##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2008
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 001-33631
 Quicksilver Gas Services LP
  Delaware
    
    56-2639586(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)777 West Rosedale, Fort Worth, Texas
    
    76104(Address of principal executive offices)
    
    (Zip Code)
 817-665-8620
 None
  þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ (Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ
 .




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##### Table of Contents



DEFINITIONS
  Bbl Bbls
 Btu
 LIBOR
 Management
 MMBtu
 MMBtud
 Mcf
 MMcf
 MMcfd
 MMcfe
 MMcfed
 NGL NGLs
 COMMONLY USED TERMS
  FASB
 IPO
 Gas Gathering and Processing
Agreement
 Lake Arlington Gas Gathering Agreement
 Omnibus Agreement
 Partnership Agreement
 Quicksilver
 Quicksilver Counties
 SEC
 SFAS
 2




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##### Table of Contents



Explanatory Note
     Forward-Looking Information
  
    
    changes in general economic conditions;
    
    fluctuations in natural gas prices;
    
    failure or delays in the Parent and third parties achieving expected production from
natural gas projects;
    
    competitive conditions in our industry;
    
    actions taken or non-performance by third-parties, including suppliers, contractors,
operators, processors, transporters and customers;
    
    changes in the availability and cost of capital;
    
    operating hazards, natural disasters, weather-related delays, casualty losses and other
matters beyond our control;
    
    construction costs or capital expenditures exceeding estimated or budgeted amounts;
    
    the effects of existing and future laws and governmental regulations; and
    
    the effects of future litigation.
  3




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##### 



QUICKSILVER GAS SERVICES LP
INDEX TO FORM 10-Q
For the Period Ended September 30, 2008
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)
    
    
    5Condensed Consolidated Statements of Income
    
    
    5Condensed Consolidated Balance Sheets
    
    
    6Condensed Consolidated Statements of Cash Flows
    
    
    7Condensed Consolidated Statement of Partners Capital
    
    
    8Notes to Condensed Consolidated Interim Financial Statements
    
    
    9Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    28Item 4. Controls and Procedures
    
    
    28PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    29Item 1A. Risk Factors
    
    
    29Item 2. Unregistered Sales of Securities and Use of Proceeds
    
    
    29Item 3. Defaults Upon Senior Securities
    
    
    29Item 4. Submission of Matters to a Vote of Security Holders
    
    
    29Item 5. Other Information
    
    
    29Item 6. Exhibits
    
    
    30Signatures
    
    
    31Sixth Amended and Restated Gas Gathering and Processing AgreementCertification Pursuant to Section 302Certification Pursuant to Section 302Certification Pursuant to Section 906
  4




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##### Table of Contents



PART I. FINANCIAL INFORMATION
  Item 1. Financial Statements (Unaudited)
 QUICKSILVER GAS SERVICES LP
  CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 In thousands, except for per unit data  Unaudited
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007RevenuesGathering and transportation revenue  parent
    
    $
    8,674
    
    
    $
    4,102
    
    
    $
    22,350
    
    
    $
    9,612Gathering and transportation revenue
    
    
    1,553
    
    
    
    500
    
    
    
    4,006
    
    
    
    838Gas processing revenue  parent
    
    
    7,345
    
    
    
    4,892
    
    
    
    21,866
    
    
    
    11,109Gas processing revenue
    
    
    1,507
    
    
    
    521
    
    
    
    3,797
    
    
    
    912Other revenue  parent
    
    
    225
    
    
    
    267
    
    
    
    675
    
    
    
    300Total revenues
    
    
    19,304
    
    
    
    10,282
    
    
    
    52,694
    
    
    
    22,771ExpensesOperations and maintenance  parent
    
    
    4,772
    
    
    
    3,072
    
    
    
    15,034
    
    
    
    8,063General and administrative  parent
    
    
    1,473
    
    
    
    1,217
    
    
    
    4,712
    
    
    
    2,353Depreciation and accretion
    
    
    3,866
    
    
    
    2,188
    
    
    
    10,429
    
    
    
