NOTE 21 – SUBSIDIARY GUARANTORS

The Senior Notes, issued on July 30, 2012 by the Partnership and QRE FC (the “Subsidiary Co-Issuer”), are guaranteed by OLLC, a 100% owned subsidiary of the Partnership (the “Guarantor”), and may be guaranteed by certain other future subsidiaries. The Guarantor is 100% owned by the Partnership and its guarantee of the Senior Notes is full and unconditional. The Partnership has no assets or operations independent of its subsidiaries and there are no significant restrictions upon the ability of the Guarantor to distribute funds to the Partnership. The guarantee constitutes a joint and several obligation with any additional future guarantees. The Partnership’s only other subsidiary is ETSWDC, which does not guarantee the Senior Notes (the “Non-Guarantor”). Refer to Note 10 – Long-Term Debt for details on the conditions under which guarantees of the Senior Notes may be released. ETSWDC is a non-minor subsidiary and we are providing condensed consolidated financial statements prospectively in accordance with SEC regulations.

The following condensed consolidated financial information is presented in accordance with Rule 3-10 of the Securities and Exchange Commission’s Regulation S-X, and uses the same accounting policies used to prepare the financial information located elsewhere in our consolidated financial statements and related footnotes.



Condensed Consolidating Balance Sheets
	December 31, 2013
		Parent Co-Issuer		Subsidiary Co-Issuer		Guarantor		Non-Guarantor		Eliminations		Consolidated
Assets
Current assets
Cash	$	78	$	-	$	10,575	$	2,707	$	-	$	13,360
Accounts receivable		-		-		55,073		2,939		(570)		57,442
Due from affiliates		234,746		-		-		-		(230,831)		3,915
Derivative instruments		-		-		27,485		-		-		27,485
Prepaid and other current assets		-		-		1,718		141		-		1,859
Total current assets		234,824		-		94,851		5,787		(231,401)		104,061
Noncurrent assets
Oil and natural gas properties and other property and equipment, net		-		-		1,591,015		13,968		-		1,604,983
Derivative instruments		-		-		62,131		-		-		62,131
Investment in subsidiaries		711,734		-		16,478		-		(728,212)		-
Other assets		4,663		-		20,176		19,913		-		44,752
Total noncurrent assets		716,397		-		1,689,800		33,881		(728,212)		1,711,866
Total assets	$	951,221	$	-	$	1,784,651	$	39,668	$	(959,613)	$	1,815,927

Liabilities and Partners' Capital
Current liabilities
Current portions of asset retirement obligations	$	-	$	-	$	4,310	$	-	$	-	$	4,310
Due to affiliates		-		-		230,831		-		(230,831)		-
Derivative instruments		-		-		11,233		-		-		11,233
Accrued and other liabilities		25,718		-		52,100		1,797		(570)		79,045
Total current liabilities		25,718		-		298,474		1,797		(231,401)		94,588
Noncurrent liabilities
Long-term debt		296,593		-		615,000		-		-		911,593
Derivative instruments		-		-		6,251		-		-		6,251
Asset retirement obligations		-		-		145,893		5,118		-		151,011
Other liabilities		-		-		7,299		7,726		-		15,025
Total noncurrent liabilities		296,593		-		774,443		12,844		-		1,083,880
Partners' capital
QR Energy, LP partners' capital		628,910		-		711,734		25,027		(736,761)		628,910
Noncontrolling interest		-		-		-		-		8,549		8,549
Total partners' capital		628,910		-		711,734		25,027		(728,212)		637,459
Total liabilities and partners' capital	$	951,221	$	-	$	1,784,651	$	39,668	$	(959,613)	$	1,815,927



Condensed Consolidating Statements of Operations

		Parent Co-Issuer		Subsidiary Co-Issuer		Guarantor		Non-Guarantor		Eliminations		Consolidated
Year Ended December 31, 2013
Total revenues	$	-	$	-	$	447,077	$	10,262	$	(1,710)	$	455,629
Expenses
Production and disposal and related expenses		-		-		172,998		9,410		(1,710)		180,698
Depreciation, depletion and amortization		-		-		115,039		145		-		115,184
General and administrative		7,101		-		34,800		-		-		41,901
Accretion of asset retirement obligations and acquisition and transaction costs		-		-		8,831		112		-		8,943
Total expenses		7,101		-		331,668		9,667		(1,710)		346,726
Operating income		(7,101)		-		115,409		595		-		108,903
Gain (loss) on commodity derivative contracts, net		-		-		(1,217)		-		-		(1,217)
Interest expense, net, income tax expense and other income, net		(29,468)		-		(17,574)		984		-		(46,058)
Equity in earnings		97,534		-		916		-		(98,450)		-
Net (loss) income		60,965		-		97,534		1,579		(98,450)		61,628
Less: Net income attributable to noncontrolling interest		-		-		-		-		663		663
Net income (loss) attributable to QR Energy, LP	$	60,965	$	-	$	97,534	$	1,579	$	(99,113)	$	60,965



Condensed Consolidating Statements of Comprehensive Income

		Parent Co-Issuer		Subsidiary Co-Issuer		Guarantor		Non-Guarantor		Eliminations		Consolidated
Year Ended December 31, 2013
Net income (loss)	$	60,965	$	-	$	97,534	$	1,579	$	(98,450)	$	61,628
Other comprehensive income, net of tax:
Reclassification adjustment for available-for-sale securities								(18)				(18)
Change in fair value of available-for-sale securities		340		-		340		631		(680)		631
Pension and postretirement benefit:
Actuarial gain		2,404				2,404		4,061		(4,808)		4,061
Total other comprehensive income		2,744		-		2,744		4,674		(5,488)		4,674
Total comprehensive income (loss)		63,709		-		100,278		6,253		(103,938)		66,302
Less: Comprehensive income attributable to noncontrolling interest		-		-		-		-		2,593		2,593
Comprehensive income (loss) attributable to QR Energy, LP	$	63,709	$	-	$	100,278	$	6,253	$	(106,531)	$	63,709



Condensed Consolidating Statements of Cash Flows

		Parent Co-Issuer		Subsidiary Co-Issuer		Guarantor		Non-Guarantor		Eliminations		Consolidated
Year Ended December 31, 2013
Net cash (used in) provided by operating activities	$	(22,103)	$	-	$	222,997	$	1,251	$	-	$	202,145
Cash flows from investing activities
Additions to oil and natural gas properties		-		-		(87,936)		(311)		-		(88,247)
Acquisitions		-		-		(131,715)		3,481		-		(128,234)
Distributions from subsidiaries		167,470		-		-		-		(167,470)		-
Proceeds from sale of available-for-sale securities		-		-		-		8,535		-		8,535
Purchases of available-for-sale securities		-		-		-		(10,249)		-		(10,249)
Net cash (used in) provided by investing activities		167,470		-		(219,651)		1,456		(167,470)		(218,195)
Cash flows from financing activities
Distributions to unitholders		(141,582)		-		-				-		(141,582)
Proceeds from bank borrowings		-		-		180,000		-		-		180,000
Repayments on bank/intercompany borrowings		-		-		(35,000)		-		-		(35,000)
Distributions to Parent		-		-		(167,470)		-		167,470		-
Other		(3,775)		-		(2,069)		-		-		(5,844)
Net cash (used in) provided by financing activities		(145,357)		-		(24,539)		-		167,470		(2,426)
Net increase (decrease) in cash		10		-		(21,193)		2,707		-		(18,476)
Cash at beginning of period		68		-		31,768		-		-		31,836
Cash at end of period	$	78	$	-	$	10,575	$	2,707	$	-	$	13,360