NOTE 20 – 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 other subsidiaries are ETSWDC and QRE GP, which was contributed to the Partnership upon the completion of the GP Buyout Transaction, and do 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
	March 31, 2014
		Parent Co-Issuer		Subsidiary Co-Issuer		Guarantor		Non-Guarantor		Eliminations		Consolidated
Assets
Current assets
Cash	$	73	$	-	$	21,117	$	2,070	$	-	$	23,260
Accounts receivable		9		-		55,092		3,594		(1,028)		57,667
Due from affiliates		219,413		-		-		-		(216,036)		3,377
Derivative instruments		-		-		19,603		-		-		19,603
Prepaid and other current assets		-		-		1,567		83		-		1,650
Total current assets		219,495		-		97,379		5,747		(217,064)		105,557
Noncurrent assets
Oil and natural gas properties and other property and equipment, net		-		-		1,630,262		14,595		-		1,644,857
Derivative instruments		-		-		48,785		-		-		48,785
Investment in subsidiaries		675,968		-		16,800		-		(692,768)		-
Other assets		4,485		-		16,142		19,665		-		40,292
Total noncurrent assets		680,453		-		1,711,989		34,260		(692,768)		1,733,934
Total assets		899,948		-		1,809,368		40,007		(909,832)		1,839,491

Liabilities and Partners' Capital
Current liabilities
Current portions of asset retirement obligations	$	-	$	-	$	4,461	$	-	$	-	$	4,461
Due to affiliates		-		-		216,036		-		(216,036)		-
Derivative instruments		-		-		13,874		-		-		13,874
Accrued and other liabilities		18,769		-		59,511		1,714		(1,028)		78,966
Total current liabilities		18,769		-		293,882		1,714		(217,064)		97,301
Noncurrent liabilities
Long-term debt		296,723		-		678,000		-		-		974,723
Deferred Class B unit obligation		147,017										147,017
Derivative instruments		-		-		5,757		-		-		5,757
Asset retirement obligations		-		-		148,618		5,191		-		153,809
Other liabilities		-		-		7,143		7,533		-		14,676
Total noncurrent liabilities		443,740		-		839,518		12,724		-		1,295,982
Partners' capital
QR Energy, LP partners' capital		437,439		-		675,968		25,569		(701,537)		437,439
Noncontrolling interest		-		-		-		-		8,769		8,769
Total partners' capital		437,439		-		675,968		25,569		(692,768)		446,208
Total liabilities and partners' capital	$	899,948	$	-	$	1,809,368	$	40,007	$	(909,832)	$	1,839,491


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
Three Months Ended March 31, 2014
Total revenues	$	-	$	-	$	117,417	$	6,457	$	(1,251)	$	122,623
Expenses
Production and disposal and related expenses		-		-		46,019		5,851		(1,251)		50,619
Depreciation, depletion and amortization		-		-		29,735		101		-		29,836
General and administrative		1,814		-		8,341		-		-		10,155
Accretion of asset retirement obligations and acquisition and transaction costs		-		-		5,715		74		-		5,789
Total expenses		1,814		-		89,810		6,026		(1,251)		96,399
Operating income		(1,814)		-		27,607		431		-		26,224
Loss on commodity derivative contracts		-		-		(23,165)		-		-		(23,165)
Gain (loss) on Deferred Class B unit obligation		(5,240)		-		-		-		-		(5,240)
Interest expense, net, income tax expense and other income, net		(7,244)		-		(5,063)		92		-		(12,215)
Equity in earnings (loss)		(312)		-		309		-		3		-
Net (loss) income		(14,610)		-		(312)		523		3		(14,396)
Less: Net income attributable to noncontrolling interest		-		-		-		-		214		214
Net income (loss) attributable to QR Energy, LP	$	(14,610)	$	-	$	(312)	$	523	$	(211)	$	(14,610)



Condensed Consolidating Statements of Comprehensive Income

		Parent Co-Issuer		Subsidiary Co-Issuer		Guarantor		Non-Guarantor		Eliminations		Consolidated
Three Months Ended March 31, 2014
Net income (loss)	$	(14,610)	$	-	$	(312)	$	523	$	3	$	(14,396)
Other comprehensive income, net of tax:
Reclassification adjustment for avail-for-sale securities		-		-		-		(14)		-		(14)
Change in fair value of available-for-sale securities		34				34		73		(68)		73
Pension and postretirement benefit:
Actuarial gain		(25)				(25)		(44)		50		(44)
Total other comprehensive income		9		-		9		15		(18)		15
Total comprehensive income (loss)		(14,601)		-		(303)		538		(15)		(14,381)
Less: Comprehensive income attributable to noncontrolling interest		-		-		-		-		220		220
Comprehensive income (loss) attributable to QR Energy, LP	$	(14,601)	$	-	$	(303)	$	538	$	(235)	$	(14,601)



Condensed Consolidating Statements of Cash Flows

		Parent Co-Issuer		Subsidiary Co-Issuer		Guarantor		Non-Guarantor		Eliminations		Consolidated
Three Months Ended March 31, 2014
Net cash (used in) provided by operating activities	$	(15,083)	$	-	$	57,589	$	(336)	$		$	42,170
Cash flows from investing activities
Additions to oil and natural gas properties		-		-		(29,107)		(726)		-		(29,833)
Acquisitions		-		-		(29,016)				-		(29,016)
Distributions from subsidiaries		51,924		-		-		-		(51,924)		-
Proceeds from sale of available-for-sale securities		-		-		-		614		-		614
Purchases of available-for-sale securities		-		-		-		(189)		-		(189)
Net cash (used in) provided by investing activities		51,924		-		(58,123)		(301)		(51,924)		(58,424)
Cash flows from financing activities
Distributions to unitholders		(35,422)		-		-		-		-		(35,422)
Proceeds from bank borrowings		-		-		63,000		-		-		63,000
Distributions to Parent		-		-		(51,924)		-		51,924		-
Other		(1,424)		-		-		-		-		(1,424)
Net cash (used in) provided by financing activities		(36,846)		-		11,076		-		51,924		26,154
Net increase (decrease) in cash		(5)		-		10,542		(637)		-		9,900
Cash at beginning of period		78		-		10,575		2,707		-		13,360
Cash at end of period	$	73	$	-	$	21,117	$	2,070	$	-	$	23,260