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 (the “Guarantor”), a 100% owned subsidiary of the Partnership, 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
	September 30, 2014
		Parent Co-Issuer		Subsidiary Co-Issuer		Guarantor		Non-Guarantor		Eliminations		Consolidated
Assets
Current assets
Cash	$	110	$	-	$	13,608	$	2,441	$	-	$	16,159
Accounts receivable				-		49,080		2,780		(481)		51,379
Due from affiliates		187,238		-		-		-		(187,238)		-
Derivative instruments				-		33,744		-		-		33,744
Prepaid and other current assets				-		3,119		219		-		3,338
Total current assets		187,348		-		99,551		5,440		(187,719)		104,620
Noncurrent assets
Oil and natural gas properties and other property and equipment, net		-		-		1,687,275		15,439		-		1,702,714
Derivative instruments		-		-		29,681		-		-		29,681
Investment in subsidiaries		660,926		-		17,921		-		(678,847)		-
Other assets		22,394		-		14,974		20,476		-		57,844
Total noncurrent assets		683,320		-		1,749,851		35,915		(678,847)		1,790,239
Total assets		870,668		-		1,849,402		41,355		(866,566)		1,894,859

Liabilities and Partners' Capital
Current liabilities
Current portions of asset retirement obligations	$	-	$	-	$	4,895	$	-	$	-	$	4,895
Due to affiliates		-		-		188,125		-		(187,238)		887
Derivative instruments		-		-		7,378		-		-		7,378
Accrued and other liabilities		18,837		-		68,295		1,658		(481)		88,309
Total current liabilities		18,837		-		268,693		1,658		(187,719)		101,469
Noncurrent liabilities
Long-term debt		296,981		-		755,000		-		-		1,051,981
Deferred Class B unit obligation		134,894		-		-		-		-		134,894
Derivative instruments		-		-		5,283		-		-		5,283
Asset retirement obligations		-		-		154,202		5,341		-		159,543
Other liabilities		-		-		5,298		6,891		-		12,189
Total noncurrent liabilities		431,875		-		919,783		12,232		-		1,363,890
Partners' capital
QR Energy, LP partners' capital		419,956		-		660,926		27,465		(688,391)		419,956
Noncontrolling interest		-		-		-		-		9,544		9,544
Total partners' capital		419,956		-		660,926		27,465		(678,847)		429,500
Total liabilities and partners' capital	$	870,668	$	-	$	1,849,402	$	41,355	$	(866,566)	$	1,894,859


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 September 30, 2014
Total revenues	$	-	$	-	$	124,505	$	7,146	$	(1,463)	$	130,188
Expenses
Production and disposal and related expenses		-		-		51,271		6,085		(1,463)		55,893
Depreciation, depletion and amortization		-		-		32,495		116		-		32,611
General and administrative		2,433		-		7,770		-		-		10,203
Accretion of asset retirement obligations and acquisition and transaction costs		-		-		6,281		76		-		6,357
Total expenses		2,433		-		97,817		6,277		(1,463)		105,064
Operating income		(2,433)		-		26,688		869		-		25,124
Loss on commodity derivative contracts		-		-		70,231		-		-		70,231
Interest expense, net, income tax expense and other income, net		(7,244)		-		(4,526)		26		-		(11,744)
Gain on Deferred Class B unit obligation		18,855		-		-		-		-		18,855
Equity in earnings (loss)		92,919		-		526		-		(93,445)		-
Net (loss) income		102,097		-		92,919		895		(93,445)		102,466
Less: Net income attributable to noncontrolling interest		-		-		-		-		369		369
Net income (loss) attributable to QR Energy, LP	$	102,097	$	-	$	92,919	$	895	$	(93,814)	$	102,097



