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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2008.
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period from          to          .
 Commission file number: 001-33787
 QUEST ENERGY PARTNERS, L.P.
 (Exact name of registrant specified in its charter)
 Delaware
    
    26-0518546(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification No.)
 210 Park Avenue, Suite 2750, Oklahoma City, OK 73102  (Address of principal executive offices) (Zip Code)
 405-600-7704
Registrants telephone number, including area code
 o þ
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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EXPLANATORY NOTE
  Investigation 
   Restatement and Reaudit 
  Comparison of Previously Reported Net Income (Loss) to Restated Net Income (Loss)
  i




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PredecessorThree Months Ended
    
    
    Nine Months EndedSeptember 30, 2007
    
    
    September 30, 2007Net income (loss) as previously reported
    
    $
    1,372
    
    
    $
    (7,552
    )Effect of the Transfers
    
    
    (500
    )
    
    
    (1,500
    )Reversal of hedge accounting
    
    
    4,108
    
    
    
    (2,286
    )Capitalization of costs in full cost pool
    
    
    (2,325
    )
    
    
    (7,772
    )Recognition of costs in proper periods
    
    
    (436
    )
    
    
    (868
    )Depreciation, depletion and amortization
    
    
    (22
    )
    
    
    (677
    )Other errors
    
    
    (1,406
    )
    
    
    (2,563
    )Net income (loss) as restated
    
    $
    791
    
    
    $
    (23,218
    )
   ii




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##### 



TABLE OF CONTENTS
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2008
 TABLE OF CONTENTS
  
 PART I  FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Balance Sheets: 
September 30, 2008 and December 31, 2007
    
    
    F-1Statements of Operations: 
Three Months and Nine Months Ended September 30, 2008 and 2007
    
    
    F-2Statements of Cash Flows: 
Nine Months Ended September 30, 2008 and 2007
    
    
    F-3Condensed
Notes to Unaudited Consolidated Financial Statements
    
    
    F-4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    4Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    20Item 4T. Controls and Procedures
    
    
    22PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    26Item 1A. Risk Factors
    
    
    26Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    26Item 3. Defaults Upon Senior Securities
    
    
    26Item 4. Submission of Matters to a Vote of Security Holders
    
    
    26Item 5. Other Information
    
    
    26Item 6. Exhibits
    
    
    26SIGNATURES
    
    
    28EX-31.1EX-31.2EX-32.1EX-32.2
  1




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##### Table of Contents



GUIDE TO READING THIS REPORT
  
    
    when we use the terms the Partnership, Successor, our, we, us and similar terms
in a historical context prior to November 15, 2007, we are referring to Predecessor, and
when we use such terms in a historical context on or after November 15, 2007, in the present
tense or prospectively, we are referring to Quest Energy Partners, L.P. and its
subsidiaries;
 
    
    when we use the term Predecessor, we are referring to the assets, liabilities and
operations of QRCP located in the Cherokee Basin (other than its midstream assets), which
QRCP contributed to us at the completion of our initial public offering on November 15,
2007;
 
    
    when we use the terms Quest Energy GP or our general partner, we are referring to
Quest Energy GP, LLC, our general partner;
 
    
    when we use the term QRCP, we are referring to Quest Resource Corporation (NASDAQ:
QRCP), the owner of our general partner and its subsidiaries (other than us); and
 
    
    when we use the term Quest Midstream, or QMLP, we are referring to our affiliate
Quest Midstream Partners, L.P. and its subsidiaries.
  2




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PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
     3




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QUEST ENERGY PARTNERS, L.P AND SUBSIDIARIES
  BALANCE SHEETS($ in thousands except unit data)
 September 30, 2008
    
    
    December 31, 2007(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    9,717
    
    
    $
    169Restricted cash
    
    
    112
    
    
    
    1,205Accounts receivable  trade, net
    
    
    5,806
    
    
    
    86Other receivables
    
    
    513
    
    
    
    Due from affiliates
    
    
    6,175
    
    
    
    15,624Other current assets
    
    
    2,971
    
    
    
    3,091Inventory
    
    
    11,053
    
    
    
    4,956Current derivative financial instrument assets
    
    
    16,958
    
    
    
    8,008Total current assets
    
    
    53,305
    
    
    
    33,139Property and equipment, net
    
    
    18,211
    
    
    
    17,116Oil and gas properties under full cost method of accounting, net
    
    
    404,720
    
    
    
    294,329Other assets, net
    
    
    3,837
    
    
    
    3,526Long-term derivative financial instrument assets
    
    
    11,956
    
    
    
    3,467Total assets
    
    $
    492,029
    
    
    $
    351,577Current liabilities:Accounts payable
    
    $
    14,005
    
    
    $
    17,754Revenue payable
    
    
    773
    
    
    
    919Accrued expenses
    
    
    2,215
    
    
    
    639Due to affiliates
    
    
    2,758
    
    
    
    1,708Current portion of notes payable
    
    
    45,025
    
    
    
    666Current derivative financial instrument liabilities
    
    
    3,211
    
    
    
    8,108Total current liabilities
    
    
    67,987
    
    
    
    29,794Non-current liabilities:Long-term derivative financial instrument liabilities
    
    
    15,334
    
    
    
    6,311Asset retirement obligations
    
    
    4,453
    
    
    
    1,700Notes payable
    
    
    183,149
    
    
    
    94,042Commitments and contingenciesPartners equity:Common
unitholders  Issued and outstanding  12,331,521 at September 30,
2008 and December 31, 2007 (9,100,000 
public; 3,231,521  affiliate);
    
    
    163,265
    
    
    
    162,610Subordinated unitholder  affiliate; 8,857,981 units issued
and outstanding at September 30, 2008 and December 31, 2007
    
    
    55,165
    
    
    
    54,465General Partner  affiliate; 431,827 units issued and
outstanding at September 30, 2008 and December 31, 2007
    
    
    2,676
    
    
    
    2,655Total partners equity
    
    
    221,106
    
    
    
    219,730Total liabilities and partners equity
    
    $
    492,029
    
    
    $
    351,577
  F-1




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QUEST ENERGY PARTNERS, L.P AND SUBSIDIARIES
 
 STATEMENTS OF OPERATIONS
($ in thousands, except unit and per unit data)
(Unaudited)
 Successor
    
    
    Predecessor
    
    
    Successor
    
    
    PredecessorThree months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Consolidated
    
    
    Carve Out
    
    
    Consolidated
    
    
    Carve Out(Restated)
    
    
    
    
    
    
    (Restated)Revenue:Oil and gas sales
    
    $
    49,454
    
    
    $
    23,852
    
    
    $
    136,908
    
    
    $
    76,396Total revenues
    
    
    49,454
    
    
    
    23,852
    
    
    
    136,908
    
    
    
    76,396Costs and expenses:Oil and gas production
    
    
    9,821
    
    
    
    8,976
    
    
    
    34,104
    
    
    
    27,991Transportation expense
    
    
    8,583
    
    
    
    7,469
    
    
    
    25,921
    
    
    
    20,639General and administrative expenses
    
    
    734
    
    
    
    3,318
    
    
    
    5,501
    
    
    
    10,025Depreciation, depletion and amortization
    
    
    13,196
    
    
    
    8,667
    
    
    
    34,750
    
    
    
    24,618Misappropriation of funds
    
    
    
    
    
    
    500
    
    
    
    
    
    
    
    1,500Total costs and expenses
    
    
    32,334
    
    
    
    28,930
    
    
    
    100,276
    
    
    
    84,773Operating income (loss)
    
    
    17,120
    
    
    
    (5,078
    )
    
    
    36,632
    
    
    
    (8,377
    )Other income (expense):Gain (loss) from derivative financial
instruments
    
    
    145,132
    
    
    
    13,388
    
    
    
    (4,482
    )
    
    
    8,232Other income (expense)
    
    
    40
    
    
    
    44
    
    
    
    154
    
    
    
    (185
    )Interest expense
    
    
    (4,367
    )
    
    
    (7,665
    )
    
    
    (8,867
    )
    
    
    (23,270
    )Interest income
    
    
    13
    
    
    
    102
    
    
    
    120
    
    
    
    382Total other income (expense)
    
    
    140,818
    
    
    
    5,869
    
    
    
    (13,075
    )
    
    
    (14,841
    )Net income (loss)
    
    $
    157,938
    
    
    $
    791
    
    
    $
    23,557
    
    
    $
    (23,218
    )General
partners interest in net income (loss)
    
    $
    3,159
    
    
    
    
    
    
    $
    471Limited
partners interest in net income (loss)
    
    $
    154,779
    
    
    
    
    
    
    $
    23,086Net income
(loss) per limited partner unit: (basic and diluted)
    
    $
    7.31
    
    
    
    
    
    
    $
    1.09Weighted average limited partner units
outstanding:Common units (basic and diluted)
    
    
    12,309,021
    
    
    
    
    
    
    
    12,308,282Subordinated units (basic and diluted)
    
    
    8,857,981
    
    
    
    
    
    
    
    8,857,981
  F-2




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QUEST ENERGY PARTNERS, L.P AND SUBSIDIARIES
 
 STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
 Successor
    
    
    PredecessorNine months ended September 30,2008
    
    
    2007Consolidated
    
    
    Carve Out(Restated)Cash flows from operating activities:Net income (loss)
    
    $
    23,557
    
    
    $
    (23,218
    )Adjustments to reconcile net income (loss) to cash provided
by (used in) operations:Depreciation, depletion and amortization
    
