NOTE 13 – RELATED PARTY TRANSACTIONS

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

As of June 30, 2013, affiliates of the Fund owned 100% of QRE GP, and the Fund owned an aggregate 29.3% limited partner interest in us represented by all of our Class C preferred units and 7,145,866 common units. In addition, QRE GP owned a 0.1% general partner interest in us, represented by 51,036 general partner units, and a 7.5% limited partner interest in us, represented by 6,133,558 Class B 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

Beginning on January 1, 2013, QRM is entitled to the reimbursement of general and administrative expenses based on the allocation of charges to us based on the estimated use of such services between us and the Fund. The reimbursement includes direct expenses plus an allocation of compensation costs based on employee time expended and other indirect expenses based on multiple operating metrics. If our sponsor raises additional funds in the future, the quarterly allocated costs will be further divided to include the sponsor’s additional funds as well. These fees will be included in general and administrative expenses in our unaudited consolidated statement of operations. QRM will have discretion to determine in good faith the proper allocation of the charges pursuant to the Services Agreement. Management believes this allocation methodology is a reasonable method of allocating general and administrative expenses between us and the Fund and provides for a reasonably accurate depiction of what our general and administrative expenses would be on a stand-alone basis without affiliations with the Fund or QRM. For the three and six months ended June 30, 2013, we were charged $7.7 and $16.1 million in allocated general and administrative expenses from QRM.

Through December 31, 2012, QRM was entitled to the payment of 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 six months ended June 30, 2012, we were allocated $11.3 million and $21.6 million in general and administrative expenses, which included $1.9 million and $3.6 million of administrative services fees in accordance with 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 the six months ended June 30, 2013 are included below:



Net affiliate receivable as of December 31, 2012	$	-
Revenues and other increases		181,548
Expenditures		(122,752)
Settlements from the Fund		(60,010)
Net affiliate payable as of June 30, 2013	$	(1,214)

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 subject to an adjusted operating surplus threshold as defined in the partnership agreement. The fee is payable in cash and will equal 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;

·	Adjustments for our commodity derivative contracts;

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; and

·	Adjustments for conversions of the management incentive fee into Class B units.

For the six months ended June 30, 2013, the management incentive fee recognized was $0.7 million related to the fourth quarter 2012. No management incentive fee was earned related to the first quarter 2013 due to the adjusted operating surplus limitation.

On February 22, 2013, in accordance with our partnership agreement, our general partner elected to convert 80% of its 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. In exchange for the issuance of Class B units, management incentive fees payable in the future will, if earned, be reduced to the extent of this and any future conversions. As a result, our general partner received a reduced fourth quarter management incentive fee of $0.7 million and a distribution of $3.0 million on the Class B units related to the fourth quarter 2012.

Unless we experience a change in control, our general partner will not be permitted to convert the management incentive fee again until (i) the completion of the fourth full calendar quarter following the previous election and (ii) the gross management incentive fee base, as described in our partnership agreement, has increased to 115% of the gross management incentive fee base as of the immediately preceding conversion date.

Long–Term Incentive Plan

The Plan provides compensation for employees, officers, consultants and directors of QRE GP and its affiliates, including QRM, who perform services for us. As of June 30, 2013 and December 31, 2012, 1,220,842 and 668,323 restricted units were outstanding under the Plan. For additional discussion regarding the Plan see Note 12 – Unit-Based Compensation.

Distributions of Available Cash to QRE GP and Affiliates

We generally make cash distributions to our common and affiliated common unitholders pro rata, including QRE GP and its affiliates. Refer to Note 10 – Partners’ Capital for details on the distributions.

Our Relationship with Bank of America

Don Powell, one of our independent directors, served as an independent director of Bank of America (“BOA”) through May 2013 and did not seek re-election. BOA is a lender under our Credit Agreement.