NOTE 3 – ACQUISITIONS

2014 Acquisitions

During 2014, we closed several small acquisitions of oil and natural gas properties located in East Texas from private sellers for an aggregate purchase price of $43.8 million in cash, subject to customary purchase price adjustments, using funds drawn on our revolving credit facility.

2013 Acquisition

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 $107.8 million cash, subject to customary purchase price adjustments using funds drawn on our revolving credit facility. The acquisition had an effective date of June 1, 2013. The acquisition costs associated with the 2013 East Texas Acquisition were $0.4 million. In connection with the 2013 East Texas Acquisition, we assumed an estimated environmental liability of $0.5 million. Refer to Note 12 – Commitments and Contingencies for further details.

In connection with the 2013 East Texas Acquisition, we also acquired a 32% interest in ETSWDC giving us control of ETSWDC as we previously owned 24%. As of the closing date of the 2013 East Texas Acquisition, we consolidated ETSWDC into our consolidated financial statements. As a result of consolidation, our previous ownership in ETSWDC was remeasured to fair value on the acquisition date resulting in a gain of $1.3 million recognized in the third quarter of 2013. During the fourth quarter 2013, we acquired an additional 3% from another seller giving us an aggregate 59% ownership interest as of March 31, 2014.

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 final fair values of the assets acquired and liabilities assumed as of the closing date:



Oil and gas properties	$	105,751
Investment in ETSWDC		9,576
Asset retirement obligation		(6,069)
Other current liabilities		(1,044)
Net assets acquired	$	108,214

The following table summarizes the final 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.

Pro Forma Information

The following unaudited consolidated income statement information provides actual results for the three and six months ended June 30, 2014 and pro forma income statement information for the three and six months ended June 30, 2013, which assumes the 2013 East Texas Acquisition had occurred on January 1, 2012. 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				Six Months Ended
		(Unaudited)				(Unaudited)
	June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013
	Actual		Pro Forma		Actual		Pro Forma
Total revenues	$	133,306	$	118,122	$	255,929	$	235,740
Operating income	$	36,154	$	27,246	$	62,378	$	48,932
Net income (loss) attributable to QR Energy, LP	$	(51,354)	$	66,104	$	(65,964)	$	60,295
Net income per unit:
Common unitholders' (basic)	$	(1.05)	$	0.94	$	(3.91)	$	0.66
Common unitholders' (diluted)	$	(1.05)	$	0.80	$	(3.91)	$	0.66