    
    34,750
    
    
    
    24,618Unit-based compensation
    
    
    21
    
    
    
    Change in fair value of derivative financial instruments
    
    
    (13,312
    )
    
    
    (3,069
    )Contributions for consideration for compensation to employees
    
    
    
    
    
    
    4,286Amortization of deferred loan costs
    
    
    847
    
    
    
    1,416Bad debt expense
    
    
    97
    
    
    
    22Change in assets and liabilities:Accounts receivable
    
    
    (5,818
    )
    
    
    (214
    )Other receivables
    
    
    (513
    )
    
    
    (1,466
    )Other current assets
    
    
    120
    
    
    
    (795
    )Other assets
    
    
    13,696
    
    
    
    (378
    )Due from affiliates
    
    
    734
    
    
    
    363Accounts payable
    
    
    (4,266
    )
    
    
    13,591Revenue payable
    
    
    (146
    )
    
    
    1,486Accrued expenses
    
    
    (1,222
    )
    
    
    1,382Other long-term liabilities
    
    
    (33
    )
    
    
    119Other
    
    
    (1
    )
    
    
    43Net cash provided by operating activities
    
    
    48,511
    
    
    
    18,186Cash flows from investing activities:Restricted cash
    
    
    1,093
    
    
    
    (55
    )Acquisition of business  PetroEdge
    
    
    (71,213
    )
    
    
    Equipment, development and leasehold
    
    
    (78,214
    )
    
    
    (72,531
    )Net cash used in investing activities
    
    
    (148,334
    )
    
    
    (72,586
    )Cash flows from financing activities:Proceeds from bank borrowings
    
    
    45,000
    
    
    
    Repayments of note borrowings
    
    
    (534
    )
    
    
    (393
    )Proceeds from revolver note
    
    
    89,000
    
    
    
    25,000Contributions(distributions)
    
    
    636
    
    
    
    25,923Distributions to unitholders
    
    
    (22,573
    )
    
    
    Syndication costs
    
    
    (265
    )
    
    
    Refinancing costs
    
    
    (1,893
    )
    
    
    (1,687
    )Net cash provided by financing activities
    
    
    109,371
    
    
    
    48,843Net increase (decrease) in cash and cash equivalents
    
    
    9,548
    
    
    
    (5,557
    )Cash and cash equivalents, beginning of period
    
    
    169
    
    
    
    13,334Cash and cash equivalents, end of period
    
    $
    9,717
    
    
    $
    7,777
  F-3




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QUEST ENERGY PARTNERS, L.P. AND SUBSIDIARIES
 
 CONDENSED NOTES TO
CONSOLIDATED/CARVE OUT FINANCIAL STATEMENTS
SEPTEMBER 30, 2008
(Unaudited)
 1. Basis of Presentation
       Misappropriation, Reaudit and Restatement
 Investigation
 F-4




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QUEST ENERGY PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED/CARVE OUT FINANCIAL STATEMENTS(Continued)
   Reaudit
and Restatement 
   Going Concern
   F-5




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QUEST ENERGY PARTNERS, L.P. AND SUBSIDIARIESCONDENSED NOTES TO CONSOLIDATED/CARVE OUT FINANCIAL STATEMENTS(Continued)
          Recent Accounting Pronouncements
 Effective Date of FASB Statement
No. 157
 Determining the Fair Value
of a Financial Asset When the Market for That Asset is Not Active
 Amendment of FASB Interpretation No. 39 Offsetting of Amounts Related to Certain Contracts
 F-6




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QUEST ENERGY PARTNERS, L.P. AND SUBSIDIARIESCONDENSED NOTES TO CONSOLIDATED/CARVE OUT FINANCIAL STATEMENTS(Continued)
  Business Combinations
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Application of the Two-Class Method under
FASB Statement No. 128, Earnings per Share, to Master Limited Partnerships
 Disclosures about Derivative Instruments and
Hedging Activities  an amendment of FASB Statement No. 133
 F-7




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QUEST ENERGY PARTNERS, L.P. AND SUBSIDIARIESCONDENSED NOTES TO CONSOLIDATED/CARVE OUT FINANCIAL STATEMENTS(Continued)
  Modernization of Oil and Gas
Reporting
 2. Acquisitions
 PetroEdge 
   Proved oil and gas properties
    
    $
    73,406Asset retirement obligations
    
    
    (2,193
    )Purchase price
    
    $
    71,213
 Pro Forma Summary Data related to acquisitions (unaudited)
  F-8




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QUEST ENERGY PARTNERS, L.P. AND SUBSIDIARIESCONDENSED NOTES TO CONSOLIDATED/CARVE OUT FINANCIAL STATEMENTS(Continued)
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Pro forma revenue
    
    $
    49,454
    
    
    $
    26,889
    
    
    $
    143,458
    
    
    $
    85,507Pro forma net income (loss)
    
    $
    157,938
    
    
    $
    (1,598
    )
    
    $
    19,020
    
    
    $
    (30,385
    )Pro forma net income
(loss) per limited partner
unit  basic and diluted
    
    $
    7.31
    
    
    
    
    
    
    $
    0.88
   Seminole
County 
 3. Long-Term Debt
  SuccessorSeptember 30
    
    
    December 312008
    
    
    2007Borrowings under bank senior credit facilitiesFirst Lien Credit Agreement
    
    $
    183,000
    
    
    $
    94,000Second Lien Loan Agreement
    
    
    45,000
    
    
    
    Notes payable to banks and finance companies, secured
by equipment and vehicles, due in installments through
October 2013 with interest ranging from 1.9% to 8.9%
per annum
    
    
    174
    
    
    
    708Total debt
    
    
    228,174
    
    
    
    94,708Less current maturities included in current liabilities
    
    
    45,025
    
    
    
    666Total long-term debt
    
    $
    183,149
    
    
    $
    94,042
 Credit Facilities
 Quest Cherokee Credit Agreement
  F-9




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QUEST ENERGY PARTNERS, L.P. AND SUBSIDIARIESCONDENSED NOTES TO CONSOLIDATED/CARVE OUT FINANCIAL STATEMENTS(Continued)
 
    
    On April 15, 2008, we entered into a First Amendment to Amended
and Restated Credit Agreement that, among other things, amended the interest rate and
maturity date pursuant to the market flex rights contained in the commitment papers
related to the Quest Cherokee Credit Agreement.
    
    On October 28, 2008, we entered into a Second Amendment
to Amended and Restated Credit Agreement to amend and/or waive certain of the representations
and covenants contained in the Quest Cherokee Credit Agreement in order to rectify any
possible covenant violations or non-compliance with the representations and warranties
as a result of (1) the Transfers and (2) not timely settling certain intercompany
accounts among us, QRCP and Quest Midstream.
    
    On June 18, 2009, we entered into a Third Amendment to
 Amended and Restated Credit Agreement that, among other things, permits Quest Cherokees
obligations under oil and gas derivative contracts with BP Corporation North America,
Inc. (BP) or any of its affiliates to be secured by the liens under the credit
agreement on a pari  passu basis with the obligations under the credit agreement.
    
    On June 30, 2009, we entered into a Fourth Amendment to
 Amended and Restated Credit Agreement that deferred until August 15, 2009, our obligation to
deliver to RBC unaudited consolidated balance sheets and related statements of income
and cash flows for the fiscal quarters ending September 30, 2008 and March 31, 2009.
 Borrowing Base
  Commitment Fee
 Interest Rate
 F-10




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##### Table of Contents



QUEST ENERGY PARTNERS, L.P. AND SUBSIDIARIESCONDENSED NOTES TO CONSOLIDATED/CARVE OUT FINANCIAL STATEMENTS(Continued)
  Second Lien Loan Agreement
  
    
    On October 28, 2008, we entered into a First Amendment to Second Lien Senior Term
Loan Agreement (the First Amendment to Second Lien Loan Agreement) to, among other things,
extend the maturity date to September 30, 2009 and to amend and/or waive certain of the
representations and covenants contained in the Second Lien Loan Agreement in order to
rectify any possible covenant violations or non-compliance with the representations and
warranties as a result of (1) the Transfers and (2) not timely settling certain intercompany
accounts among QRCP, Quest Energy and Quest Midstream.
 
