NOTE 15 — EQUITY-BASED COMPENSATION

The QRE GP, LLC Long-Term Incentive Plan (the “Plan”) was established for employees, officers, consultants and directors of QRE GP and its affiliates, including QRM, who perform services for us. The Plan consists of unit options, restricted units, phantom units, unit appreciation rights, distribution equivalent rights, other unit-based awards and unit awards. The purpose of awards under the Plan is to provide additional incentive compensation to such individuals providing services to us and to align the economic interests of such individuals with the interests of our unitholders. The Plan limits the number of common units that may be delivered pursuant to awards under the Plan to 1.8 million units.

On February 3, 2014 we filed a definitive proxy statement on Form 14/A, which provides information regarding a special meeting of limited partners to be held on March 10, 2014 to hold a unitholder vote on an amendment to our Long-Term Incentive Plan to increase the number of units under the plan by 3,000,000. See Note 22 – Subsequent Events.

Restricted Units

Periodically we issue restricted units with a service condition (“Restricted Units”) and restricted units with a market condition (“Performance Units”). The fair value of the Restricted Units, based on the closing price of our common units at the grant date, is amortized to compensation expense on a straight-line basis over the vesting period of the award. The fair value of the Performance Units, based on a Monte Carlo model with assumptions based on market conditions, is amortized to compensation expense on a straight-line basis over the vesting period of the award.

On April 22, 2013, we granted approximately 455,000 Restricted Unit awards and approximately 149,000 Performance Unit awards to employees of QRM and 20,000 unit awards to independent directors of the Partnership.

Service Restricted Units

For the years ended December 31, 2013, 2012 and 2011, we recognized compensation expense related to the outstanding awards of $6.1 million, $3.1 million, and $1.4 million, respectively. As of December 31, 2013, we had 754,822 of Restricted Units outstanding with unrecognized grant date fair value compensation expense of $10.2 million, which we expect to be recognized over a weighted-average period of approximately 1.8 years. The amount of unrecognized compensation expense does not necessarily represent the amount that will ultimately be recognized by us in our statements of operations.

Performance Restricted Units.

The performance awards will be earned over a three year period based on the Partnership’s performance relative to its peers in accordance with the Plan. The final shares to be issued will range from 0 – 225% of the initial shares granted. For Performance Units, we recognize compensation expense using a straight-line amortization of the grant date fair value over the performance period. For the years ended December 31, 2013 and 2012, we recognized compensation expense related to the outstanding awards of $0.8 million and $0.2 million. As of December 31, 2013, we had 267,489 of Performance Units outstanding with unrecognized grant date fair value compensation expense of $1.7 million, which we expect to be recognized over a weighted-average period of approximately 1.8 years. The amount of unrecognized compensation expense does not necessarily represent the amount that will ultimately be recognized by us in our statements of operations.

The following assumptions were used for the Performance Units based on market conditions using a Monte Carlo model to estimate the grant date fair value of the awards. The four primary inputs for the Monte Carlo model are the risk-free rate, volatility of returns, correlation in movement of total unitholder return relative to a relevant peer group and the expected distribution rate. Risk-free rate was based on the Federal Reserve for treasuries equal to the remaining duration of the performance period, which was 0.4% for the 2013 and 2012 grants. Volatility was determined based on the annualized daily historical volatility, which was approximately 29% for the 2013 grants and ranged from 31% to 32% for the 2012 grants. Correlation in movement of total unitholder return was determined based on a correlation matrix that was created which identifies total shareholder return correlations for each pair of companies in the peer group, including the Partnership. The paired returns in the correlation matrix ranged from 33.7% to 56.6% for the Partnership and its peer group. The expected distribution rate is calculated using a trailing six month average for the Partnership and its peer group as of the date of grant, which was 11% and 10% for the 2013 and 2012 grants. Based on these inputs discussed above, a ranking was projected identifying the Partnership's rank relative to the peer group for each award period which determines the anticipated payout. The weighted average grant date fair value per unit, using the method described above, was $10.03 and $10.35 for the years ended December 31, 2013 and 2012, respectively, and is being recognized ratably in expense over the service period.

Unit-Based Awards Activity

The following table summarizes the Partnership’s unit-based awards for the years ended December 31, 2013, 2012 and 2011, (in thousands, except per unit amounts):


	Number of			Number of
	Unvested	Weighted		Unvested	Weighted
	Service	Average		Performance	Average
	Restricted	Grant-Date		Restricted	Grant-Date
	Units	Fair Value		Units	Fair Value
Unvested units, December 31, 2010	148,160	$	20.03	-	$	-
Granted	214,588		20.51	-		-
Forfeited	(38,586)		20.75	-		-
Vested	(52,798)		20.31	-		-
Unvested units, December 31, 2011	271,364	$	20.26	-	$	-
Granted	437,211		18.22	121,137		10.35
Forfeited	(61,444)		19.47	(3,055)		10.45
Vested	(96,890)		20.05	-		-
Unvested units, December 31, 2012	550,241	$	18.80	118,082	$	10.34
Granted	491,847		17.97	149,407		10.03
Forfeited	(68,806)		18.41	-		-
Vested	(218,460)		19.01	-		-
Unvested units, December 31, 2013	754,822	$	18.22	267,489	$	10.17