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
	June 30, 2014
		Parent Co-Issuer		Subsidiary Co-Issuer		Guarantor		Non-Guarantor		Eliminations		Consolidated
Assets
Current assets
Cash	$	73	$	-	$	3,064	$	3,278	$	-	$	6,415
Accounts receivable		-		-		53,617		2,979		(480)		56,116
Due from affiliates		201,782		-		-		-		(197,402)		4,380
Derivative instruments		-		-		15,065		-		-		15,065
Prepaid and other current assets		-		-		3,841		281		-		4,122
Total current assets		201,855		-		75,587		6,538		(197,882)		86,098
Noncurrent assets
Oil and natural gas properties and other property and equipment, net		-		-		1,652,732		14,756		-		1,667,488
Derivative instruments		-		-		14,265		-		-		14,265
Investment in subsidiaries		603,871		-		17,613		-		(621,484)		-
Other assets		22,360		-		15,442		20,092		-		57,894
Total noncurrent assets		626,231		-		1,700,052		34,848		(621,484)		1,739,647
Total assets		828,086		-		1,775,639		41,386		(819,366)		1,825,745

Liabilities and Partners' Capital
Current liabilities
Current portions of asset retirement obligations	$	-	$	-	$	4,356	$	-	$	-	$	4,356
Due to affiliates		-		-		197,402		-		(197,402)		-
Derivative instruments		-		-		26,009		-		-		26,009
Accrued and other liabilities		25,784		-		51,519		1,796		(480)		78,619
Total current liabilities		25,784		-		279,286		1,796		(197,882)		108,984
Noncurrent liabilities
Long-term debt		296,852		-		715,000		-		-		1,011,852
Deferred Class B unit obligation		153,749		-		-		-		-		153,749
Derivative instruments		-		-		19,471		-		-		19,471
Asset retirement obligations		-		-		151,182		5,265		-		156,447
Other liabilities		-		-		6,829		7,380		-		14,209
Total noncurrent liabilities		450,601		-		892,482		12,645		-		1,355,728
Partners' capital
QR Energy, LP partners' capital		351,701		-		603,871		26,945		(630,816)		351,701
Noncontrolling interest		-		-		-		-		9,332		9,332
Total partners' capital		351,701		-		603,871		26,945		(621,484)		361,033
Total liabilities and partners' capital	$	828,086	$	-	$	1,775,639	$	41,386	$	(819,366)	$	1,825,745


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 June 30, 2014
Total revenues	$	-	$	-	$	127,544	$	7,177	$	(1,415)	$	133,306
Expenses
Production and disposal and related expenses		-		-		49,728		5,792		(1,415)		54,105
Depreciation, depletion and amortization		-		-		30,656		100		-		30,756
General and administrative		1,678		-		7,783		-		-		9,461
Accretion of asset retirement obligations and acquisition and transaction costs		-		-		2,756		74		-		2,830
Total expenses		1,678		-		90,923		5,966		(1,415)		97,152
Operating income		(1,678)		-		36,621		1,211		-		36,154
Loss on commodity derivative contracts		-		-		(65,757)		-		-		(65,757)
Interest expense, net, income tax expense and other income, net		(7,244)		-		(7,225)		(96)		-		(14,565)
Loss on Deferred Class B unit obligation		(6,732)		-		-		-		-		(6,732)
Equity in earnings (loss)		(35,700)		-		661		-		35,039		-
Net (loss) income		(51,354)		-		(35,700)		1,115		35,039		(50,900)
Less: Net income attributable to noncontrolling interest		-		-		-		-		454		454
Net income (loss) attributable to QR Energy, LP	$	(51,354)	$	-	$	(35,700)	$	1,115	$	34,585	$	(51,354)