    
    On June 30, 2009, we entered into a Second Amendment to Second
Lien Senior Term Loan Agreement that amended a covenant in order to defer until August 15, 2009, Quest
Energys obligation to deliver to RBC unaudited consolidated balance sheets and related
statements of income and cash flows for the fiscal quarters ending September 30, 2008 and
March 31, 2009.
 Payments
 Interest Rate
 Restrictions on Proceeds from Asset Sales
 Covenants
  F-11




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##### Table of Contents



QUEST ENERGY PARTNERS, L.P. AND SUBSIDIARIESCONDENSED NOTES TO CONSOLIDATED/CARVE OUT FINANCIAL STATEMENTS(Continued)
  General
Provisions Applicable to Quest Cherokee Agreements.
 Restrictions on Distributions and Capital Expenditures
 Guarantors and Security Interest
 pari passu
 Representations, Warranties and Covenants
  
    
    permitting the ratio (calculated based on the most recently delivered compliance
certificate) of our consolidated current assets (including the unused availability under the
revolving credit facility, but excluding non-cash assets under FAS No. 133) to consolidated
current liabilities (excluding non-cash obligations under FAS No. 133, asset and asset
retirement obligations and current maturities of indebtedness under the Quest Cherokee
Credit Agreement) at any fiscal quarter-end to be less than 1.0 to 1.0; provided, however,
that current assets and current liabilities will exclude mark-to-market values of swap
contracts, to the extent such values are included in current assets and current liabilities;
 
    
    permitting the interest coverage ratio (calculated on the most recently delivered
compliance certificate) of adjusted consolidated EBITDA to consolidated interest charges at
any fiscal quarter-end to be less than 2.5 to 1.0 measured on a rolling four quarter basis;
and
 
    
    permitting the leverage ratio (calculated based on the most recently delivered compliance
certificate) of consolidated funded debt to adjusted consolidated EBITDA at any fiscal
quarter-end to be greater than 3.5 to 1.0 measured on a rolling four quarter basis.
  F-12




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QUEST ENERGY PARTNERS, L.P. AND SUBSIDIARIESCONDENSED NOTES TO CONSOLIDATED/CARVE OUT FINANCIAL STATEMENTS(Continued)
       Events of Default
 4. Derivative Financial Instruments
  F-13




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QUEST ENERGY PARTNERS, L.P. AND SUBSIDIARIESCONDENSED NOTES TO CONSOLIDATED/CARVE OUT FINANCIAL STATEMENTS(Continued)
     Successor
    
    

Predecessor
    
    
Successor
    
    
PredecessorThree months ended September 30,
    
    
    Nine months ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Restated)
    
    
    
    
    
    
    (Restated)Realized gains (losses)
    
    $
    (7,525
    )
    
    $
    3,742
    
    
    $
    (17,795
    )
    
    $
    5,163Unrealized gains (losses)
    
    
    152,657
    
    
    
    9,646
    
    
    
    13,313
    
    
    
    3,069Total
    
    $
    145,132
    
    
    $
    13,388
    
    
    $
    (4,482
    )
    
    $
    8,232
 F-14




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QUEST ENERGY PARTNERS, L.P. AND SUBSIDIARIESCONDENSED NOTES TO CONSOLIDATED/CARVE OUT FINANCIAL STATEMENTS(Continued)
  Remainder of
    
    Year Ending December 31,2008
    
    2009
    
    2010
    
    2011
    
    Thereafter
    
    Total($ in thousands, except volumes and per unit data)Natural Gas Swaps:Contract volumes (Mmbtu)
    
    
    2,829,828
    
    
    
    14,629,200
    
    
    
    12,499,060
    
    
    
    2,000,004
    
    
    
    2,000,004
    
    
    
    33,958,096Weighted-average fixed price per Mmbtu
    
    $
    6.98
    
    
    $
    7.78
    
    
    $
    7.42
    
    
    $
    8.00
    
    
    $
    8.11
    
    
    $
    7.62Fair value, net
    
    $
    4,011
    
    
    $
    6,421
    
    
    $
    (5,056
    )
    
    $
    202
    
    
    $
    479
    
    
    $
    6,057Natural Gas Collars:Contract volumes (Mmbtu):Floor
    
    
    1,766,492
    
    
    
    750,000
    
    
    
    630,000
    
    
    
    3,549,996
    
    
    
    3,000,000
    
    
    
    9,696,488Ceiling
    
    
    1,766,492
    
    
    
    750,000
    
    
    
    630,000
    
    
    
    3,549,996
    
    
    
    3,000,000
    
    
    
    9,696,488Weighted-average fixed price per Mmbtu:Floor
    
    $
    6.54
    
    
    $
    11.00
    
    
    $
    10.00
    
    
    $
    7.39
    
    
    $
    7.00
    
    
    $
    7.56Ceiling
    
    $
    7.53
    
    
    $
    15.00
    
    
    $
    13.11
    
    
    $
    9.88
    
    
    $
    9.60
    
    
    $
    9.97Fair value, net
    
    $
    963
    
    
    $
    2,280
    
    
    $
    1,162
    
    
    $
    635
    
    
    $
    238
    
    
    $
    5,278Total Natural Gas Contracts:Contract volumes (Mmbtu)
    
    
    4,596,320
    
    
    
    15,379,200
    
    
    
    13,129,060
    
    
    
    5,550,000
    
    
    
    5,000,004
    
    
    
    43,654,584Weighted-average fixed price per Mmbtu
    
    $
    6.81
    
    
    $
    7.94
    
    
    $
    6.59
    
    
    $
    7.61
    
    
    $
    7.44
    
    
    $
    7.31Fair value, net
    
    $
    4,974
    
    
    $
    8,701
    
    
    $
    (3,894
    )
    
    $
    837
    
    
    $
    717
    
    
    $
    11,335Crude Oil Swaps:Contract volumes (Bbl)
    
    
    9,000
    
    
    
    36,000
    
    
    
    30,000
    
    
    
    
    
    
    
    
    
    
    
    75,000Weighted-average fixed per Bbl
    
    $
    95.92
    
    
    $
    90.07
    
    
    $
    87.50
    
    
    $
    
    
    
    $
    
    
    
    $
    89.74Fair value, net
    
    $
    (41
    )
    
    $
    (432
    )
    
    $
    (493
    )
    
    $
    
    
    
    $
    
    
    
    $
    (966
    )
 F-15




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##### Table of Contents



QUEST ENERGY PARTNERS, L.P. AND SUBSIDIARIESCONDENSED NOTES TO CONSOLIDATED/CARVE OUT FINANCIAL STATEMENTS(Continued)
  Year EndingDecember 31,2008
    
    2009
    
    2010
    
    Thereafter
    
    Total($ in thousands, except volumes and per unit data)Natural Gas Swaps:Contract volumes (Mmbtu)
    
    
    8,595,876
    
    
    
    12,629,365
    
    
    
    10,499,225
    
    
    
    
    
    
    
    31,724,466Weighted-average fixed
price per Mmbtu
    
    $
    6.39
    
    
    $
    7.70
    
    
    $
    7.31
    
    
    $
    
    
    
    $
    7.22Fair value, net
    
    $
    1,517
    
    
    $
    1,721
    
    
    $
    (4,565
    )
    
    $
    
    
    
    $
    (1,327
    )Natural Gas Collars:Contract volumes (Mmbtu):Floor
    
    
    7,027,566
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,027,566Ceiling
    
    
    7,027,566
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,027,566Weighted-average fixed
price per Mmbtu:Floor
    
    $
    6.54
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    6.54Ceiling
    
    $
    7.53
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    7.53Fair value, net
    
    $
    (1,617
    )
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (1,617
    )Total Natural Gas Contracts:Contract volumes (Mmbtu)
    
    
    15,623,442
    
    
    
    12,629,365
    
    
    
    10,499,225
    
    
    
    
    
    
    
    38,752,032Weighted-average fixed
price per Mmbtu
    
    $
    6.46
    
    
    $
    7.70
    
    
    $
    7.31
    
    
    $
    
    
    
    $
    7.09Fair value, net
    
    $
    (100
    )
    
    $
    1,721
    
    
    $
    (4,565
    )
    
    $
    
    
    
    $
    (2,944
    )
 5. Fair Value Measurements
  Fair Value Measurements
    F-16




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##### Table of Contents



QUEST ENERGY PARTNERS, L.P. AND SUBSIDIARIESCONDENSED NOTES TO CONSOLIDATED/CARVE OUT FINANCIAL STATEMENTS(Continued)
    Netting andLevel
    
    
    Level
    
    
    Level
    
    
    Cash
    
    
    Total Net FairAt September 30, 2008
    
    1
    
    
    2
    
    
    3
    
    
    Collateral*
    
    
    ValueDerivative financial instruments  assets
    
    $
    
    
    
    $
    4,972
    
    
    $
    21,219
    
    
    $
    (15,822
    )
    
    $
    10,369Derivative financial instruments  liabilities
    
    $
    
    
    
    $
    (2,869
    )
    
    $
    (12,953
    )
    
    $
    15,822
    
    
    $
    Total
    
    $
    
    
    
    $
    2,103
    
    
    $
    8,266
    
    
    $
    
    
    
    $
    10,369
 
 *
    
    Amounts represent the effect of legally enforceable master netting
agreements between us and our counterparties and the payable or
receivable for cash collateral held or placed with the same
counterparties.     Nine MonthsEndedSeptember 30,2008Balance at beginning of period
    
    $
    3,444Realized and unrealized gains included in earnings
    
    
    5,677Purchases, sales, issuances, and settlements
    
    
    (855
    )Transfers into and out of Level 3
    
    
    Balance as of September 30, 2008
    
    $
    8,266
 F-17




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##### Table of Contents



QUEST ENERGY PARTNERS, L.P. AND SUBSIDIARIESCONDENSED NOTES TO CONSOLIDATED/CARVE OUT FINANCIAL STATEMENTS(Continued)
 6. Asset Retirement Obligations
  Asset retirement obligations at beginning of period
    
    $
    1,700Liabilities incurred
    
    
    93Liabilities settled
    
    
    (18
    )Acquisition of PetroEdge
    
    
    2,193Accretion
    
    
    195Revisions in estimated cash flows
    
    
    290Asset retirement obligations at end of period
    
    $
    4,453
 7. Partners Equity
 Issuance of Units
  F-18




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##### Table of Contents



QUEST ENERGY PARTNERS, L.P. AND SUBSIDIARIESCONDENSED NOTES TO CONSOLIDATED/CARVE OUT FINANCIAL STATEMENTS(Continued)
  2008$ per Unit
    