Condensed Consolidating Statements of Operations

		Parent Co-Issuer		Subsidiary Co-Issuer		Guarantor		Non-Guarantor		Eliminations		Consolidated
Three Months Ended September 30, 2013
Total revenues	$	-	$	-	$	122,150	$	4,506	$	(649)	$	126,007
Expenses
Production and disposal and related expenses		-		-		44,010		3,895		(649)		47,256
Depreciation, depletion and amortization		-		-		27,961		57		-		28,018
General and administrative		1,939		-		9,265		-		-		11,204
Accretion of asset retirement obligations and acquisition and transaction costs		-		-		2,312		44		-		2,356
Total expenses		1,939		-		83,548		3,996		(649)		88,834
Operating income		(1,939)		-		38,602		510		-		37,173
Loss on commodity derivative contracts		-		-		(45,377)		-		-		(45,377)
Interest expense, net, income tax expense and other income, net		(7,244)		-		(6,044)		(5)		-		(13,293)
Loss on Deferred Class B unit obligation		-		-		-		-		-		-
Equity in earnings (loss)		(12,536)		-		281		-		12,255		-
Net (loss) income		(21,719)		-		(12,538)		505		12,255		(21,497)
Less: Net income attributable to noncontrolling interest		-		-		-		-		222		222
Net income (loss) attributable to QR Energy, LP	$	(21,719)	$	-	$	(12,538)	$	505	$	12,033	$	(21,719)



Condensed Consolidating Statements of Operations

		Parent Co-Issuer		Subsidiary Co-Issuer		Guarantor		Non-Guarantor		Eliminations		Consolidated
Nine Months Ended September 30, 2014
Total revenues	$	-	$	-	$	369,466	$	20,780	$	(4,129)	$	386,117
Expenses
Production and disposal and related expenses		-		-		147,018		17,728		(4,129)		160,617
Depreciation, depletion and amortization		-		-		92,886		317		-		93,203
General and administrative		5,925		-		23,894		-		-		29,819
Accretion of asset retirement obligations and acquisition and transaction costs		-		-		14,752		224		-		14,976
Total expenses		5,925		-		278,550		18,269		(4,129)		298,615
Operating income		(5,925)		-		90,916		2,511		-		87,502
Loss on commodity derivative contracts		-		-		(18,691)		-		-		(18,691)
Interest expense, net, income tax expense and other income, net		(21,732)		-		(16,814)		22		-		(38,524)
Gain on Deferred Class B unit obligation		6,883		-		-		-		-		6,883
Equity in earnings		56,907		-		1,496		-		(58,403)		-
Net (loss) income		36,133		-		56,907		2,533		(58,403)		37,170
Less: Net income attributable to noncontrolling interest		-		-		-		-		1,037		1,037
Net income (loss) attributable to QR Energy, LP	$	36,133	$	-	$	56,907	$	2,533	$	(59,440)	$	36,133



Condensed Consolidating Statements of Operations

		Parent Co-Issuer		Subsidiary Co-Issuer		Guarantor		Non-Guarantor		Eliminations		Consolidated
Nine Months Ended September 30, 2013
Total revenues	$	-	$	-	$	332,466	$	4,506	$	(649)	$	336,323
Expenses				-								-
Production and disposal and related expenses		-		-		129,247		3,895		(649)		132,493
Depreciation, depletion and amortization		-		-		85,439		57		-		85,496
General and administrative		5,125		-		26,273		-		-		31,398
Accretion of asset retirement obligations and acquisition and transaction costs		-		-		6,422		44		-		6,466
Total expenses		5,125		-		247,381		3,996		(649)		255,853
Operating income		(5,125)		-		85,085		510		-		80,470
Loss on commodity derivative contracts		-		-		(11,860)		-		-		(11,860)
Interest expense, net, income tax expense and other income, net		(22,224)		-		(12,438)		(5)		-		(34,667)
Loss on Deferred Class B unit obligation		-		-		-		-		-		-
Equity in earnings		61,070		-		281		-		(61,351)		-
Net (loss) income		33,721		-		61,068		505		(61,351)		33,943
Less: Net income attributable to noncontrolling interest		-		-		-		-		222		222
Net income (loss) attributable to QR Energy, LP	$	33,721	$	-	$	61,068	$	505	$	(61,573)	$	33,721



