NOTE 3 – ACQUISITIONS

2013 Acquisitions

On August 6, 2013, we closed the acquisition of primarily oil properties located in East Texas (the “2013 East Texas Acquisition”) from a private seller for $107.3 million cash, subject to customary purchase price adjustments using funds drawn on our revolving credit facility. The acquired properties (the “2013 East Texas Properties”) had estimated proved reserves of 5.9 MMBoe as of the date of the acquisition utilizing SEC case pricing. The acquisition had an effective date of June 1, 2013. The costs associated with the 2013 East Texas Acquisition of $0.4 million are recorded in “Acquisition and transaction costs” on our consolidated statements of operations for the three and nine months ended September 30, 2013. In connection with the 2013 East Texas Acquisition, we assumed an estimated environmental liability of $0.5 million. Refer to Note 11 – Commitments and Contingencies for further details. Since the closing date, revenues of $4.8 million and operating expenses of $1.8 million related to the operation of the 2013 East Texas Properties are included in our consolidated statements of operations for the three and nine months ended September 30, 2013.

With the 2013 East Texas Acquisition, we acquired a 32% interest in ETSWDC which combined with our previously acquired interest resulted in a controlling interest of 56%. As of the closing date of the acquisition, we have consolidated ETSWDC into our consolidated financial statements. In addition, our previous ownership in ETSWDC was remeasured to fair value on the acquisition date resulting in a gain of $1.3 million recognized in “Other income (expense)” in our consolidated statements of operations.

The 2013 East Texas Acquisition qualified as a business combination and was accounted for under the purchase method of accounting. The fair value measurements of the oil and gas properties, the investment in ETSWDC, and asset retirement obligations were measured using valuation techniques and unobservable inputs that convert future cash flows to a single discounted amount.

The following table summarizes the estimated preliminary fair values of the assets acquired and liabilities assumed as of the closing date:



Oil and gas properties	$	103,821
Other assets		825
Investment in ETSWDC		9,576
Asset retirement obligation		(6,069)
Other current liabilities		(852)
Net assets acquired	$	107,301

The following table summarizes the estimated preliminary fair values of the ETSWDC assets and liabilities along with the fair value of the noncontrolling interest to derive our investment in ETSWDC acquired in the 2013 East Texas Acquisition.




Assets acquired and liabilities assumed:
Current assets ⁽¹⁾	$	7,858
Property, plant and equipment, net		13,103
Other long term assets		16,215
Total assets		37,176
Liabilities:
Current liabilities		(1,761)
Asset retirement obligation		(4,607)
Pension and postretirement benefits		(12,039)
Total liabilities		(18,407)
Fair value of saltwater disposal company		18,769
Less: Remeasurement of previously held interest		(3,237)
Less: Fair value of noncontrolling interest in ETSWDC		(5,956)
Fair value of ETSWDC acquired by QR Energy, LP	$	9,576

(1)	Includes $3.5 million of cash and cash equivalents.

The above estimated preliminary fair values of assets acquired and liabilities assumed are provisional and are based on the information that was available as of the acquisition date to estimate the fair value of assets acquired and liabilities assumed. We believe that the information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed. We expect to finalize the valuation and complete the purchase price allocation as soon as practicable but no later than one year from the acquisition date.

2012 Acquisitions

On December 4, 2012, we closed the acquisition of primarily oil properties located in East Texas (the “2012 East Texas Properties”) from a private seller for $214 million in cash, after customary purchase price adjustments (the “2012 East Texas Acquisition”). The acquisition had an effective date of November 1, 2012. During the first quarter 2013, we received the $2.3 million receivable from the seller that was recorded as a purchase price adjustment at the date of the sale.

On April 20, 2012, we closed the acquisition of primarily oil properties, almost all of which are located in the Ark-La-Tex area, from Prize Petroleum, LLC and Prize Petroleum Pipeline, LLC (collectively “Prize”) for $225 million in cash after customary purchase price adjustments (the “Prize Acquisition”). The acquisition had an effective date of January 1, 2012.

The Prize Acquisition and the 2012 East Texas Acquisition qualified as business combinations and were accounted for under the purchase method of accounting. Accordingly, we recognized amounts for identifiable assets acquired and liabilities assumed at their estimated acquisition date fair values. The fair value measurements of the oil and gas properties and asset retirement obligations were measured using valuation techniques and unobservable inputs that convert future cash flows to a single discounted amount. The initial accounting for business combinations are not finalized, and are subject to adjustments to the provisional fair value amounts, for one full year from their respective acquisition dates due to further analysis of information that was available at the acquisition date. On April 20, 2013, we finalized the accounting for the Prize Acquisition with no adjustments to the purchase price discussed above.

Pro Forma Information

The following unaudited pro forma income statement information for the three and nine months ended September 30, 2013 and 2012 assumes the 2013 East Texas Acquisition had occurred on January 1, 2012. The unaudited pro forma income statement information for the three and nine months ended September 30, 2012 assumes the Prize Acquisition and the 2012 East Texas Acquisition had occurred on January 1, 2011. The unaudited pro forma results reflect certain adjustments related to the acquisitions, such as increased depreciation and amortization expense on the fair value of the assets acquired. The unaudited pro forma financial results may not be indicative of the results that would have occurred had the acquisition been completed at the beginning of the periods presented, nor are they indicative of future results of operations.


		Three Months Ended				Nine Months Ended
		(Unaudited)				(Unaudited)
	September 30, 2013		September 30, 2012		September 30, 2013		September 30, 2012
	Pro Forma		Pro Forma		Pro Forma		Pro Forma
Total revenues	$	130,161	$	114,476	$	365,439	$	357,982
Operating income	$	37,860	$	23,944	$	86,455	$	85,850
Net income (loss) attributable to QR Energy, LP	$	(21,277)	$	(39,629)	$	38,369	$	99,928
Net income per unit:
Common unitholders' (basic)	$	(0.56)	$	(1.14)	$	0.09	$	0.92
Common unitholders' (diluted)	$	(0.56)	$	(1.14)	$	0.09	$	0.92
Subordinated unitholders' (basic)	$	-	$	(1.15)	$	-	$	0.91
Subordinated unitholders' (diluted)	$	-	$	(1.15)	$	-	$	0.91