    $ TotalGeneral
Partner:First Quarter
    
    $
    0.2043
    
    
    $
    88Second Quarter
    
    $
    0.4100
    
    
    $
    177Third Quarter
    
    $
    0.4300
    
    
    $
    186Common Units:First Quarter
    
    $
    0.2043
    
    
    $
    2,518Second
Quarter
    
    $
    0.4100
    
    
    $
    5,055Third Quarter
    
    $
    0.4300
    
    
    $
    5,302Subordinated
Units:First Quarter
    
    $
    0.2043
    
    
    $
    1,809Second
Quarter
    
    $
    0.4100
    
    
    $
    3,631Third Quarter
    
    $
    0.4300
    
    
    $
    3,808
  
    
    the decline in our cash flows from operations due to declines in oil and natural gas
prices during the last half of 2008,
    
    the costs of the investigation and associated remedial actions, including the reaudit and
restatement of our financial statements,
    
    concerns about a potential borrowing base redetermination in the second quarter of 2009,
    
    the need to conserve cash to properly conduct operations and maintain strategic options,
and
    
    the need to repay or refinance our term loan by September 30, 2009.
   F-19




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##### Table of Contents



QUEST ENERGY PARTNERS, L.P. AND SUBSIDIARIESCONDENSED NOTES TO CONSOLIDATED/CARVE OUT FINANCIAL STATEMENTS(Continued)
  Equity Compensation Plans
  8. Net Income Per Limited Partner Unit
 Participating Securities and the Two-Class Method under Financial Accounting Standards Board
(FASB) Statement No. 128,
   Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,2008
    
    
    2008Net Income
    
    $
    157,938
    
    
    $
    23,557Less: General partner 2.0% ownership
    
    
    (3,159
    )
    
    
    (471
    )Net income available to limited and subordinated partners
    
    $
    154,779
    
    
    $
    23,086Basic and diluted weighted average number of units:Common units
    
    
    12,309,021
    
    
    
    12,308,282Subordinated units
    
    
    8,857,981
    
    
    
    8,857,981Basic and
diluted net income per limited partner unit
    
    $
    7.31
    
    
    $
    1.09
 9. Commitments and Contingencies
 Litigation
  F-20




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##### Table of Contents



QUEST ENERGY PARTNERS, L.P. AND SUBSIDIARIESCONDENSED NOTES TO CONSOLIDATED/CARVE OUT FINANCIAL STATEMENTS(Continued)
 Federal Securities Class Actions
 Michael Friedman, individually and on behalf of all others similarly situated v. Quest Energy
Partners LP, Quest Energy GP LLC, Quest Resource Corporation, Jerry Cash, and David E. Grose , Case
No. 08-cv-936-M U.S., District Court for the Western District of Oklahoma, filed September 5, 2008
 James Jents, individually and on behalf of all others similarly situated v. Quest Resource
Corporation, Jerry Cash, David E. Grose, and John Garrison , Case No. 08-cv-968-M, U.S. District
Court for the Western District of Oklahoma, filed September 12, 2008
 J. Braxton Kyzer and Bapui Rao, individually and on behalf of all others similarly situated v.
Quest Energy Partners LP, Quest Energy GP LLC, Quest Resource Corporation and David E. Grose , Case
No. 08-cv-1066-M, U.S. District Court for the Western District of Oklahoma, filed October 6, 2008
 Paul Rosen, individually and on behalf of all others similarly situated v. Quest Energy
Partners LP, Quest Energy GP LLC, Quest Resource Corporation, Jerry Cash, and David E. Grose , Case
No. 08-cv-978-M, U.S. District Court for the Western District of Oklahoma, filed September 17, 2008
 Michael Friedman, individually and on behalf of all others similarly situated v.
Quest Energy Partners LP, Quest Energy GP LLC, Quest Resource Corporation, Jerry Cash, and David E.
Grose
 Royalty Owner Class Action
 Hugo
Spieker, et al. v. Quest Cherokee, LLC, Case No. 07-1225-MLB in the U.S. District Court,
District of Kansas, filed August 6, 2007
  F-21




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##### Table of Contents



QUEST ENERGY PARTNERS, L.P. AND SUBSIDIARIESCONDENSED NOTES TO CONSOLIDATED/CARVE OUT FINANCIAL STATEMENTS(Continued)
 Personal Injury Litigation
 Segundo Francisco Trigoso and Dana Jara De Trigoso v. Quest Cherokee Oilfield Service, LLC, CJ-2007-11079, in the District Court of Oklahoma County, State of Oklahoma, filed December 27, 2007
  St. Paul Surplus
Lines Insurance Company v. Quest Cherokee Oilfield Service, LLC, et
al. CJ-2009-1078, in the District Court of Tulsa County, State of Oklahoma, filed February 11, 2009
 Trigoso Trigoso
 Billy Bob Willis, et al. v. Quest Resource Corporation, et al., Case No. CJ-09-00063, District
Court of Nowata County, State of Oklahoma, filed April 28, 2009.
  Berenice Urias v. Quest Cherokee, LLC, et al. , CV-2008-238C in the Fifth Judicial District,
County of Lea, State of New Mexico (Second Amended Complaint filed September 24, 2008)
  Juana Huerter v. Quest Cherokee Oilfield Services, LLC, et al., Case No. 2008 CV-50, District
Court of Neosho County, State of Kansas, filed May 5, 2008
 et al.
 Bradley Haviland, Jr., v. Quest Cherokee Oilfield Services, LLC, et al., Case No. 2008 CV-78,
District Court of Neosho County, State of Kansas, filed July 25, 2008
 et al.
 Litigation Related to Oil and Gas Leases
  F-22




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##### Table of Contents



QUEST ENERGY PARTNERS, L.P. AND SUBSIDIARIESCONDENSED NOTES TO CONSOLIDATED/CARVE OUT FINANCIAL STATEMENTS(Continued)
 Roger Dean Daniels v. Quest Cherokee, LLC, Case No. 06-CV-61, in the District Court of
Montgomery County, State of Kansas, filed May 5, 2006 (currently
on appeal)
 Carol R. Knisely, et al. v. Quest Cherokee, LLC, Case No. 07-CV-58-I, in the District Court
of Montgomery County, State of Kansas, filed April 16, 2007
 Quest Cherokee, LLC v. David W. Hinkle, et al., Case No. 2006-CV-74, in the District Court
of Labette County, State of Kansas, filed September 5, 2006
 Scott Tomlinson, et al. v. Quest Cherokee, LLC, Case No. 2007-CV-45, in the District Court
of Wilson County, State of Kansas, filed August 29, 2007
 Ilene T. Bussman et al. v. Quest Cherokee, LLC, Case No. 07-CV-106-PA, in the District Court
of Labette County, State of Kansas, filed November 26, 2007
 Gary Dale Palmer, et al. v. Quest Cherokee, LLC, Case No. 07-CV-107-PA, in the District
Court of Labette County, State of Kansas, filed November 26, 2007
 Richard L. Bradford, et al. v. Quest Cherokee, LLC, Case No. 2008-CV-67, in the District
Court of Wilson County, Kansas, filed September 18, 2008
 Richard Winder v. Quest Cherokee, LLC, Case Nos. 07-CV-141 and 08-CV-20, in the District
Court of Wilson County, Kansas, filed December 7, 2007, and February 27, 2008
 Housel v. Quest Cherokee, LLC , 06-CV-26-I, in the District Court of Montgomery County, State
of Kansas, filed March 2, 2006
  Central Natural Resources, Inc. v. Quest Cherokee, LLC, et al., Case No. 04-C-100-PA in the
District Court of Labette County, State of Kansas, filed on September 1, 2004
  F-23




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##### Table of Contents



QUEST ENERGY PARTNERS, L.P. AND SUBSIDIARIESCONDENSED NOTES TO CONSOLIDATED/CARVE OUT FINANCIAL STATEMENTS(Continued)
  Central Natural Resources, Inc. v. Quest Cherokee, LLC, et al ., Case No. CJ-06-07 in the
District Court of Craig County, State of Oklahoma, filed January 17, 2006
  Edward E. Birk, et ux., and Brian L. Birk, et ux., v. Quest Cherokee, LLC , Case No. 09-CV-27,
in the District Court of Neosho County, State of Kansas, filed April 23, 2009
  Robert C. Aker, et al. v. Quest Cherokee, LLC, et al. , U.S. District Court for the Western
District of Pennsylvania, Case No. 3-09CV101, filed April 16, 2009
  Other
 Well Refined Drilling Co. v. Quest Cherokee, LLC, Case No. 2007-CV-91, in the District Court
of Neosho County, State of Kansas, filed July 19, 2007; and Well Refined Drilling Co. v. Quest
Cherokee, LLC, Case No. 2007-CV-46, in the District Court of Wilson County, State of Kansas, filed
September 4, 2007
  Larry Reitz, et al. v. Quest Resource Corporation, et al., Case No. CJ-09-00076, District
Court of Nowata County, State of Oklahoma, filed May 15, 2009.
 F-24




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##### Table of Contents



QUEST ENERGY PARTNERS, L.P. AND SUBSIDIARIESCONDENSED NOTES TO CONSOLIDATED/CARVE OUT FINANCIAL STATEMENTS(Continued)
  Barbara Cox v. Quest Cherokee, LLC , U.S. District Court for the District of New Mexico, Case
No. CIV-08-0546, filed April 18, 2008
  Environmental
Matters
 10.
Related Party Transactions
   11. Restatement
    F-25