    5,307Total expenses
    
    
    10,111
    
    
    
    6,477
    
    
    
    30,175
    
    
    
    15,723Operating income
    
    
    9,193
    
    
    
    3,805
    
    
    
    22,519
    
    
    
    7,048Other income
    
    
    4
    
    
    
    114
    
    
    
    10
    
    
    
    149Interest expense
    
    
    2,703
    
    
    
    1,728
    
    
    
    7,542
    
    
    
    1,939Income before income taxes
    
    
    6,494
    
    
    
    2,191
    
    
    
    14,987
    
    
    
    5,258Income tax provision
    
    
    106
    
    
    
    92
    
    
    
    109
    
    
    
    189Net income
    
    $
    6,388
    
    
    $
    2,099
    
    
    $
    14,878
    
    
    $
    5,069Net income attributable to the period from
beginning of period to August 9, 2007
    
    
    
    
    
    $
    474
    
    
    
    
    
    
    $
    3,444Net income attributable to the period from
August 10, 2007 to September 30, 2007
    
    
    
    
    
    
    1,625
    
    
    
    
    
    
    
    1,625Net income
    
    
    
    
    
    $
    2,099
    
    
    
    
    
    
    $
    5,069General partner interest in net income (1)
    
    $
    137
    
    
    $
    32
    
    
    $
    314
    
    
    $
    32Common and subordinated unitholders interest
in net income (1)
    
    $
    6,251
    
    
    $
    1,593
    
    
    $
    14,564
    
    
    $
    1,593Earnings per common and subordinated unit:(1)Basic
    
    $
    0.26
    
    
    $
    0.07
    
    
    $
    0.61
    
    
    $
    0.07Diluted
    
    $
    0.26
    
    
    $
    0.07
    
    
    $
    0.61
    
    
    $
    0.07Weighted average number of common and
subordinated units outstanding:(1)Basic
    
    
    23,783
    
    
    
    23,777
    
    
    
    23,783
    
    
    
    23,777Diluted
    
    
    26,829
    
    
    
    23,787
    
    
    
    23,924
    
    
    
    23,787
 
 (1)
    
    Amounts for 2007 represent the period from August 10, 2007 to September 30, 2007  5




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QUICKSILVER GAS SERVICES LP
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 In thousands, except for unit data  Unaudited
 September 30,
    
    
    December 31,2008
    
    
    2007ASSETSCurrent assetsCash and cash equivalents
    
    $
    342
    
    
    $
    1,125Trade accounts receivable
    
    
    1,883
    
    
    
    882Accounts receivable from parent
    
    
    
    
    
    
    800Prepaid expenses and other current assets
    
    
    584
    
    
    
    690Total current assets
    
    
    2,809
    
    
    
    3,497Property, plant and equipment, net
    
    
    437,882
    
    
    
    273,948Other assets
    
    
    1,084
    
    
    
    965$
    441,775
    
    
    $
    278,410LIABILITIES AND PARTNERS CAPITALCurrent liabilitiesCurrent maturities of debt
    
    $
    1,100
    
    
    $
    1,100Accounts payable to parent
    
    
    291
    
    
    
    Accrued additions to property, plant and equipment
    
    
    22,472
    
    
    
    23,624Accounts payable and other
    
    
    3,704
    
    
    
    2,700Total current liabilities
    
    
    27,567
    
    
    
    27,424Long-term debt
    
    
    104,300
    
    
    
    5,000Note payable to parent
    
    
    51,904
    
    
    
    50,569Repurchase obligations to parent
    
    
    151,864
    
    
    
    82,251Asset retirement obligations
    
    
    3,502
    
    
    
    2,793Deferred income tax liability
    
    
    225
    
    
    
    173Commitments and contingent liabilities (Note 8)Partners CapitalCommon unitholders (12,269,714 and 12,263,625 units issued and
outstanding at September 30, 2008 and
December 31, 2007, respectively)
    
    
    106,262
    
    
    
    109,830Subordinated unitholders (11,513,625 units issued and outstanding at
September 30, 2008 and December 31, 2007)
    
