit the number of shares to be included in a registration and our right to delay or withdraw a registration statement under certain circumstances. We will generally pay all registration expenses in connection with our obligations under the Registration Rights Agreement, regardless of whether a registration statement is filed or becomes effective. As of March 6, 2013, the Fund has not requested a shelf registration be filed for the Preferred Units.

Subordinated Units

The principal difference between our common and subordinated units is that, in any quarter during the subordination period, the subordinated units are entitled to receive the minimum quarterly distribution of $0.4125 per unit ($1.65 per unit on an annualized basis) only after the common units have received their minimum quarterly distribution plus any arrearages in the payment of the minimum quarterly distribution from prior quarters. Accordingly, holders of subordinated units may receive a smaller distribution than holders of common units or no distribution at all. Subordinated units will not accrue arrearages.

During Subordination Period. Our partnership agreement, as amended, requires that we make distributions of available cash from operating surplus for any quarter in the following manner during the subordination period:

·	first, to QRE GP and common unitholders in accordance with their percentage interest until there has been distributed in respect of each common unit then outstanding an amount equal to the minimum quarterly distribution of $0.4125 per unit per whole quarter (or $1.65 per year);

·	second, to QRE GP and common unitholders in accordance with their percentage interest until there has been distributed in respect of each common unit then outstanding an amount equal to the cumulative common unit arrearage existing with respect to such quarter;

third, to QRE GP in accordance with its percentage interest and to the unitholders holding subordinated units, pro rata, a percentage equal to 100% less QRE GP’s percentage interest, until there has been distributed in respect of each subordinated unit then outstanding an amount equal to the minimum quarterly distribution for such quarter; and

·	thereafter, to QRE GP and all unitholders (other than preferred unitholders), pro rata;

After Subordination Period. Effective December 22, 2012 the subordinated period ended. As a result, each outstanding subordinated unit converted into one common unit and will participate pro rata with the other common units in distributions of available cash.

QRE GP Interest

QRE GP owns a 0.1% interest in us. This interest entitles QRE GP to receive distributions of available cash from operating surplus as discussed further below under Cash Distributions. Our partnership agreement sets forth the calculation to be used to determine the amount and priority of cash distributions that the common unitholders, subordinated unitholders and QRE GP will receive.

QRE GP has sole responsibility for conducting our business and managing our operations. QRE GP’s board of directors and executive officers will make decisions on our behalf.

Allocations of Net Income

Net income (loss) is allocated to the preferred unitholders and Class B to the extent distributions are made to them during the period with the remaining income being allocated between QRE GP, and the common and subordinated unitholders in proportion to their pro rata ownership during the period.

Cash Distributions

We intend to continue to make regular cash distributions to unitholders on a quarterly basis, although there is no assurance as to the future cash distributions since they are dependent upon future earnings, cash flows, capital requirements, financial condition and other factors. Our credit facility prohibits us from making cash distributions if any potential default or event of default, as defined in our credit facility, occurs or would result from the cash distribution.

Our partnership agreement requires us to distribute all of our available cash on a quarterly basis. Our available cash is our cash on hand at the end of a quarter after the payment of our expenses and the establishment of reserves for future capital expenditures and operational needs, including cash from working capital borrowings. We intend to fund a portion of our capital expenditures with additional borrowings or issuances of additional units. We may also borrow to make distributions to unitholders, for example, in circumstances where we believe that the distribution level is sustainable over the long term, but short-term factors have caused available cash from operations to be insufficient to pay the distribution at the current level. Our cash distribution policy reflects a basic judgment that our unitholders will be better served by us distributing our available cash, after expenses and reserves, rather than retaining it.

As of December 31, 2012, QRE GP owns a 0.1% general partner interest in us, represented by 51,036 general partner units. QRE GP has the right, but not the obligation, to contribute a proportionate amount of capital to us to maintain its current general partner interest. QRE GP’s initial 0.1% interest in distributions will be reduced if we issue additional units in the future and QRE GP does not contribute a proportionate share of capital to us to maintain its 0.1% general partnership interest.

Our partnership agreement, as amended, requires that within 45 days after the end of each quarter, we distribute all of our available cash to preferred unitholders, in arrears, and common unitholders of record on the applicable record date, as determined by QRE GP.

Available cash, for any quarter prior to liquidation, consists of all cash on hand at the end of the quarter:

·	less the amount of cash reserves established by QRE GP to:

(i.)	provide for the proper conduct of our business;

(ii.)

comply with applicable law or any loan agreement, security agreement, mortgage, debt instrument or other agreement or obligation, and

(iii.)

provide funds for distribution to our unitholders and to QRE GP for any one or more of the next four quarters.

·	less, the aggregate Preferred Unit distribution accrued and payable for the quarter

·	plus, if QRE GP so determines, all or a portion of cash on hand on the date of determination of available cash for the quarter.

The following table shows the amount of cash distributions we have paid to date:


									Limited Partners
											Affiliated
Payment Date	For the period ended		Distributions to Preferred Unitholders		Distributions per Preferred Unit⁽¹⁾		General Partner		Public Common		Common		Subordinated		Total Distributions to Other Unitholders		Distributions per other units
(In thousands, except per unit amounts)
February 11, 2011	December 31, 2010	$	-	$		$	2	$	779	$	506	$	320	$	1,607	$	0.0448
May 13, 2011	March 31, 2011		-				15		7,186		4,660		2,948		14,809		0.4125
August 12, 2011	June 30, 2011		-				15		7,184		4,660		2,948		14,807		0.4125
November 11, 2011	September 30, 2011		-				15		7,180		4,660		2,948		14,803		0.4125
February 10, 2012	December 31, 2011		3,424		0.21		16		8,344		5,368		3,393		17,121		0.4750
May 11, 2012	March 31, 2012		3,500		0.21		20		17,892		-		3,394		21,306		0.4750
August 10, 2012	June 30, 2012		3,500		0.21		20		18,584		-		3,484		22,088		0.4875
November 9, 2012	September 30, 2012		3,500		0.21		20		18,529		-		3,484		22,033		0.4875
February 15, 2013	December 31, 2012		3,500		0.21		25		25,275		3,484		-		28,784		0.4875

⁽¹⁾	Preferred Units were prorated a quarterly distribution for the portion of the fourth quarter beginning on October 3, 2011 through December 31, 2011 in accordance with the Partnership Agreement.