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##### Table of Contents



QUEST ENERGY PARTNERS, L.P. AND SUBSIDIARIESCONDENSED NOTES TO CONSOLIDATED/CARVE OUT FINANCIAL STATEMENTS(Continued)
 PredecessorThree Months Ended
    
    
    Nine Months EndedSeptember 30, 2007
    
    
    September 30, 2007Net income (loss) as previously reported
    
    $
    1,372
    
    
    $
    (7,552
    )A  Effects of the transfers
    
    
    (500
    )
    
    
    (1,500
    )B  Reversal of hedge accounting
    
    
    4,108
    
    
    
    (2,286
    )C  Capitalization of costs in full cost pool
    
    
    (2,325
    )
    
    
    (7,772
    )D  Recognition of costs in proper periods
    
    
    (436
    )
    
    
    (868
    )E  Depreciation, depletion and amortization
    
    
    (22
    )
    
    
    (677
    )F  Other errors
    
    
    (1,406
    )
    
    
    (2,563
    )Net income (loss) as restated
    
    $
    791
    
    
    $
    (23,218
    )
  (A)
 (B)
 (C)
 (D)
 (E)
 (F)
  F-26




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##### Table of Contents



QUEST ENERGY PARTNERS, L.P. AND SUBSIDIARIESCONDENSED NOTES TO CONSOLIDATED/CARVE OUT FINANCIAL STATEMENTS(Continued)
  Predecessor (carve out)Three Months Ended September 30, 2007As Previously
    
    
    Restatement
    
    
    AsReported
    
    
    Adjustments
    
    
    RestatedRevenues:Oil and gas sales
    
    $
    28,494
    
    
    $
    (4,642
    )
    
    $
    23,852Other revenue (expense)
    
    
    (5
    )
    
    
    5
    
    
    
    Total revenues
    
    
    28,489
    
    
    
    (4,637
    )
    
    
    23,852Costs and expenses:Oil and gas production
    
    
    7,280
    
    
    
    1,696
    
    
    
    8,976Transportation expense
    
    
    7,469
    
    
    
    
    
    
    
    7,469General and administrative expenses
    
    
    2,415
    
    
    
    903
    
    
    
    3,318Depreciation, depletion and amortization
    
    
    7,978
    
    
    
    689
    
    
    
    8,667Misappropriation of funds
    
    
    
    
    
    
    500
    
    
    
    500Total costs and expenses
    
    
    25,142
    
    
    
    3,788
    
    
    
    28,930Operating income (loss)
    
    
    3,347
    
    
    
    (8,425
    )
    
    
    (5,078
    )Other income (expense):Gain from derivative financial instruments
    
    
    5,539
    
    
    
    7,849
    
    
    
    13,388Other income (expense)
    
    
    49
    
    
    
    (5
    )
    
    
    44Interest expense
    
    
    (7,665
    )
    
    
    
    
    
    
    (7,665
    )Interest income
    
    
    102
    
    
    
    
    
    
    
    102Total other income (expense)
    
    
    (1,975
    )
    
    
    7,844
    
    
    
    5,869Net income (loss)
    
    $
    1,372
    
    
    $
    (581
    )
    
    $
    791
 F-27




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##### Table of Contents



QUEST ENERGY PARTNERS, L.P. AND SUBSIDIARIESCONDENSED NOTES TO CONSOLIDATED/CARVE OUT FINANCIAL STATEMENTS(Continued)
  Predecessor (carve out)Nine Months Ended September 30, 2007As Previously
    
    
    Restatement
    
    
    AsReported
    
    
    Adjustments
    
    
    RestatedRevenues:Oil and gas sales
    
    $
    81,910
    
    
    $
    (5,514
    )
    
    $
    76,396Other revenue (expense)
    
    
    (37
    )
    
    
    37
    
    
    
    Total revenues
    
    
    81,873
    
    
    
    (5,477
    )
    
    
    76,396Costs and expenses:Oil and gas production
    
    
    22,247
    
    
    
    5,744
    
    
    
    27,991Transportation expense
    
    
    20,639
    
    
    
    
    
    
    
    20,639General and administrative expenses
    
    
    8,261
    
    
    
    1,764
    
    
    
    10,025Depreciation, depletion and amortization
    
    
    22,041
    
    
    
    2,577
    
    
    
    24,618Misappropriation of funds
    
    
    
    
    
    
    1,500
    
    
    
    1,500Total costs and expenses
    
    
    73,188
    
    
    
    11,585
    
    
    
    84,773Operating income (loss)
    
    
    8,685
    
    
    
    (17,062
    )
    
    
    (8,377
    )Other income (expense):Gain from derivative financial instruments
    
    
    5,354
    
    
    
    2,878
    
    
    
    8,232Other expense
    
    
    (148
    )
    
    
    (37
    )
    
    
    (185
    )Interest expense
    
    
    (21,825
    )
    
    
    (1,445
    )
    
    
    (23,270
    )Interest income
    
    
    382
    
    
    
    
    
    
    
    382Total other income (expense)
    
    
    (16,237
    )
    
    
    1,396
    
    
    
    (14,841
    )Net loss
    
    $
    (7,552
    )
    
    $
    (15,666
    )
    
    $
    (23,218
    )
 F-28




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##### Table of Contents



QUEST ENERGY PARTNERS, L.P. AND SUBSIDIARIESCONDENSED NOTES TO CONSOLIDATED/CARVE OUT FINANCIAL STATEMENTS(Continued)
  Predecessor (carve out)Nine Months Ended September 30, 2007As Previously
    
    
    Restatement
    
    
    AsReported
    
    
    Adjustments
    
    
    RestatedCash flows from operating activities:Net loss
    
    $
    (7,552
    )
    
    $
    (15,666
    )
    
    $
    (23,218
    )Adjustments to reconcile net income (loss) to cash provided
by operations:Depreciation, depletion and amortization
    
    
    23,796
    
    
    
    822
    
    
    
    24,618Change in fair value of derivative financial instruments
    
    
    (5,354
    )
    
    
    2,285
    
    
    
    (3,069
    )Capital contributions for director fees
    
    
    12
    
    
    
    (12
    )
    
    
    Contributions for consideration for compensation to employees
    
    
    3,015
    
    
    
    1,271
    
    
    
    4,286Amortization of deferred loan costs
    
    
    1,604
    
    
    
    (188
    )
    
    
    1,416Amortization of gas swap fees
    
    
    187
    
    
    
    (187
    )
    
    
    Bad debt expense
    
    
    
    
    
    
    22
    
    
    
    22Loss on sale of assets
    
    
    148
    
    
    
    (148
    )
    
    
    Change in assets and liabilities:Restricted cash
    
    
    (55
    )
    
    
    55
    
    
    
    Accounts receivable
    
    
    (586
    )
    
    
    372
    
    
    
    (214
    )Other receivables
    
    
    (1,101
    )
    
    
    (365
    )
    
    
    (1,466
    )Other current assets
    
    
    (795
    )
    
    
    
    
    
    
    (795
    )Inventory
    
    
    56
    
    
    
    (56
    )
    
    
    Other assets
    
    
    
    
    
    
    (378
    )
    
    
    (378
    )Due from affiliates
    
    
    
    
    
    
    363
    
    
    
    363Accounts payable
    
    
    8,146
    
    
    
    5,445
    
    
    
    13,591Revenue payable
    
    
    1,137
    
    
    
    349
    
    
    
    1,486Accrued expenses
    
    
    (114
    )
    
    
    1,496
    
    
    
    1,382Other long-term liabilities
    
    
    
    
    
    
    119
    
    
    
    119Other
    
    
    
    
    
    
    43
    
    
    
    43Net cash provided by (used in) operating activities
    
    
    22,544
    
    
    
    (4,358
    )
    
    
    18,186Cash flows from investing activities:Restricted cash
    
    
    
    
    
    
    (55
    )
    
    
    (55
    )Equipment,
development and leasehold costs
    
    
    (75,631
    )
    
    
    3,100
    
    
    
    (72,531
    )Proceeds from sale of property and equipment
    
    
    125
    
    
    
    (125
    )
    
    
    Net cash used in investing activities
    
    
    (75,506
    )
    
    
    2,920
    
    
    
    (72,586
    )Cash flows from financing activities:Proceeds from bank borrowings
    
    
    25,000
    
    
    
    (25,000
    )
    
    
    Repayments of note borrowings
    
    
    (393
    )
    
    
    
    
    
    
    (393
    )Proceeds from revolver note
    
    
    
    
    
    
    25,000
    
    
    
    25,000Contributions/(distributions)  QRCP
    
    
    25,873
    
    
    
    50
    
    
    
    25,923Refinancing costs
    
    
    (1,698
    )
    
    
    11
    
    
    
    (1,687
    )Change in other long  term liabilities
    
    
    123
    
    
    
    (123
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    48,905
    
    
    
    (62
    )
    
    
    48,843Net decrease in cash
    
    
    (4,057
    )
    
    
    (1,500
    )
    
    
    (5,557
    )Cash and
cash equivalents, beginning of period
    
    
    21,334
    
    
    
    (8,000
    )
    
    
    13,334Cash and
cash equivalents end of period
    
    $
    17,277
    
    
    $
    (9,500
    )
    
    $
    7,777
 F-29




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##### Table of Contents



QUEST ENERGY PARTNERS, L.P. AND SUBSIDIARIESCONDENSED NOTES TO CONSOLIDATED/CARVE OUT FINANCIAL STATEMENTS(Continued)
 12. Subsequent Events
 Impairment of oil and gas properties
  Settlement Agreements
  Federal Derivative Case
 and/or
 Credit Agreement Amendments
  Financial Advisor Contract
  Merger Agreement and Support Agreement
   F-30




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 Restatement
   Overview of Our Company
  Recent Developments
 PetroEdge Acquisition
  Internal Investigation; Restatements and Reaudits
    
    
    We had costs associated with the internal investigation and our responding to inquiries
from the Oklahoma Department of Securities, the Federal Bureau of Investigation, the
Department of Justice, the SEC and the IRS.
 4




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##### Table of Contents




    
    As a result of the resignation of Jerry D. Cash and the termination of David E. Grose,
consultants were immediately retained to perform the accounting and finance functions and to
assist in the determination of the intercompany debt.
    