    
    (3,705
    )
    
    
    356General Partner
    
    
    (144
    )
    
    
    14Total partners capital
    
    
    102,413
    
    
    
    110,200$
    441,775
    
    
    $
    278,410
  6




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QUICKSILVER GAS SERVICES LP
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 In thousands  Unaudited
 Nine Months Ended September 30,2008
    
    
    2007Operating activities:Net income
    
    $
    14,878
    
    
    $
    5,069Items included in net income not affecting cash:Depreciation
    
    
    10,297
    
    
    
    5,253Accretion of asset retirement obligation
    
    
    132
    
    
    
    54Deferred income taxes
    
    
    52
    
    
    
    16Equity-based compensation
    
    
    758
    
    
    
    45Amortization of debt issuance costs
    
    
    158
    
    
    
    33Non-cash interest expense on repurchase
obligations to parent
    
    
    4,663
    
    
    
    1,228Non-cash interest expense on note payable to parent
    
    
    2,160
    
    
    
    625Changes in assets and liabilities:Accounts receivable
    
    
    (1,001
    )
    
    
    (858
    )Prepaid expenses and other assets
    
    
    (171
    )
    
    
    (229
    )Accounts receivable from parent
    
    
    3,435
    
    
    
    Accounts payable and other
    
    
    1,004
    
    
    
    (57
    )Net cash provided by operating activities
    
    
    36,365
    
    
    
    11,179Investing activities:Capital expenditures
    
    
    (112,200
    )
    
    
    (55,184
    )Net cash used in investing activities
    
    
    (112,200
    )
    
    
    (55,184
    )Financing activities:Proceeds from sale of assets to parent
    
    
    
    
    
    
    29,508Proceeds from revolving credit facility borrowings
    
    
    99,300
    
    
    
    Repayment of subordinated note to parent
    
    
    (825
    )
    
    
    Debt issuance costs
    
    
    
    
    
    
    (715
    )Net proceeds from issuance of equity units
    
    
    
    
    
    
    112,108Distribution of offering proceeds to partners
    
    
    
    
    
    
    (119,806
    )Contributions by parent
    
    
    
    
    
    
    38,045Contributions by other partners
    
    
    
    
    
    
    167Distributions to unitholders
    
    
    (23,423
    )
    
    
    Net cash provided by financing activities
    
    
    75,052
    
    
    
    59,307Net (decrease) increase in cash
    
    
    (783
    )
    
    
    15,302Cash at beginning of period
    
    
    1,125
    
    
    
    2,797Cash at end of period
    
    $
    342
    
    
    $
    18,099Cash paid for interest
    
    $
    1,465
    
    
    $
    Income taxes paid
    
    $
    332
    
    
    $
    Non-cash investing and financing transactions:Working capital related to capital expenditures
    
    $
    27,314
    
    
    $
    17,828Prepaid insurance
    
    $
    
    
    
    $
    (176
    )Debt issuance costs
    
    $
    
    
    
    $
    (277
    )Cost in connection with the initial public offering
    
    $
    
    
    
    $
    (2,465
    )Issuance of subordinated note payable to parent
    
    $
    
    
    
    $
    50,000Acquisition of property, plant and equipment under
repurchase obligation
    
    $
    (64,950
    )
    
    $
    (33,722
    )
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QUICKSILVER GAS SERVICES LP
  CONDENSED CONSOLIDATED STATEMENT OF PARTNERS CAPITAL
 In thousands  Unaudited
 Partners CapitalLimited Partners
    
    
    GeneralCommon
    
    
    Subordinated
    
    
    Partner
    
    
    TotalBalance at December 31, 2007
    
    $
    109,830
    
    
    $
    356
    
    
    $
    14
    
    
    $
    110,200Equity-based compensation
expense recognized
    
    
    758
    
    
    
    
    
    
    
    
    
    
    
    758Distributions paid to partners
    
    
    (11,840
    )
    
    
    (11,111
    )
    
    
    (472
    )
    
    
    (23,423
    )Net income
    
    
    7,514
    
    
    
