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			&lt;font style="display: inline;font-weight:bold;"&gt;NOTE 1 &amp;#x2013; ORGANIZATION AND OPERATIONS &lt;/font&gt;
		&lt;/p&gt;
		&lt;p style="margin:0pt;text-indent:18pt;line-height:normal;font-family:Times New Roman;font-size: 10pt"&gt;
			&lt;font style="display: inline;"&gt;&amp;nbsp;&lt;/font&gt;
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		&lt;p style="margin:0pt;text-indent:18pt;font-family:Times New Roman;font-size: 10pt"&gt;
			&lt;font style="display: inline;"&gt;QR Energy, LP (&amp;#x201C;we,&amp;#x201D; &amp;#x201C;us,&amp;#x201D; &amp;#x201C;our,&amp;#x201D; or the &amp;#x201C;Partnership&amp;#x201D;) is a Delaware limited partnership formed on September 20, 2010, to acquire oil and natural gas assets from our affiliated entity, QA Holdings, LP (the &amp;#x201C;Predecessor&amp;#x201D;) and other third party entities to enhance and exploit oil and gas properties. Certain of the Predecessor&amp;#x2019;s subsidiaries (collectively known as the &amp;#x201C;Fund&amp;#x201D;) include Quantum Resources A1, LP, Quantum Resources B, LP, Quantum Resources C, LP, QAB Carried WI, LP, QAC Carried WI, LP and Black Diamond Resources, LLC. &lt;/font&gt;
		&lt;/p&gt;
		&lt;p style="margin:0pt;text-indent:18pt;line-height:normal;font-family:Times New Roman;font-size: 10pt"&gt;
			&lt;font style="display: inline;"&gt;&amp;nbsp;&lt;/font&gt;
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		&lt;p style="margin:0pt;text-indent:18pt;font-family:Times New Roman;font-size: 10pt"&gt;
			&lt;font style="display: inline;"&gt;Our gen&lt;/font&gt;&lt;font style="display: inline;"&gt;eral partner is QRE GP, LLC (&lt;/font&gt;&lt;font style="display: inline;"&gt;&amp;#x201C;general partner&amp;#x201D; or &amp;#x201C;QRE GP&amp;#x201D;). We conduct our operations through our wholly owned subsidiary QRE Operating, LLC (&amp;#x201C;OLLC&amp;#x201D;). Our wholly owned subsidiary, QRE Finance Corporation (&amp;#x201C;QRE FC&amp;#x201D;), has no material assets and was formed for the sole purpose of serving as a co-issuer of our debt securities. Quantum Resources Management, LLC (&amp;#x201C;QRM&amp;#x201D;), a subsidiary of QA Holdings, LP, provides management and operational services for us and the Fund. In accordance with the services agreement (the &amp;#x201C;Services Agreement&amp;#x201D;) between us, QRE GP and QRM, beginning on January 1, 2013, QRM is entitled to the reimbursement of general and administrative charges from us based on the allocation of charges between the Fund and us. Prior to January 1, 2013, the Partnership was required to pay an administrative services fee equal to &lt;/font&gt;&lt;font style="display: inline;"&gt;3.5&lt;/font&gt;&lt;font style="display: inline;"&gt;% of Adjusted EBITDA, as defined in the Services Agreement. Refer to Note 2 &amp;#x2013; &lt;/font&gt;&lt;font style="display: inline;font-style:italic;"&gt;Significant Accounting Policies&lt;/font&gt;&lt;font style="display: inline;"&gt; for details on the allocation of general administrative expenses beginning on January 1, 2013.&lt;/font&gt;
		&lt;/p&gt;
		&lt;p style="margin:0pt;text-indent:18pt;font-family:Times New Roman;font-size: 10pt"&gt;
			&lt;font style="display: inline;"&gt;&amp;nbsp;&lt;/font&gt;
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		&lt;p style="margin:0pt;text-indent:18pt;font-family:Times New Roman;font-size: 10pt"&gt;
			&lt;font style="display: inline;"&gt;As of &lt;/font&gt;&lt;font style="display: inline;"&gt;June 30, 2013&lt;/font&gt;&lt;font style="display: inline;"&gt;, our ownership structure comprised a &lt;/font&gt;&lt;font style="display: inline;"&gt;0.1%&lt;/font&gt;&lt;font style="display: inline;"&gt;&amp;nbsp;&lt;/font&gt;&lt;font style="display: inline;"&gt;general partner interest&lt;/font&gt;&lt;font style="display: inline;"&gt;, a &lt;/font&gt;&lt;font style="display: inline;"&gt;7.5&lt;/font&gt;&lt;font style="display: inline;"&gt;% limited&lt;/font&gt;&lt;font style="display: inline;"&gt; partner interest in us represented by &lt;/font&gt;&lt;font style="display: inline;"&gt;6,133,558&lt;/font&gt;&lt;font style="display: inline;"&gt; Class B units held by QRE GP, a &lt;/font&gt;&lt;font style="display: inline;"&gt;29.3%&lt;/font&gt;&lt;font style="display: inline;"&gt; limited partner interest held by the Fund, comprised of common units and all of our preferred units, and a &lt;/font&gt;&lt;font style="display: inline;"&gt;63.1%&lt;/font&gt;&lt;font style="display: inline;"&gt; limited partner interest held by the public unitholders. On February 22, 2013, in accordance with our partnership agreement, our general partner elected to convert &lt;/font&gt;&lt;font style="display: inline;"&gt;80&lt;/font&gt;&lt;font style="display: inline;"&gt;% of their fourth quarter 2012 management incentive fee and, on March 4, 2013, received&amp;nbsp;&lt;/font&gt;&lt;font style="display: inline;"&gt;6,133,558&lt;/font&gt;&lt;font style="display: inline;"&gt; Class B units which were issued and outstanding upon conversion.&lt;/font&gt;
		&lt;/p&gt;
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			&lt;font style="display: inline;"&gt;&amp;nbsp;&lt;/font&gt;
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			&lt;font style="display: inline;"&gt;&amp;nbsp;&lt;/font&gt;
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		&lt;p&gt;&lt;font size="1"&gt; &lt;/font&gt;&lt;/p&gt;
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 -Publisher FASB

 -Name Accounting Standards Codification

 -Topic 275

 -SubTopic 10

 -Section 50

 -Paragraph 2

 -URI http://asc.fasb.org/extlink&amp;oid=6927468&amp;loc=d3e6003-108592



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