    We retained law firms to respond to the class action and derivative suits that have been
filed against us, our general partner and QRCP and to pursue the claims against the former
employees.
    
    We had costs associated with amending our credit agreements and obtaining the necessary
waivers from our lenders thereunder as well as incremental increased interest expense
related thereto. See  Liquidity and Capital Resources.
    
    We retained new external auditors to reaudit our consolidated financial statements as of
December 31, 2007 and for the period from November 15, 2007 to December 31, 2007 and of the
Predecessors consolidated financial statements as of and for the years ended December 31,
2005 and 2006, and for the period from January 1, 2007 to November 14, 2007.
    
    We retained financial advisors to consider strategic options and retained outside legal
counsel or increased the amount of work being performed by our previously engaged outside
legal counsel.
  Global Financial Crisis and Impact on Capital Markets and Commodity Prices
      5




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##### Table of Contents



Credit Agreements
  pari passu
  Suspension of Distributions
  
    
    the decline in our cash flows from operations due to declines in oil and natural gas
prices during the last half of 2008,
    
    the costs of the investigation and associated remedial actions, including the reaudit and
restatement of our financial statements,
    
    concerns about a potential borrowing base redetermination in the second quarter of 2009,
    
    the need to conserve cash to properly conduct operations and maintain strategic options,
and
    
    the need to repay or refinance our term loan by September 30, 2009.
 6




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##### Table of Contents



Decrease in Year-End Reserves; Impairment
   Settlement Agreements
  Recombination
  7




---



##### Table of Contents



Factors That Significantly Affect Comparability of Our Results
  Midstream Services Agreement.
  Results of Operations
  Three Months Ended September 30, 2008 Compared to the Three Months Ended September 30, 2007
 Overview.
 Three Months EndedSeptember 30,
    
    Increase/2008
    
    2007
    
    (Decrease)($ in thousands)Oil and gas sales
    
    $
    49,454
    
    
    $
    23,852
    
    
    $
    25,602
    
    
    
    107.3
    %Oil and gas production costs
    
    $
    9,821
    
    
    $
    8,976
    
    
    $
    845
    
    
    
    9.4
    %Transportation expense
    
    $
    8,583
    
    
    $
    7,469
    
    
    $
    1,114
    
    
    
    14.9
    %Depreciation, depletion and amortization
    
    $
    13,196
    
    
    $
    8,667
    
    
    $
    4,529
    
    
    
    52.3
    %General and administrative expenses
    
    $
    734
    
    
    $
    3,318
    
    
    $
    (2,584
    )
    
    
    (77.9
    )%Gain from derivative financial instruments
    
    $
    145,132
    
    
    $
    13,388
    
    
    $
    131,744
    
    
    
    984.0
    %Misappropriation of funds
    
    $
    
    
    
    $
    500
    
    
    $
    (500
    )
    
    
    (100.0
    )%Interest expense, net
    
    $
    4,354
    
    
    $
    7,563
    
    
    $
    (3,209
    )
    
    
    (42.4
    )%
 8




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##### Table of Contents



Production.
 Three Months EndedSeptember 30,
    
    Increase/2008
    
    2007
    
    (Decrease)Production Data:Natural gas production (Mmcf)
    
    
    5,694
    
    
    
    4,375
    
    
    
    1,319
    
    
    
    30.1
    %Oil production (Bbbl)
    
    
    19
    
    
    
    2
    
    
    
    17
    
    
    
    850.0
    %Total production (Mmcfe)
    
    
    5,808
    
    
    
    4,387
    
    
    
    1,421
    
    
    
    32.4
    %Average daily production (Mmcfe/d)
    
    
    63.1
    
    
    
    47.7
    
    
    
    15.4
    
    
    
    32.3
    %Average Sales Price per Unit:Natural gas (Mcf)
    
    $
    8.30
    
    
    $
    5.42
    
    
    $
    2.88
    
    
    
    53.1
    %Oil (Bbl)
    
    $
    116.89
    
    
    $
    65.64
    
    
    $
    51.25
    
    
    
    78.1
    %Natural gas equivalent (Mcfe)
    
    $
    8.51
    
    
    $
    5.44
    
    
    $
    3.07
    
    
    
    56.4
    %Average Unit Costs per Mcfe:Production costs
    
    $
    1.69
    
    
    $
    2.05
    
    
    $
    (0.36
    )
    
    
    (17.6
    )%Transportation expense
    
    $
    1.48
    
    
    $
    1.70
    
    
    $
    (0.22
    )
    
    
    (12.9
    )%Depreciation, depletion and amortization
    
    $
    2.27
    
    
    $
    1.98
    
    
    $
    0.29
    
    
    
    14.6
    %
 Oil
and Gas Sales.
 Oil and Gas Operating Expenses.
   9




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##### Table of Contents



Depreciation, Depletion and Amortization.
 General and Administrative Expenses.
 Gain from Derivative Financial Instruments.
 Misappropriation of Funds.
 Interest Expense, net.
 Nine Months Ended September 30, 2008 Compared to the Nine Months Ended September 30, 2007
 Overview.
 Nine Months EndedSeptember 30,
    
    Increase/2008
    
    2007
    
    (Decrease)($ in thousands)Oil and gas sales
    
    $
    136,908
    
    
    $
    76,396
    
    
    $
    60,512
    
    
    
    79.2
    %Oil and gas production costs
    
    $
    34,104
    
    
    $
    27,991
    
    
    $
    6,113
    
    
    
    21.8
    %Transportation expense
    
    $
    25,921
    
    
    $
    20,639
    
    
    $
    5,282
    
    
    
    25.6
    %Depreciation, depletion and amortization
    
    $
    34,750
    
    
    $
    24,618
    
    
    $
    10,132
    
    
    
    41.2
    %General and administrative expenses
    
    $
    5,501
    
    
    $
    10,025
    
    
    $
    (4,524
    )
    
    
    (45.1
    )%Gain (loss) from derivative financial instruments
    
    $
    (4,482
    )
    
    $
    8,232
    
    
    $
    (12,714
    )
    
    
    (154.4
    )%Misappropriation of funds
    
    $
    
    
    
    $
    1,500
    
    
    $
    (1,500
    )
    
    
    (100.0
    )%Interest expense, net
    
    $
    8,747
    
    
    $
    22,888
    
    
    $
    (14,141
    )
    
    
    (61.8
    )%
 10




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##### Table of Contents



Production.
 Nine Months EndedSeptember 30,
    
    Increase/2008
    
    2007
    
    (Decrease)Production Data:Natural gas production (Mmcf)
    
    
    15,755
    
    
    
    12,211
    
    
    
    3,544
    
    
    
    29.0
    %Oil
production (Bbbl)
    
    
    47
    
    
    
    6
    
    
    
    41
    
    
    
    683.3
    %Total production (Mmcfe)
    
    
    16,037
    
    
    
    12,247
    
    
    
    3,790
    
    
    
    30.9
    %Average daily production (Mmcfe/d)
    
    
    58.5
    
    
    
    44.9
    
    
    
    13.6
    
    
    
    30.3
    %Average Sales Price per Unit:Natural gas (Mcf)
    
    $
    8.36
    
    
    $
    6.23
    
    
    $
    2.13
    
    
    
    34.2
    %Oil (Bbl)
    
    $
    110.40
    
    
    $
    57.06
    
    
    $
    53.34
    
    
    
    93.5
    %Natural gas equivalent (Mcfe)
    
    $
    8.54
    
    
    $
    6.24
    
    
    $
    2.30
    
    
    
    36.9
    %Average Unit Costs per Mcfe:Production costs
    
    $
    2.13
    
    
    $
    2.29
    
    
    $
    (0.16
    )
    
    
    (7.0
    )%Transportation expense
    
    $
    1.62
    
    
    $
    1.69
    
    
    $
    (0.07
    )
    
    
    (4.1
    )%Depreciation, depletion and amortization
    
    $
    2.17
    
    
    $
    2.01
    
    
    $
    0.16
    
    
    
    8.0
    %
 Oil and Gas Sales.
 Oil and Gas Operating Expenses.
   Depreciation, Depletion and Amortization.
 11




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##### Table of Contents



General and Administrative Expense.
 Gain (Loss) from Derivative Financial Instruments.
 Misappropriation of Funds.
 Interest Expense, net.
 Liquidity and Capital Resources
   Cash Flows from Operating Activities.
  12




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##### Table of Contents



Cash Flows Used in Investing Activities.
 Nine Months EndedSeptember 30,2008(In thousands)Capital expenditures:Leasehold
acquisition and development
    
    $
    55,498Acquisition of PetroEdge assets
    
    
    71,213Acquisition of Seminole County, Oklahoma property
    
    
    9,500Other items
    
    
    13,216Total capital expenditures
    
    $
    149,427
 Cash Flows from Financing Activities.
 Working Capital Deficit.
 Credit Agreements
 Quest Cherokee Credit Agreement
  
    
    On April 15, 2008, we entered into a First Amendment to Amended
and Restated Credit Agreement that, among other things, amended the interest rate and
maturity date pursuant to the market flex rights contained in the commitment papers
related to the Quest Cherokee Credit Agreement.
    