    7,050
    
    
    
    314
    
    
    
    14,878Balance at September 30, 2008
    
    $
    106,262
    
    
    $
    (3,705
    )
    
    $
    (144
    )
    
    $
    102,413
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QUICKSILVER GAS SERVICES LP
 
 NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
 UNAUDITED
 1. ORGANIZATION AND DESCRIPTION OF BUSINESS
 Organization
  Initial Public Offering
  PercentageOwnershipCommon unitholders:Public
    
    
    27.1
    %Quicksilver
    
    
    23.5
    %Subordinated unitholders:Quicksilver
    
    
    47.5
    %Total limited partner interest
    
    
    98.1
    %General Partner interest:Quicksilver
    
    
    1.9
    %Total
    
    
    100.0
    %
  Description of Business
  
    
    the Cowtown Pipeline, a pipeline system in the Fort Worth Basin, which consists of
natural gas pipelines that gather natural gas produced by KGS customers and deliver it for
processing;
    
    the Cowtown Plant, in Hood County, Texas, which consists of two natural gas processing
units that extract NGLs from the natural gas stream and deliver customers residue gas to
unaffiliated pipelines for transport and sale downstream; and
    
    the Corvette Plant, currently being constructed in Hood County, Texas, with a targeted
in-service date during the first quarter 2009, which consists of a natural gas processing
unit, that will extract NGLs from the natural gas stream and will deliver KGS customers
residue gas to unaffiliated pipelines for transport and sale downstream.
 9




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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
  Use of Estimates 
 Repurchase Obligations to Parent 
 
    
    a portion of the gathering lines in the Cowtown Pipeline;
    
    the Lake Arlington Dry System; and
    
    the Hill County Dry System.
  Cowtown Pipeline repurchase 
 Lake Arlington Dry System and Hill County Dry System repurchases 
 10




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Estimate of Total
    
    
    Construction CostsJune 5, 2007
    
    
    Construction Costs as of
    
    
    Recognized throughSales Price
    
    
    September 30, 2008(1)
    
    
    September 30, 2008
    
    
    KGS RepurchaseCowtown Pipeline
    
    $
    22.9
    
    
    $
    63.1
    
    
    $
    61.6
    
    
    Optional at CostLake Arlington Dry System
    
    
    3.6
    
    
    
    80.0
    
    
    
    40.1
    
    
    Obligatory at Fair ValueHill County Dry System
    
    
    3.0
    
    
    
    78.0
    
    
    
    42.9
    
    
    Obligatory at Fair ValueInterest cost included
in liability
    
    
    
    
    
    
    
    
    
    
    7.3
    (2)$
    29.5
    
    
    $
    221.1
    
    
    $
    151.9
 
 (1)
    
    The estimates of total construction cost are subject to change based on changes in
the producers drilling program, material and labor costs, easement costs and other
factors.(2)
    
    Interest cost is allocated as follows: Cowtown Pipeline  $3.8M, Lake Arlington -
$2.0M and Hill County  $1.5M  Net Income per Limited Partner Unit
   11




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Three Months
    
    
    Period Ended
    
    
    Nine Months
    
    
    Period EndedEnded September 30,
    
    
    September 30,
    
    
    Ended September 30,
    
    
    September 30,2008
    
    
    2007(1)
    
    
    2008
    
    
    2007(1)(In thousands, except per unit data)Common and subordinated unitholders
interest in net income
    
    $
    6,251
    
    
    $
    1,593
    
    
    $
    14,564
    
    
    $
    1,593Impact of interest on convertible debt
    
    
    659
    
    
    
    
    
    
    
    
    
    
    
    Income available assuming conversion
of
convertible debt
    
    $
    6,910
    
    
    $
    1,593
    
    
    $
    14,564
    
    
    $
    1,593Weighted average common and
subordinated units  basic
    
    
    23,783
    
    
    
    23,777
    
    
    
    23,783
    
    
    
    23,777Effect of restricted phantom units
    
    
    141
    
    
    
    10
    
    
    
    141
    
    
    