Condensed Consolidating Statements of Operations

		Parent Co-Issuer		Subsidiary Co-Issuer		Guarantor		Non-Guarantor		Eliminations		Consolidated
Six Months Ended June 30, 2014
Total revenues	$	-	$	-	$	244,961	$	13,634	$	(2,666)	$	255,929
Expenses
Production and disposal and related expenses		-		-		95,747		11,643		(2,666)		104,724
Depreciation, depletion and amortization		-		-		60,391		201		-		60,592
General and administrative		3,492		-		16,124		-		-		19,616
Accretion of asset retirement obligations and acquisition and transaction costs		-		-		8,471		148		-		8,619
Total expenses		3,492		-		180,733		11,992		(2,666)		193,551
Operating income		(3,492)		-		64,228		1,642		-		62,378
Loss on commodity derivative contracts		-		-		(88,922)		-		-		(88,922)
Interest expense, net, income tax expense and other income, net		(14,488)		-		(12,288)		(4)		-		(26,780)
Loss on Deferred Class B unit obligation		(11,972)		-		-		-		-		(11,972)
Equity in earnings		(36,012)		-		970		-		35,042		-
Net (loss) income		(65,964)		-		(36,012)		1,638		35,042		(65,296)
Less: Net income attributable to noncontrolling interest		-		-		-		-		668		668
Net income (loss) attributable to QR Energy, LP	$	(65,964)	$	-	$	(36,012)	$	1,638	$	34,374	$	(65,964)



Condensed Consolidating Statements of Comprehensive Income

		Parent Co-Issuer		Subsidiary Co-Issuer		Guarantor		Non-Guarantor		Eliminations		Consolidated
Three Months Ended June 30, 2014
Net income (loss)	$	(51,354)	$	-	$	(35,700)	$	1,115	$	35,039	$	(50,900)
Other comprehensive income, net of tax:
Reclassification adjustment for avail-for-sale securities		-		-		-		(4)		-		(4)
Change in fair value of available-for-sale securities		187		-		187		318		(374)		318
Pension and postretirement benefit:
Actuarial gain		(28)		-		(28)		(46)		56		(46)
Total other comprehensive income		159		-		159		268		(318)		268
Total comprehensive income (loss)		(51,195)		-		(35,541)		1,383		34,721		(50,632)
Less: Comprehensive income attributable to noncontrolling interest		-		-		-		-		563		563
Comprehensive income (loss) attributable to QR Energy, LP	$	(51,195)	$	-	$	(35,541)	$	1,383	$	34,158	$	(51,195)



Condensed Consolidating Statements of Comprehensive Income

		Parent Co-Issuer		Subsidiary Co-Issuer		Guarantor		Non-Guarantor		Eliminations		Consolidated
Six Months Ended June 30, 2014
Net income (loss)	$	(65,964)	$	-	$	(36,012)	$	1,638	$	35,042	$	(65,296)
Other comprehensive income, net of tax:
Reclassification adjustment for available-for-sale securities		-		-		-		(18)		-		(18)
Change in fair value of available-for-sale securities		221		-		221		391		(442)		391
Pension and post retirement befefit:
Actuarial gain		(53)		-		(53)		(90)		106		(90)
Total other comprehensive income		168		-		168		283		(336)		283
Total comprehensive income (loss)		(65,796)		-		(35,844)		1,921		34,706		(65,013)
Less: Comprehensive income attributable to noncontrolling interest		-		-		-		-		783		783
Comprehensive income (loss) attributable to QR Energy, LP	$	(65,796)	$	-	$	(35,844)	$	1,921	$	33,923	$	(65,796)



Condensed Consolidating Statements of Cash Flows

		Parent Co-Issuer		Subsidiary Co-Issuer		Guarantor		Non-Guarantor		Eliminations		Consolidated
Six Months Ended June 30, 2014
Net cash (used in) provided by operating activities	$	(14,566)	$	-	$	92,612	$	1,103	$	-	$	79,149
Cash flows from investing activities
Additions to oil and natural gas properties		-		-		(72,164)		(989)		-		(73,153)
Acquisitions		-		-		(40,434)		-		-		(40,434)
Distributions from subsidiaries		87,525		-		-		-		(87,525)		-
Proceeds from sale of available-for-sale securities		-		-		-		893		-		893
Purchases of available-for-sale securities		-		-		-		(436)		-		(436)
Net cash (used in) provided by investing activities		87,525		-		(112,598)		(532)		(87,525)		(113,130)
Cash flows from financing activities
Distributions to unitholders		(70,964)		-		-		-		-		(70,964)
Proceeds from bank borrowings		-		-		100,000		-		-		100,000
Distributions to Parent		-		-		(87,525)		-		87,525		-
Other		(2,000)		-		-		-		-		(2,000)
Net cash (used in) provided by financing activities		(72,964)		-		12,475		-		87,525		27,036
Net increase (decrease) in cash		(5)		-		(7,511)		571		-		(6,945)
Cash at beginning of period		78		-		10,575		2,707		-		13,360
Cash at end of period	$	73	$	-	$	3,064	$	3,278	$	-	$	6,415