    On October 28, 2008, we entered into a Second Amendment
to Amended and Restated Credit Agreement to amend and/or waive certain of the representations
and covenants contained in the Quest Cherokee Credit Agreement in order to rectify any
possible covenant violations or non-compliance with the representations and warranties
as a result of (1) the Transfers and (2) not timely settling certain intercompany
accounts among us, QRCP and Quest Midstream.
    
    On June 18, 2009, we entered into a Third Amendment to Amended and Restated Credit Agreement that, among other things, permits Quest Cherokees
obligations under oil and gas derivative contracts with BP Corporation North America,
Inc. (BP) or any of its affiliates to be secured by the liens under the credit
agreement on a pari passu basis with the obligations under the credit agreement.
 13




---



##### Table of Contents




    
    On June 30, 2009, we entered into a Fourth Amendment to Amended and Restated Credit Agreement that deferred until August 15, 2009, our obligation to
deliver to RBC unaudited consolidated balance sheets and related statements of income
and cash flows for the fiscal quarters ending September 30, 2008 and March 31, 2009.
 Borrowing Base
  Commitment Fee
 Interest Rate
 Second Lien Loan Agreement
  
    
    On October 28, 2008, we entered into a First Amendment
to Second Lien Senior Term Loan Agreement (the First Amendment
to Second Lien Loan Agreement) to, among other things,
extend the maturity date to September 30, 2009 and to amend and/or waive certain of the
representations and covenants
 14




---



##### Table of Contents



contained in the Second Lien Loan Agreement in order to rectify any possible covenant
violations or non-compliance with the representations and warranties as a result or (1) the
Transfers and (2) not timely settling certain intercompany accounts among QRCP, Quest Energy
and Quest Midstream.
 
    
    On June 30, 2009, we  entered into a Second Amendment to Second
Lien Senior Term Loan Agreement that amended a covenant in order to defer until August 15, 2009, Quest
Energys obligation to deliver to RBC unaudited consolidated balance sheets and related
statements of income and cash flows for the fiscal quarters ending September 30, 2008 and
March 31, 2009.
 Payments
 Interest Rate
 Restrictions on Proceeds from Asset Sales
 Covenants
  General
Provisions Applicable to Quest Cherokee Agreements.
 Restrictions on Distributions and Capital Expenditures
 Security Interest
 15




---



##### Table of Contents



pari passu
 Representations, Warranties and Covenants
  
    
    permitting the ratio (calculated based on the most recently delivered compliance
certificate) of our consolidated current assets (including the unused availability under the
revolving credit facility, but excluding non-cash assets under FAS No. 133) to consolidated
current liabilities (excluding non-cash obligations under FAS No. 133, asset and asset
retirement obligations and current maturities of indebtedness under the Quest Cherokee
Credit Agreement) at any fiscal quarter-end to be less than 1.0 to 1.0; provided, however,
that current assets and current liabilities will exclude mark-to-market values of swap
contracts, to the extent such values are included in current assets and current liabilities;
 
    
    permitting the interest coverage ratio (calculated on the most recently delivered
compliance certificate) of adjusted consolidated EBITDA to consolidated interest charges at
any fiscal quarter-end to be less than 2.5 to 1.0 measured on a rolling four quarter basis;
and
 
    
    permitting the leverage ratio (calculated based on the most recently delivered compliance
certificate) of consolidated funded debt to adjusted consolidated EBITDA at any fiscal
quarter-end to be greater than 3.5 to 1.0 measured on a rolling four quarter basis.
    16




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##### Table of Contents



Events of Default
 Contractual Obligations
  Payments Due by PeriodLess Than
    
    
    1-3
    
    
    4-5
    
    
    More ThanTotal
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    5 Years(In thousands)First Lien Credit Agreement
    
    $
    183,000
    
    
    $
    
    
    
    $
    183,000
    
    
    $
    
    
    
    $
    Second Lien Loan Agreement
    
    
    45,000
    
    
    
    45,000
    
    
    
    
    
    
    
    
    
    
    
    Other note obligations
    
    
    174
    
    
    
    25
    
    
    
    111
    
    
    
    32
    
    
    
    6Interest
expense on credit agreements (1)
    
    
    27,212
    
    
    
    14,130
    
    
    
    13,579
    
    
    
    3
    
    
    
    Operating lease obligations
    
    
    718
    
    
    
    162
    
    
    
    301
    
    
    
    255
    
    
    
    Total commitments
    
    $
    256,604
    
    
    $
    59,317
    
    
    $
    196,991
    
    
    $
    290
    
    
    $
    6
 
 (1)
    
    The interest payment obligation was computed using the LIBOR interest
rate as of September 30, 2008. Assumes no reduction in the outstanding
principal amount borrowed under the First Lien Credit Agreement prior
to maturity. 17




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##### Table of Contents



Off-balance Sheet Arrangements
  Critical Accounting Policies
  Recent Accounting Pronouncements
 Effective Date of FASB Statement
No. 157
 Determining the Fair Value
of a Financial Asset When the Market for That Asset is Not Active
 Amendment of FASB Interpretation No. 39 Offsetting of Amounts Related to Certain Contracts
 Business Combinations
 The Fair Value Option for Financial Assets and
Financial Liabilities
 18




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##### Table of Contents



Application of the Two-Class Method under
FASB Statement No. 128, Earnings per Share, to Master Limited Partnerships
 Disclosures about Derivative Instruments and
Hedging Activities  an amendment of FASB Statement No. 133
 Modernization of Oil and Gas
Reporting
 Forward-Looking Statements
  19




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##### Table of Contents




    
    current financial instability and deteriorating economic conditions;
    
    our current financial instability;
    
    volatility of oil and gas prices;
    
    completion of the Recombination;
    
    increases in the cost of drilling, completion and gas gathering or other costs of
developing and producing our reserves;
    
    our restrictive debt covenants;
    
    results of our hedging activities;
    
    developments in oil and gas producing countries;
    
    the impact of weather and the occurrence of natural disasters such as fires;
    
    competition in the oil and gas industry;
    
    availability of drilling and production equipment, labor and other services;
    
    drilling, operational and environmental risks; and
    
    regulatory changes and litigation risks.
   
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 Commodity Price Risk
  20




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##### Table of Contents



Remainder of
    
    Year Ending December 31,2008
    
    2009
    
    2010
    
    2011
    
    Thereafter
    
    Total($ in thousands, except volumes and per unit data)Natural Gas Swaps:Contract volumes (Mmbtu)
    
    
    2,829,828
    
    
    
    14,629,200
    
    
    
    12,499,060
    
    
    
    2,000,004
    
    
    
    2,000,004
    
    
    
    33,958,096Weighted-average fixed price per Mmbtu
    
    $
    6.98
    
    
    $
    7.78
    
    
    $
    7.42
    
    
    $
    8.00
    
    
    $
    8.11
    
    
    $
    7.62Fair value, net
    
    $
    4,011
    
    
    $
    6,421
    
    
    $
    (5,056
    )
    
    $
    202
    
    
    $
    479
    
    
    $
    6,057Natural Gas Collars:Contract volumes (Mmbtu):Floor
    
    
    1,766,492
    
    
    
    750,000
    
    
    
    630,000
    
    
    
    3,549,996
    
    
    
    3,000,000
    
    
    
    9,696,488Ceiling
    
    
    1,766,492
    
    
    
    750,000
    
    
    
    630,000
    
    
    
    3,549,996
    
    
    
    3,000,000
    
    
    
    9,696,488Weighted-average fixed price per MmbtuFloor
    
    $
    6.54
    
    
    $
    11.00
    
    
    $
    10.00
    
    
    $
    7.39
    
    
    $
    7.00
    
    
    $
    7.56Ceiling
    
    $
    7.53
    
    
    $
    15.00
    
    
    $
    13.11
    
    
    $
    9.88
    
    
    $
    9.60
    
    
    $
    9.97Fair value, net
    
    $
    963
    
    
    $
    2,280
    
    
    $
    1,162
    
    
    $
    635
    
    
    $
    238
    
    
    $
    5,278Total Natural Gas Contracts:Contract volumes (Mmbtu)
    
    
    4,596,320
    
    
    
    15,379,200
    
    
    
    13,129,060
    
    
    
    5,550,000
    
    
    
    5,000,004
    
    
    
    43,654,584Weighted-average fixed price per Mmbtu
    
    $
    6.81
    
    
    $
    7.94
    
    
    $
    6.59
    
    
    $
    7.61
    
    
    $
    7.44
    
    
    $
    7.31Fair value, net
    
    $
    4,974
    
    
    $
    8,701
    
    
    $
    (3,894
    )
    
    $
    837
    
    
    $
    717
    
    
    $
    11,335Crude Oil Swaps:Contract volumes (Bbl)
    
    
    9,000
    
    
    
    36,000
    
    
    
    30,000
    
    
    
    
    
    
    
    
    
    
    