    10Effect of convertible debt
    
    
    2,905
    
    
    
    
    
    
    
    
    
    
    
    Weighted average common and
subordinated units  diluted
    
    
    26,829
    
    
    
    23,787
    
    
    
    23,924
    
    
    
    23,787Earnings per common and subordinated
unit:Basic
    
    $
    0.26
    
    
    $
    0.07
    
    
    $
    0.61
    
    
    $
    0.07Diluted
    
    $
    0.26
    
    
    $
    0.07
    
    
    $
    0.61
    
    
    $
    0.07
 
 (1)
    
    Amounts for 2007 represent the period from August 10, 2007 to September 30, 2007 Comprehensive Income
 Recently Issued Accounting Standards
 Pronouncements Implemented
 Fair Value Measurements,
 The Fair Value Option for Financial Assets
and Financial Liabilities  Including an amendment of FASB Statement No. 115
 Amendment of FASB
Interpretation No. 39 Accounting for Derivative Instruments and Hedging Activities
 Pronouncements Not Yet Implemented
 Business Combinations Business Combinations
 12




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Noncontrolling Interests in Consolidated Financial Statements  an amendment of
ARB No. 51
 Disclosures about Derivative Instruments and Hedging Activities,
 The Hierarchy of Generally Accepted Accounting
Principles The Meaning of
Present Fairly in Conformity with Generally Accepted Accounting Principles.
 Emerging Issues Task Force (EITF) Issued No. 07-4, Application of the Two-Class Method
under FASB Statement No. 128, Earnings per Share, to Master Limited Partnerships (EITF 07-4), Earnings per Share
  3. PARTNERS CAPITAL AND DISTRIBUTIONS
  13




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Attributable to the
    
    Per Unit
    
    Total CashPayment Date
    
    quarter ended
    
    Distribution(1)
    
    Distribution(in millions)Pending Distributions
(4)November 14, 2008 (2)
    
    September 30, 2008
    
    $
    0.350
    
    
    $
    8.5Completed DistributionsAugust 14, 2008 (2)
    
    June 30, 2008
    
    $
    0.350
    
    
    $
    8.5May 15, 2008
    
    March 31, 2008
    
    $
    0.315
    
    
    $
    7.6February 14, 2008
    
    December 31, 2007
    
    $
    0.300
    
    
    $
    7.3November 14, 2007 (3)
    
    September 30, 2007
    
    $
    0.168
    
    
    $
    4.1
 
 (1)
    
    Represents common and subordinated unitholders.(2)
    
    Total cash distribution includes an Incentive Distribution Rights amount of
approximately $20,000 to the general partner.(3)
    
    Represents the post-IPO period from August 10, 2007 to September 30, 2007.(4)
    
    Distributions are recognized as a reduction to partners capital upon payment. 4. PROPERTY, PLANT AND EQUIPMENT
  September 30,
    
    
    December 31,2008
    
    
    2007(in thousands)Gathering and transportation systems
    
    $
    168,259
    
    
    $
    106,478Processing plants
    
    
    144,105
    
    
    
    117,571Construction in progress  plant
    
    
    76,639
    
    
    
    12,636Construction in progress  pipeline
    
    
    29,723
    
    
    
    20,046Rights-of-way and easements
    
    
    38,029
    
    
    
    26,905Land
    
    
    1,144
    
    
    
    952Buildings and other
    
    
    1,830
    
    
    
    910459,729
    
    
    
    285,498Accumulated Depreciation
    
    
    (21,847
    )
    
    
    (11,550
    )Net property, plant and equipment
    
    $
    437,882
    
    
    $
    273,948
  5. RELATED-PARTY TRANSACTIONS
 Transactions With Related Parties
  14




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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands)
    
    
    (in thousands)General and administrative expense  parentAllocation of general and administrative
overhead
    
    $
    607
    
    
    $
    606
    
    
    $
    1,733
    
    
    $
    1,576Audit and tax services
    
    
    197
    
    
    
    269
    
    
    
    673
    
    
    