Condensed Consolidating Statements of Comprehensive Income

		Parent Co-Issuer		Subsidiary Co-Issuer		Guarantor		Non-Guarantor		Eliminations		Consolidated
Three Months Ended September 30, 2014
Net income (loss)	$	102,097	$	-	$	92,919	$	895	$	(93,445)	$	102,466
Other comprehensive income, net of tax:
Reclassification adjustment for avail-for-sale securities		65		-		65		111		(130)		111
Change in fair value of available-for-sale securities		(266)		-		(266)		(451)		532		(451)
Pension and postretirement benefit:
Actuarial gain		(28)		-		(28)		(46)		56		(46)
Total other comprehensive income		(229)		-		(229)		(386)		458		(386)
Total comprehensive income (loss)		101,868		-		92,690		509		(92,987)		102,080
Less: Comprehensive income attributable to noncontrolling interest		-		-		-		-		212		212
Comprehensive income (loss) attributable to QR Energy, LP	$	101,868	$	-	$	92,690	$	509	$	(93,199)	$	101,868



Condensed Consolidating Statements of Comprehensive Income

		Parent Co-Issuer		Subsidiary Co-Issuer		Guarantor		Non-Guarantor		Eliminations		Consolidated
Three Months Ended September 30, 2013
Net income (loss)	$	(21,719)	$	-	$	(12,538)	$	505	$	12,255	$	(21,497)
Other comprehensive income, net of tax:
Reclassification adjustment for avail-for-sale securities		-		-		-		-		-		-
Change in fair value of available-for-sale securities		100		-		100		179		(200)		179
Pension and postretirement benefit:
Actuarial gain		-		-		-		-		-		-
Total other comprehensive income		100		-		100		179		(200)		179
Total comprehensive income (loss)		(21,619)		-		(12,438)		684		12,055		(21,318)
Less: Comprehensive income attributable to noncontrolling interest		-		-		-		-		301		301
Comprehensive income (loss) attributable to QR Energy, LP	$	(21,619)	$	-	$	(12,438)	$	684	$	11,754	$	(21,619)



Condensed Consolidating Statements of Comprehensive Income

		Parent Co-Issuer		Subsidiary Co-Issuer		Guarantor		Non-Guarantor		Eliminations		Consolidated
Nine Months Ended September 30, 2014
Net income (loss)	$	36,133	$	-	$	56,907	$	2,533	$	(58,403)	$	37,170
Other comprehensive income, net of tax:
Reclassification adjustment for available-for-sale securities		55		-		55		93		(110)		93
Change in fair value of available-for-sale securities		(35)		-		(35)		(60)		70		(60)
Pension and post retirement befefit:
Actuarial gain		(81)		-		(81)		(136)		162		(136)
Total other comprehensive income		(61)		-		(61)		(103)		122		(103)
Total comprehensive income (loss)		36,072		-		56,846		2,430		(58,281)		37,067
Less: Comprehensive income attributable to noncontrolling interest		-		-		-		-		995		995
Comprehensive income (loss) attributable to QR Energy, LP	$	36,072	$	-	$	56,846	$	2,430	$	(59,276)	$	36,072