    75,000Weighted-average fixed per Bbl
    
    $
    95.92
    
    
    $
    90.07
    
    
    $
    87.50
    
    
    $
    
    
    
    $
    
    
    
    $
    89.74Fair value, net
    
    $
    (41
    )
    
    $
    (432
    )
    
    $
    (493
    )
    
    $
    
    
    
    $
    
    
    
    $
    (966
    )
 Interest Rate Risk
  21




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##### Table of Contents



ITEM 4T. CONTROLS AND PROCEDURES.
 Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
    (1)
    
    Control environment We did not maintain an effective control environment. The control
environment, which is the responsibility of senior management, sets the tone of the
organization, influences the control consciousness of its people, and is the foundation for
all other components of internal control over financial reporting. Each of these control
environment material weaknesses contributed to the material weaknesses discussed in items
(2) through (7) below. We did not maintain an effective control environment because of the
following material weaknesses:
 (a)
    
    We did not maintain a tone and control consciousness that consistently emphasized
adherence to accurate financial reporting and enforcement of our policies and
procedures. This control deficiency fostered a lack of sufficient appreciation for
internal controls over financial reporting, allowed for management override of internal
controls in certain circumstances and resulted in an ineffective process for monitoring
the adherence to our policies and procedures.(b)
    
    In addition, we did not maintain a sufficient complement of personnel with an
appropriate level of accounting knowledge, experience, and training in the application
of GAAP commensurate with our financial reporting requirements and business environment.(c)
    
    We did not maintain an effective anti-fraud program designed to detect and
prevent fraud relating to (i) an effective whistle-blower program, (ii) consistent
background checks of personnel in positions of responsibility, and (iii) an ongoing
program to manage identified fraud risks.
  22




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##### Table of Contents



(2)
    
    Internal control over financial reporting We did not maintain effective monitoring
controls to determine the adequacy of our internal control over financial reporting and
related policies and procedures because of the following material weaknesses:
 (a)
    
    Our policies and procedures with respect to the review, supervision and
monitoring of our accounting operations throughout the organization were either not
designed and in place or not operating effectively.(b)
    
    We did not maintain an effective internal control monitoring function.
Specifically, there were insufficient policies and procedures to effectively determine
the adequacy of our internal control over financial reporting and monitoring the ongoing
effectiveness thereof.
  (3)
    
    Period end financial close and reporting We did not establish and maintain effective
controls over certain of our period-end financial close and reporting processes because of
the following material weaknesses:
 (a)
    
    We did not maintain effective controls over the preparation and review of the
interim and annual consolidated financial statements and to ensure that we identified
and accumulated all required supporting information to ensure the completeness and
accuracy of the consolidated financial statements and that balances and disclosures
reported in the consolidated financial statements reconciled to the underlying
supporting schedules and accounting records.(b)
    
    We did not maintain effective controls to ensure that we identified and
accumulated all required supporting information to ensure the completeness and
accuracy of the accounting records.(c)
    
    We did not maintain effective controls over the preparation, review and
approval of account reconciliations. Specifically, we did not have effective controls
over the completeness and accuracy of supporting schedules for substantially all
financial statement account reconciliations.(d)
    
    We did not maintain effective controls over the complete and accurate
recording and monitoring of intercompany accounts. Specifically, effective controls
were not designed and in place to ensure that intercompany balances were completely
and accurately classified and reported in our underlying accounting records and to
ensure proper elimination as part of the consolidation process.(e)
    
    We did not maintain effective controls over the recording of journal entries,
both recurring and non-recurring. Specifically, effective controls were not designed
and in place to ensure that journal entries were properly prepared with sufficient
support or documentation or were reviewed and approved to ensure the accuracy and
completeness of the journal entries recorded.
 (4)
    
    Derivative instruments We did not establish and maintain effective controls to
ensure the correct application of GAAP related to derivative instruments. Specifically,
we did not adequately document the criteria for measuring hedge effectiveness at the
inception of certain derivative transactions and did not subsequently value those
derivatives appropriately.(5)
    
    Depreciation, depletion and amortization We did not establish and maintain
effective controls to ensure completeness and accuracy of depreciation, depletion and
amortization expense. Specifically, effective controls were not designed and in place to
calculate and review the depletion of oil and gas properties.(6)
    
    Impairment of oil and gas properties We did not establish and maintain effective
controls to ensure the accuracy and application of GAAP related to the capitalization of
costs related to oil and gas properties and the required evaluation of impairment of such
costs. Specifically, effective controls were not designed
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and in place to determine, review and record the nature of items recorded to oil and gas
properties and the calculation of oil and gas property impairments.(7)
    
    Cash management We did not establish and maintain effective controls to
adequately segregate the duties over cash management. Specifically, effective controls
were not designed to prevent the misappropriation of cash.
  Remediation Plan
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Changes in Internal Control Over Financial Reporting
  25




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PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS.
  
 ITEM 1A. RISK FACTORS.
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
  
 ITEM 5. OTHER INFORMATION.
  
 ITEM 6. EXHIBITS
 *2.1
    
    Agreement for Purchase and Sale, dated as of July 11, 2008, by and
among Quest Resource Corporation, Quest Eastern Resource LLC and
Quest Cherokee LLC (incorporated herein by reference to Exhibit 2.1
to Quest Energy Partners, L.P.s Current Report on Form 8-K filed on
July 16, 2008).*10.1
    
    Second Lien Senior Term Loan Agreement, dated as of July, 11, 2008,
by and among Quest Cherokee, LLC, Quest Energy Partners, L.P., Royal
Bank of Canada, KeyBank National Association, Société Générale, the
lenders party thereto and RBC Capital Markets (incorporated herein
by reference to Exhibit 10.1 to Quest Energy Partners, L.P.s
Current Report on Form 8-K filed on July 16, 2008).*10.2
    
    Guaranty for Second Lien Term Loan Agreement by Quest Cherokee
Oilfield Service, LLC in favor of Royal Bank of Canada, dated as of
July 11, 2008 (incorporated herein by reference to Exhibit 10.2 to
Quest Energy Partners, L.P.s Current Report on Form 8-K filed on
July 16, 2008).
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*10.3
    
    Guaranty for Second Lien Term Loan Agreement by Quest Energy
Partners, L.P. in favor of Royal Bank of Canada, dated as of July
11, 2008 (incorporated herein by reference to Exhibit 10.3 to Quest
Energy Partners, L.P.s Current Report on Form 8-K filed on July 16,
2008).*10.4
    
    Pledge and Security Agreement for Second Lien Term Loan Agreement by
Quest Cherokee Oilfield Service, LLC for the benefit of Royal Bank
of Canada, dated as of July 11, 2008 (incorporated herein by
reference to Exhibit 10.4 to Quest Energy Partners, L.P.s Current
Report on Form 8-K filed on July 16, 2008).*10.5
    
    Pledge and Security Agreement for Second Lien Term Loan Agreement by
Quest Energy Partners, L.P. for the benefit of Royal Bank of Canada,
dated as of July 11, 2008 (incorporated herein by reference to
Exhibit 10.5 to Quest Energy Partners, L.P.s Current Report on Form
8-K filed on July 16, 2008).*10.6
    
    Pledge and Security Agreement for Second Lien Term Loan Agreement by
Quest Cherokee, LLC for the benefit of Royal Bank of Canada, dated
as of July 11, 2008 (incorporated herein by reference to Exhibit
10.6 to Quest Energy Partners, L.P.s Current Report on Form 8-K
filed on July 16, 2008).*10.7
    
    Intercreditor Agreement, dated as of July 11, 2008, by and between
Royal Bank of Canada and Quest Cherokee, LLC (incorporated herein by
reference to Exhibit 10.7 to Quest Energy Partners, L.P.s Current
Report on Form 8-K filed on July 16, 2008).31.1
    
    Certification by principal executive officer pursuant to Rule
13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification by principal financial officer pursuant to Rule
13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification by principal executive officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    Certification by principal financial officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
  *
    
    Incorporated by reference.PLEASE NOTE:  Pursuant to the rules and regulations of the Securities and Exchange Commission, we have filed or incorporated by reference the agreements referenced above as exhibits to this Quarterly Report on Form 10-Q.  The agreements have been filed to provide investors with information regarding their respective terms.  The agreements are not intended to provide any other factual information about the Partnership or its business or operations.
 In particular, the assertions embodied in any representations, warranties and covenants contained in the agreements may be subject to qualifications with respect to knowledge and materiality different from those applicable to investors and may be qualified by information in confidential disclosure schedules no included with the exhibits. These disclosure schedules may contain information that modifies, qualifies and creates exceptions to the representations, warranties and covenants set
 forth in the agreements.  Moreover, certain representations, warranties and covenants in the agreements may have been used for the purpose of allocating risk between the parties, rather than establishing matters as facts.  In addition, information concerning the subject matter of the representations, warranties and covenants may have changed after the date of the respective agreement, which subsequent information may or may not be fully reflected in the Partnerships public disclosures.
 Accordingly, investors should not rely on the representations, warranties and covenants in the agreements as characterizations of the actual state of facts about the Partnership or its business or operations on the date hereof. 27




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SIGNATURES
 th
 Quest Energy Partners, L.P.By:
    Quest Energy GP, LLC, its general partnerBy:

/s/ David C. LawlerDavid C. LawlerPresident and Chief Executive OfficerBy:

/s/
Eddie M. LeBlanc, IIIEddie M. LeBlanc, IIIChief Financial Officer 28