    435Equity-based compensation expense
    
    
    279
    
    
    
    143
    
    
    
    962
    
    
    
    143Legal services
    
    
    92
    
    
    
    37
    
    
    
    417
    
    
    
    37Insurance expense
    
    
    85
    
    
    
    107
    
    
    
    254
    
    
    
    107Salary and benefits
    
    
    96
    
    
    
    
    
    
    
    331
    
    
    
    Other
    
    
    117
    
    
    
    55
    
    
    
    342
    
    
    
    55Total general and administrative
expense  parent
    
    $
    1,473
    
    
    $
    1,217
    
    
    $
    4,712
    
    
    $
    2,353
  Gas Gathering and Processing Agreement
  Transactions with Related
Parties
 6. LONG-TERM DEBT
  September 30,
    
    
    December 31,2008
    
    
    2007(In thousands)Revolving credit facility
    
    $
    104,300
    
    
    $
    5,000Subordinated note to Parent
    
    
    53,004
    
    
    
    51,669157,304
    
    
    
    56,669Current maturities of debt
    
    
    (1,100
    )
    
    
    (1,100
    )Long-term debt
    
    $
    156,204
    
    
    $
    55,569
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Long-Term Debt
 7. ASSET RETIREMENT OBLIGATIONS
  Nine Months EndedSeptember 30, 2008(in thousands)Beginning asset retirement obligations
    
    $
    2,793Incremental liability incurred
    
    
    577Accretion expense
    
    
    132Ending asset retirement obligations
    
    $
    3,502
  8. COMMITMENTS AND CONTINGENT LIABILITIES
  9. INCOME TAXES
  16




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10. EQUITY-BASED COMPENSATION
  Payable in cash
    
    
    Payable in unitsWeighted
    
    
    
    
    
    
    WeightedAverage Grant
    
    
    
    
    
    
    Average GrantDate Fair
    
    
    
    
    
    
    Date FairUnits
    
    
    Value
    
    
    Units
    
    
    ValueUnvested phantom units  December 31, 2007
    
    
    84,961
    
    
    $
    21.36
    
    
    
    9,833
    
    
    $
    21.36Vested
    
    
    (27,330
    )
    
    
    21.36
    
    
    
    (6,089
    )
    
    
    21.36Issued
    
    
    6,605
    
    
    
    24.12
    
    
    
    137,148
    
    
    
    25.25Cancelled
    
    
    (3,000
    )
    
    
    21.36
    
    
    
    (974
    )
    
    
    25.25Unvested phantom units  September 30,
2008
    
    
    61,236
    
    
    $
    21.66
    
    
    
    139,918
    
    
    $
    25.15
  Equity Plan,
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ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
  Our Operations
  Operational Measurement
  Volume
 
    
    the level of successful drilling and production activity in areas currently dedicated to
our systems;
    
    our ability to compete with other midstream companies for volumes from successful new
wells; and
    
    our pursuit of new opportunities where a limited number of midstream companies conduct
business.
  Adjusted Gross Margin
 Operating Expenses
 EBITDA
 18




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
    
    financial performance of our assets without regard to financing methods, capital
structure or historical cost basis;
    
    our operating performance as compared to those of other midstream companies without
regard to financing methods, capital structure or historical cost basis; and
    
    the viability of acquisitions and capital expenditures and the rates of return on
investment opportunities.
 19




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##### Table of Contents



RESULTS OF OPERATIONS
 Three Months Ended September 30, 2008 Compared with Three Months Ended September 30, 200 7
  Three Months Ended September 30,2008
    
    
    2007(In thousands, except volume data)Total revenues
    
    $
    19,304
    
    
    $
    10,282Operations and maintenance expense
    
    
    4,772
    
    
    
    3,072General and administrative expense
    
    
    1,473
    
    
    
    1,217Adjusted gross margin
    
    
    13,059
    
    
    
    5,993Other income
    
    
    4
    
    
    
    114EBITDA
    
    
    13,063
    
    
    
    6,107Depreciation and accretion expense
    
    
    3,866
    
    
    