Condensed Consolidating Statements of Comprehensive Income

		Parent Co-Issuer		Subsidiary Co-Issuer		Guarantor		Non-Guarantor		Eliminations		Consolidated
Nine Months Ended September 30, 2013
Net income (loss)	$	33,721	$	-	$	61,068	$	505	$	(61,351)	$	33,943
Other comprehensive income, net of tax:
Reclassification adjustment for available-for-sale securities		-		-		-		-		-		-
Change in fair value of available-for-sale securities		100		-		100		179		(200)		179
Pension and post retirement befefit:
Actuarial gain		-		-		-		-		-		-
Total other comprehensive income		100		-		100		179		(200)		179
Total comprehensive income (loss)		33,821		-		61,168		684		(61,551)		34,122
Less: Comprehensive income attributable to noncontrolling interest		-		-		-		-		301		301
Comprehensive income (loss) attributable to QR Energy, LP	$	33,821	$	-	$	61,168	$	684	$	(61,852)	$	33,821



Condensed Consolidating Statements of Cash Flows

		Parent Co-Issuer		Subsidiary Co-Issuer		Guarantor		Non-Guarantor		Eliminations		Consolidated
Nine Months Ended September 30, 2014
Net cash (used in) provided by operating activities	$	(28,242)	$	-	$	160,912	$	1,794	$	-	$	134,464
Cash flows from investing activities
Additions to oil and natural gas properties		-		-		(117,650)		(1,787)		-		(119,437)
Acquisitions		-		-		(44,251)		-		-		(44,251)
Divestitures of oil and gas properties						1,300						1,300
Distributions from subsidiaries		137,278		-		-		-		(137,278)		-
Proceeds from sale of available-for-sale securities		-		-		-		3,749		-		3,749
Purchases of available-for-sale securities		-		-		-		(4,022)		-		(4,022)
Net cash (used in) provided by investing activities		137,278		-		(160,601)		(2,060)		(137,278)		(162,661)
Cash flows from financing activities
Distributions to unitholders		(106,582)		-		-		-		-		(106,582)
Proceeds from bank borrowings				-		178,000				-		178,000
Repayments on bank borrowings						(38,000)						(38,000)
Distributions to Parent		-		-		(137,278)		-		137,278		-
Other		(2,422)		-		-		-		-		(2,422)
Net cash (used in) provided by financing activities		(109,004)		-		2,722		-		137,278		30,996
Net increase (decrease) in cash		32		-		3,033		(266)		-		2,799
Cash at beginning of period		78		-		10,575		2,707		-		13,360
Cash at end of period	$	110	$	-	$	13,608	$	2,441	$	-	$	16,159



Condensed Consolidating Statements of Cash Flows

		Parent Co-Issuer		Subsidiary Co-Issuer		Guarantor		Non-Guarantor		Eliminations		Consolidated
Nine Months Ended September 30, 2013
Net cash (used in) provided by operating activities	$	(28,050)	$	-	$	169,511	$	357	$	-	$	141,818
Cash flows from investing activities												-
Additions to oil and natural gas properties		-		-		(65,898)		-		-		(65,898)
Acquisitions		-		-		(105,177)		3,481		-		(101,696)
Distributions from subsidiaries		136,449		-		-		-		(136,449)		-
Proceeds from sale of available-for-sale securities		-		-		-		4,643		-		4,643
Purchases of available-for-sale securities		-		-		-		(4,268)		-		(4,268)
Net cash (used in) provided by investing activities		136,449		-		(171,075)		3,856		(136,449)		(167,219)
Cash flows from financing activities
Distributions to unitholders		(106,226)		-		-		-		-		(106,226)
Proceeds from bank borrowings		-		-		150,000		-		-		150,000
Repayments on bank		-		-		(20,000)		-		-		(20,000)
Repayments on intercompany borrowings		-		-		(33,213)		-		33,213		-
Distributions to Parent		-		-		(103,236)		-		103,236		-
Other		(2,241)		-		(1,904)		-		-		(4,145)
Net cash (used in) provided by financing activities		(108,467)		-		(8,353)		-		136,449		19,629
Net increase (decrease) in cash		(68)		-		(9,917)		4,213		-		(5,772)
Cash at beginning of period		68		-		31,768		-		-		31,836
Cash at end of period	$	-	$	-	$	21,851	$	4,213	$	-	$	26,064