    2,188Interest expense
    
    
    2,703
    
    
    
    1,728Income tax provision
    
    
    106
    
    
    
    92Net income
    
    $
    6,388
    
    
    $
    2,099Volume Data:Volumes gathered (MMcf)
    
    
    19,591
    
    
    
    9,554Volumes processed (MMcf)
    
    
    14,122
    
    
    
    9,032
  Gathering
    
    
    Processing2008
    
    
    2007
    
    
    2008
    
    
    2007(MMcf)Cowtown Pipeline
    
    
    15,130
    
    
    
    9,415
    
    
    
    14,122
    
    
    
    9,032Lake Arlington Dry System
    
    
    3,174
    
    
    
    
    
    
    
    
    
    
    
    Hill County Dry System
    
    
    1,287
    
    
    
    139
    
    
    
    
    
    
    
    Total
    
    
    19,591
    
    
    
    9,554
    
    
    
    14,122
    
    
    
    9,032
  Gathering
    
    
    Processing
    
    
    Other
    
    
    Total(In thousands)Revenue for the quarter ended September 30, 2007
    
    $
    4,602
    
    
    $
    5,413
    
    
    $
    267
    
    
    $
    10,282Volume changes
    
    
    5,239
    
    
    
    3,191
    
    
    
    
    
    
    
    8,430Price changes
    
    
    386
    
    
    
    248
    
    
    
    (42
    )
    
    
    592Revenue for the quarter ended September 30, 2008
    
    $
    10,227
    
    
    $
    8,852
    
    
    $
    225
    
    
    $
    19,304
 20




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Total Revenues Volumes 
 Operations and Maintenance Expense 
 General and Administrative Expense 
 Adjusted Gross Margin EBITDA 
 Depreciation and Accretion Expense 
 Interest Expense
  Three Months Ended September 30,2008
    
    
    2007(In thousands)Interest cost:Repurchase obligation
    
    $
    1,736
    
    
    $
    1,016Subordinated note to Parent
    
    
    672
    
    
    
    626Revolving credit facility
    
    
    847
    
    
    
    86Total cost
    
    
    3,255
    
    
    
    1,728Less interest capitalized
    
    
    552
    
    
    
    Interest expense
    
    $
    2,703
    
    
    $
    1,728
 21




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##### Table of Contents



Nine Months Ended September 30, 2008 Compared with Nine Months Ended September 30, 200 7
  Nine Months Ended September 30,2008
    
    
    2007(In thousands, except volume data)Total revenues
    
    $
    52,694
    
    
    $
    22,771Operations and maintenance expense
    
    
    15,034
    
    
    
    8,063General and administrative expense
    
    
    4,712
    
    
    
    2,353Adjusted gross margin
    
    
    32,948
    
    
    
    12,355Other income
    
    
    10
    
    
    
    149EBITDA
    
    
    32,958
    
    
    
    12,504Depreciation and accretion expense
    
    
    10,429
    
    
    
    5,307Interest expense
    
    
    7,542
    
    
    
    1,939Income tax provision
    
    
    109
    
    
    
    189Net income
    
    $
    14,878
    
    
    $
    5,069Volume Data:Volumes gathered (MMcf)
    
    
    51,269
    
    
    
    21,685Volumes processed (MMcf)
    
    
    40,870
    
    
    
    20,015
  Gathering
    
    
    Processing2008
    
    
    2007
    
    
    2008
    
    
    2007(MMcf)Cowtown Pipeline
    
    
    42,459
    
    
    
    21,546
    
    
    
    40,870
    
    
    
    20,015Lake Arlington Dry System
    
    
    6,198
    
    
    
    
    
    
    
    
    
    
    
    Hill County Dry System
    
    
    2,612
    
    
    
    139
    
    
    
    
    
    
    
    Total
    
    
    51,269
    
    
    
    21,685
    
    
    
    40,870
    
    
    
    20,015
  Gathering
    
    
    Processing
    
    
    Other
    
    
    Total(In thousands)Revenue for the nine
months ended September
30, 2007
    
    $
    10,450
    
    
    $
    12,021
    
    
    $
    300
    
    
    $
    22,771Volume changes
    
    
    15,208
    
    
    
    13,095
    
    
    
    
    
    
    
    28,303Price changes
    
    
    698
    
    
    
    547
    
    
    
    375
    
    
    
    1,620Revenue for the nine
months ended September
30, 2008
    
    $
    26,356
    
    
    $
    25,663
    
    
    $
    675
    
    
    $
    52,694
 22




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##### Table of Contents



Total Revenues Volumes 
 Operations and Maintenance Expense 
 General and Administrative Expense 
 Adjusted Gross Margin EBITDA 
 Depreciation and Accretion Expense 
 Interest Expense
  Nine Months Ended September 30,2008
    
    
    2007(In thousands)Interest cost:Repurchase obligation
    
    $
    4,663
    
    
    $
    1,227Subordinated note to Parent
    
    
    2,161
    
    
    
    626Revolving credit facility
    
    
    1,691
    
    
    
    86Total cost
    
    
    8,515
    
    
    
    1,939Less interest capitalized
    
    
    973
    
    
    
    Interest expense
    
    $
    7,542
    
    
    $
    1,939
 Liquidity and Capital Resources
  23




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##### Table of Contents




    
    cash generated from operations;
    
    borrowings under our credit agreement; and
    
    future debt and equity offerings.
  Cash Flows
 For the Nine Months EndedSeptember 30,2008
    
    2007(In thousands)Net cash provided by operating activities
    
    $
    36,365
    
    
    $
    11,179Net cash used in investing activities
    
    
    (112,200
    )
    
    
    (55,184
    )Net cash provided by financing activities
    
    
    75,052
    
    
    
    59,307
  Cash Flows Provided by Operating Activities 
 Cash Flows Used in Investing Activities 
 Cash Flows Provided by Financing Activities 
  Working Capital (Deficit) 
  24




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Capital Expenditures
  
    
    expansion capital expenditures, which are made to construct additional assets, expand
and upgrade existing systems, including compression, and facilities or acquire additional
assets; or
    
    maintenance capital expenditures, which are made to replace partially or fully
depreciated assets, to maintain the existing operating capacity of our assets and extend
their useful lives, or to maintain existing system volumes and related cash flows.
  Debt
 Revolving Credit Facility
 
    
    incur further indebtedness;
    
    grant liens;
    
    pay distributions; and
    
    engage in transactions with affiliates.
    Subordinated Note
 25




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##### Table of Contents



Repurchase Obligations to Parent
 Commitments and Contingent Liabilities
  Recently Issued Accounting Standards
  26




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##### Table of Contents



Critical Accounting Estimates
  
    
    Depreciation expense and capitalization limits for property, plant and equipment;
    
    Repurchase obligations to Parent;
    
    Asset retirement obligations; and
    
    Equity-based compensation
  27




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Credit Risk
  Interest Rate Risk
   
 Item 4. Controls and Procedures
 Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  28




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##### Table of Contents



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
  29




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##### Table of Contents



Item 6. Exhibits:
 Exhibit No.
    
    Description*10.1
    
    Sixth Amended and Restated Gas Gathering and Processing Agreement, dated September 1,
2008, among Quicksilver Resources Inc., Cowtown Pipeline Partners L.P. and Cowtown Gas
Processing Partners L.P.*31.1
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*31.2
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith 30




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##### Table of Contents



SIGNATURES
   QUICKSILVER GAS SERVICES LPBy: QUICKSILVER GAS SERVICES GP LLC, its General PartnerBy:
    /s/ Thomas F. DardenThomas F. DardenPresident and Chief Executive OfficerBy:
    /s/ Philip CookPhilip CookSenior Vice President - Chief Financial Officer 31




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description*10.1
    
    Sixth Amended and Restated Gas Gathering and Processing Agreement, dated September 1,
2008, among Quicksilver Resources Inc., Cowtown Pipeline Partners L.P. and Cowtown Gas
Processing Partners L.P.*31.1
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*31.2
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith