##### 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, 2009
 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 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 777 West Rosedale, Fort Worth, Texas
    
    76104(Address of principal executive offices)
    
    (Zip Code)
 817-665-8620
 None
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller Reporting company o(Do not check if a smaller reporting company)
 o þ
  Title of Class
    
    Outstanding as of October 26, 2009Common Units
    
    12,313,451




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##### 



QUICKSILVER GAS SERVICES LP
INDEX TO FORM 10-Q
For the Period Ended September 30, 2009
 PART I. FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (Unaudited)
    
    
    5Condensed Consolidated Statements of Income
    
    
    5Condensed Consolidated Balance Sheets
    
    
    6Condensed Consolidated Statements of Cash Flows
    
    
    7Condensed Consolidated Statements of Changes in Partners Capital
    
    
    8Notes to Condensed Consolidated Interim Financial Statements
    
    
    9Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 4.
    
    Controls and Procedures
    
    
    25PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    26Item 1A.
    
    Risk Factors
    
    
    26Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    32Item 3.
    
    Defaults Upon Senior Securities
    
    
    32Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    32Item 5.
    
    Other Information
    
    
    32Item 6.
    
    Exhibits
    
    
    33Signatures
    
    
    34EX-31.1EX-31.2EX-32.1
  2




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##### Table of Contents



DEFINITIONS
  Bbl Bbls  Btu  EBITDA  LIBOR  Management  MMBtu  MMBtud  Mcf  MMcf  MMcfd  MMcfe  MMcfed  NGL NGLs
 COMMONLY USED TERMS
  FASB
 FASC FASB Accounting Standards Codification
 GAAP
 Gas Gathering and Processing Agreement
 General Partner
 IPO
 KGS Predecessor
 Lake Arlington Gas Gathering Agreement
 Omnibus Agreement
 Partnership Agreement
 Quicksilver
 Quicksilver Counties
 SEC
 3




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##### Table of Contents



Forward-Looking Information
  
    
    changes in general economic conditions;
    
    fluctuations in natural gas prices;
    
    failure or delays in Quicksilver 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;
    
    fluctuations in the value of certain of our assets and liabilities;
    
    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;
    
    the effects of existing or future litigation; and
    
    certain factors discussed elsewhere in this quarterly report.
 8-K
  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 30,2009

    
    2008

    
    2009
    

    2008RevenueGathering and transportation revenue - Quicksilver
    
    $
    14,542
    
    
    $
    8,674
    
    
    $
    42,708
    
    
    $
    22,350Gathering and transportation revenue
    
    
    615
    
    
    
    1,553
    
    
    
    2,259
    
    
    
    4,006Gas processing revenue - Quicksilver
    
    
    8,155
    
    
    
    7,345
    
    
    
    25,541
    
    
    
    21,866Gas processing revenue
    
    
    295
    
    
    
    1,507
    
    
    
    1,344
    
    
    
    3,797Other revenue - Quicksilver
    
    
    691
    
    
    
    225
    
    
    
    1,141
    
    
    
    675Total revenue
    
    
    24,298
    
    
    
    19,304
    
    
    
    72,993
    
    
    
    52,694ExpensesOperations and maintenance
    
    
    5,694
    
    
    
    4,772
    
    
    
    17,108
    
    
    
    15,034General and administrative
    
    
    1,733
    
    
    
    1,473
    
    
    
    5,463
    
    
    
    4,712Depreciation and accretion
    
    
    5,745
    
    
    
    3,866
    
    
    
    16,554
    
    
    
    10,429Total expenses
    
    
    13,172
    
    
    
    10,111
    
    
    
    39,125
    
    
    
    30,175Operating income
    
    
    11,126
    
    
    
    9,193
    
    
    
    33,868
    
    
    
    22,519Other income
    
    
    -
    
    
    
    4
    
    
    
    1
    
    
    
    10Interest expense
    
    
    2,238
    
    
    
    2,703
    
    
    
    7,924
    
    
    
    7,542Income before income taxes
    
    
    8,888
    
    
    
    6,494
    
    
    
    25,945
    
    
    
    14,987Income tax provision
    
    
    235
    
    
    
    106
    
    
    
    446
    
    
    
    109Net income
    
    $
    8,653
    
    
    $
    6,388
    
    
    $
    25,499
    
    
    $
    14,878General partner interest in net income
    
    $
    382
    
    
    $
    137
    
    
    $
    886
    
    
    $
    314Common and subordinated unitholders interest in
net income
    
    
    8,271
    
    
    
    6,251
    
    
    
    24,613
    
    
    
    14,564Earnings per common and subordinated unit:Basic
    
    $
    0.35
    
    
    $
    0.26
    
    
    $
    1.03
    
    
    $
    0.61Diluted
    
    
    0.31
    
    
    
    0.26
    
    
    
    0.92
    
    
    
    0.61Weighted average number of common and
subordinated units outstanding:Basic
    
    
    23,827
    
    
    
    23,783
    
    
    
    23,827
    
    
    
    23,783Diluted
    
    
    27,981
    
    
    
    26,829
    
    
    
    28,319
    
    
    
    23,924
  5




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##### Table of Contents



QUICKSILVER GAS SERVICES LP
CONDENSED CONSOLIDATED BALANCE SHEETS
In thousands, except for unit data - Unaudited
 September 30,

    
    December 31,2009

    
    2008ASSETSCurrent assetsCash and cash equivalents
    
    $
    548
    
    
    $
    303Accounts receivable
    
    
    528
    
    
    
    2,082Accounts receivable from Quicksilver
    
    
    5,066
    
    
    
    -Prepaid expenses and other current assets
    
    
    348
    
    
    
    594Total current assets
    
    
    6,490
    
    
    
    2,979Property, plant and equipment, net
    
    
    455,661
    
    
    
    488,120Other assets
    
    
    1,635
    
    
    
    1,916$
    463,786
    
    
    $
    493,015LIABILITIES AND PARTNERS CAPITALCurrent liabilitiesCurrent maturities of debt
    
    $
    2,200
    
    
    $
    1,375Accounts payable to Quicksilver
    
    
    -
    
    
    
    10,502Accrued additions to property, plant and equipment
    
    
    3,335
    
    
    
    17,433Accounts payable and other
    
    
    4,706
    
    
    
    1,930Total current liabilities
    
    
    10,241
    
    
    
    31,240Long-term debt
    
    
    206,900
    
    
    
    174,900Note payable to Quicksilver
    
    
    52,966
    
    
    
    52,271Repurchase obligations to Quicksilver
    
    
    67,236
    
    
    
    123,298Asset retirement obligations
    
    
    8,639
    
    
    
    5,234Deferred income tax liability
    
    
    815
    
    
    
    369Commitments and contingent liabilities (Note 8)Partners capitalCommon unitholders (12,313,451 and 12,269,714 units issued and
outstanding at September 30, 2009 and December 31, 2008, respectively)
    
    
    114,256
    
    
    
    108,036Subordinated unitholders (11,513,625 units issued and outstanding at
September 30, 2009 and December 31, 2008)
    
    
    2,351
    
    
    
    (2,328
    )General partner
    
    
    382
    
    
    
    (5
    )Total partners capital
    
    
    116,989
    
    
    
    105,703$
    463,786
    
    
    $
    493,015
  6




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QUICKSILVER GAS SERVICES LP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands  Unaudited
 Nine Months Ended September 30,2009

    
    2008Operating activities:Net income
    
    $
    25,499
    
    
    $
    14,878Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation
    
    
    16,259
    
    
    
    10,297Accretion of asset retirement obligation
    
    
    295
    
    
    
    132Deferred income taxes
    
    
    446
    
    
    
    52Equity-based compensation
    
    
    1,289
    
    
    
    758Non-cash interest expense
    
    
    4,535
    
    
    
    7,196Changes in assets and liabilities:Accounts receivable
    
    
    1,554
    
    
    
    (1,001
    )Prepaid expenses and other assets
    
    
    234
    
    
    
    (171
    )Accounts receivable and payable with Quicksilver
    
    
    (2,248
    )
    
    
    3,435Accounts payable and other
    
    
    3,405
    
    
    
    789Net cash provided by operating activities
    
    
    51,268
    
    
    
    36,365Investing activities:Capital expenditures
    
    
    (50,067
    )
    
    
    (112,200
    )Assets purchased pursuant to repurchase obligations
    
    
    (5,645
    )
    
    
    -Net cash used in investing activities
    
    
    (55,712
    )
    
    
    (112,200
    )Financing activities:Proceeds from revolving credit facility borrowings
    
    
    46,500
    
    
    
    99,300Repayments of credit facility
    
    
    (14,500
    )
    
    
    -Repayment of subordinated note payable to Quicksilver
    
    
    -
    
    
    
    (825
    )Distributions to unitholders
    
    
    (27,248
    )
    
    
    (23,423
    )Other
    
    
    (63
    )
    
    
    -Net cash provided by financing activities
    
    
    4,689
    
    
    
    75,052Net cash increase (decrease)
    
    
    245
    
    
    
    (783
    )Cash at beginning of period
    
    
    303
    
    
    
    1,125Cash at end of period
    
    $
    548
    
    
    $
    342Cash paid for interest
    
    $
    3,700
    
    
    $
    1,465Cash paid for income taxes
    
    
    -
    
    
    
    332Non-cash transactions:Working capital related to capital expenditures
    
    
    4,502
    
    
    
    27,314Disposition (acquisition) of property, plant and equipment
under repurchase obligation, net
    
    
    47,577
    
    
    
    (64,950
    )Equity contribution related to assets not purchased pursuant to
repurchase obligations
    
    
    11,809
    
    
    
    -
  7




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QUICKSILVER GAS SERVICES LP
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS CAPITAL
In thousands  Unaudited
 Partners CapitalLimited PartnersGeneralCommon
    
    Subordinated
    
    Partner
    
    TotalBalance at December 31, 2008
    
    $
    108,036
    
    
    $
    (2,328
    )
    
    $
    (5
    )
    
    $
    105,703Equity-based compensation
expense recognized
    
    
    1,289
    
    
    
    -
    
    
    
    -
    
    
    
    1,289Distributions paid to partners
    
    
    (13,668
    )
    
    
    (12,780
    )
    
    
    (800
    )
    
    
    (27,248
    )Net income
    
    
    12,720
    
    
    
    11,893
    
    
    
    886
    
    
    
    25,499Contribution by Quicksilver
    
    
    5,942
    
    
    
    5,566
    
    
    
    301
    
    
    
    11,809Other
    
    
    (63
    )
    
    
    -
    
    
    
    -
    
    
    
    (63
    )Balance at September 30, 2009
    
    $
    114,256
    
    
    $
    2,351
    
    
    $
    382
    
    
    $
    116,989
  8




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QUICKSILVER GAS SERVICES LP
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
UNAUDITED
 1. ORGANIZATION AND DESCRIPTION OF BUSINESS
 Organization
  OwnershipPercentageCommon unitholders:Public
    
    
    27.2
    %Quicksilver
    
    
    23.5
    %Subordinated unitholders:Quicksilver
    
    
    47.4
    %Total limited partner interest
    
    
    98.1
    %General Partner interest:Quicksilver
    
    
    1.9
    %Total
    
    
    100.0
    %
  Description of Business
  
    
    The Cowtown System, located in the southern portion of the Fort Worth Basin, which
includes:
 -
    
    the Cowtown Pipeline, consisting of a 245 mile pipeline gathering system and gas
compression facilities.   This system gathers natural gas produced by KGS customers and
delivers it for processing;-
    
    the Cowtown Plant, consisting of a 125 MMcfd natural gas processing unit and a 75
MMcfd natural gas processing unit that extract NGLs from the natural gas stream and
deliver customers residue gas to unaffiliated pipelines for transport downstream; and-
    
    the Corvette Plant, placed into service during the first quarter of 2009,
consisting of a 125 MMcfd natural gas processing unit that extracts NGLs from the
natural gas stream and delivers customers residue gas to unaffiliated pipelines for
transport downstream.
 
    
    The Lake Arlington Dry System, located in Tarrant County, Texas, purchased from
Quicksilver in the fourth quarter of 2008, which consists of a 7 mile pipeline gathering
system and a gas compression facility.   This system gathers natural gas produced by KGS
customers and delivers it to unaffiliated pipelines for transport downstream.
  9




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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
 Use of Estimates 
 Repurchase Obligations to Quicksilver 
      Net Income per Limited Partner Unit
 10




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Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008(In thousands, except per unit data)Common and subordinated unitholders interest in
net income
    
    $
    8,271
    
    
    $
    6,251
    
    
    $
    24,613
    
    
    $
    14,564Impact of interest on subordinated note to Quicksilver
    
    
    416
    
    
    
    659
    
    
    
    1,490
    
    
    
    -Income available assuming conversion of convertible debt
    
    $
    8,687
    
    
    $
    6,910
    
    
    $
    26,103
    
    
    $
    14,564Weighted-average common and subordinated units - basic
    
    
    23,827
    
    
    
    23,783
    
    
    
    23,827
    
    
    
    23,783Effect of restricted phantom units
    
    
    486
    
    
    
    141
    
    
    
    486
    
    
    
    141Effect of subordinated note to Quicksilver (1)
    
    
    3,668
    
    
    
    2,905
    
    
    
    4,006
    
    
    
    -Weighted-average common and subordinated units - diluted
    
    
    27,981
    
    
    
    26,829
    
    
    
    28,319
    
    
    
    23,924Earnings per common and subordinated unit:Basic
    
    $
    0.35
    
    
    $
    0.26
    
    
    $
    1.03
    
    
    $
    0.61Diluted
    
    $
    0.31
    
    
    $
    0.26
    
    
    $
    0.92
    
    
    $
    0.61Assumed conversion price (1)
    
    $
    15.04
    
    
    $
    18.25
    
    
    $
    13.77
    
    
    
    N/A
 (1) Long-Term Debt
 Comprehensive Income
 Recently Issued Accounting Standards
  Pronouncements Impacting KGS That Have Been Implemented
 FASB Accounting Standards
Codification
 Business Combinations
 11




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Fair Value Measurements and
Disclosures,
 Earnings Per Share
 Earnings Per Share
 Subsequent
Events
 Fair Value
Measurements and Disclosures
 Pronouncements Not Yet Implemented
  3. PARTNERS CAPITAL AND DISTRIBUTIONS
   Attributable to the
    
    Per Unit
    
    Total CashPayment Date
    
    Quarter Ended
    
    Distribution (1)
    
    Distribution(In millions)Pending
DistributionsNovember 13, 2009 (2)
    
    September 30, 2009
    
    $
    0.390
    
    
    $
    9.7Completed DistributionsAugust 14, 2009 (3)
    
    June 30, 2009
    
    $
    0.370
    
    
    $
    9.1May 15, 2009 (3)
    
    March 31, 2009
    
    $
    0.370
    
    
    $
    9.1February 13, 2009 (3
    
    December 31, 2008
    
    $
    0.370
    
    
    $
    9.1November 14, 2008 (4)
    
    September 30, 2008
    
    $
    0.350
    
    
    $
    8.5August 14, 2008 (4)
    
    June 30, 2008
    
    $
    0.350
    
    
    $
    8.5May 15, 2008
    
    March 31, 2008
    
    $
    0.315
    
    
    $
    7.6
 
 (1)
    
    Represents common and subordinated unitholders(2)
    
    Total cash distribution includes an Incentive Distribution Rights amount of
approximately $219,000 to the General Partner(3)
    
    Total cash distribution includes an Incentive Distribution Rights amount of
approximately $90,000 to the General Partner(4)
    
    Total cash distribution includes an Incentive Distribution Rights amount of
approximately $20,000 to the General Partner 12




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4. PROPERTY, PLANT AND EQUIPMENT
  September 30,
    
    December 31,2009
    
    2008(In thousands)Gathering and transportation systems
    
    $
    159,982
    
    
    $
    179,594Processing plants
    
    
    286,467
    
    
    
    157,353Construction in progress - plant
    
    
    -
    
    
    
    106,563Construction in progress - pipeline
    
    
    6,269
    
    
    
    27,994Rights-of-way and easements
    
    
    35,542
    
    
    
    39,473Land
    
    
    1,321
    
    
    
    1,239Buildings and other
    
    
    2,654
    
    
    
    1,836492,235
    
    
    
    514,052Accumulated depreciation
    
    
    (36,574
    )
    
    
    (25,932
    )Net property, plant and equipment
    
    $
    455,661
    
    
    $
    488,120
 5. RELATED-PARTY TRANSACTIONS
     6. LONG-TERM DEBT
  September 30,
    
    December 31,2009
    
    2008(In thousands)Credit Agreement
    
    $
    206,900
    
    
    $
    174,900Subordinated Note to Quicksilver
    
    
    55,166
    
    
    
    53,646262,066
    
    
    
    228,546Current maturities of debt
    
    
    (2,200
    )
    
    
    (1,375
    )Long-term debt
    
    $
    259,866
    
    
    $
    227,171
  13




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Interest rate option
    
    After AmendmentABR borrowings
    
    2.00% to 3.00%Eurodollar borrowings
    
    3.00% to 4.00%Swingline borrowings
    
    3.00% to 4.00%Commitment fee on used capacity
    
    0.50%
 Long-Term Debt
 7. ASSET RETIREMENT OBLIGATIONS
  Nine Months EndedSeptember 30, 2009(In thousands)Beginning asset retirement obligations
    
    $
    5,234Incremental liability incurred
    
    
    3,619Repurchase obligations not exercised
    
    
    (509
    )Accretion expense
    
    
    295Ending asset retirement obligations
    
    $
    8,639
 8. COMMITMENTS AND CONTINGENT LIABILITIES
  9. INCOME TAXES
  Income Taxes
 14




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10. EQUITY PLAN
  Payable in cash

    
    Payable in unitsWeighted

    
    
    
    
    
    WeightedAverage Grant

    
    
    
    
    
    Average GrantUnits
    

    Date Fair Value
    

    Units
    

    Date Fair ValueUnvested phantom units - January 1, 2009
    
    
    60,319
    
    
    $
    21.63
    
    
    
    139,918
    
    
    $
    25.15Vested
    
    
    (25,609
    )
    
    
    13.53
    
    
    
    (49,789
    )
    
    
    25.25Issued
    
    
    920
    
    
    
    13.40
    
    
    
    405,428
    
    
    
    10.06Cancelled
    
    
    (5,973
    )
    
    
    21.36
    
    
    
    (9,885
    )
    
    
    15.90Unvested phantom units - September 30,
2009
    
    
    29,657
    
    
    $
    28.42
    
    
    
    485,672
    
    
    $
    12.73
    Equity Plan,
 15




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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 where our systems are
located;
    
    our ability to compete with other midstream companies for production volumes; and
    
    our pursuit of new opportunities where a limited number of midstream companies conduct
business.
 Adjusted Gross Margin
 Operating Expenses
 EBITDA
 16




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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 companies in the midstream
industry without regard to financing methods, capital structure or historical cost basis;
and
    
    the viability of acquisitions and capital expenditure projects and the rates of return on
investment opportunities.
 17




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RESULTS OF OPERATIONS
 Three Months Ended September 30, 2009 Compared with Three Months Ended September 30, 2008
  Three Months Ended September 30,2009

    
    2008(In thousands)Total revenues
    
    $
    24,298
    
    
    $
    19,304Operations and maintenance expense
    
    
    5,694
    
    
    
    4,772General and administrative expense
    
    
    1,733
    
    
    
    1,473Adjusted gross margin
    
    
    16,871
    
    
    
    13,059Other income
    
    
    -
    
    
    
    4EBITDA
    
    
    16,871
    
    
    
    13,063Depreciation and accretion expense
    
    
    5,745
    
    
    
    3,866Interest expense
    
    
    2,238
    
    
    
    2,703Income tax provision
    
    
    235
    
    
    
    106Net income
    
    $
    8,653
    
    
    $
    6,388
  Gathering

    
    Processing2009

    
    2008

    
    2009

    
    2008(MMcf)Cowtown System
    
    
    13,238
    
    
    
    15,130
    
    
    
    13,197
    
    
    
    14,122Lake Arlington Dry System
    
    
    6,302
    
    
    
    3,174
    
    
    
    -
    
    
    
    -Hill County Dry System
    
    
    1,983
    
    
    
    1,287
    
    
    
    -
    
    
    
    -Total
    
    
    21,523
    
    
    
    19,591
    
    
    
    13,197
    
    
    
    14,122
  Gathering

    
    Processing

    
    Other

    
    Total(In thousands)Revenue for the three
months ended September
30, 2008
    
    $
    10,227
    
    
    $
    8,852
    
    
    $
    225
    
    
    $
    19,304Volume changes
    
    
    1,009
    
    
    
    (580
    )
    
    
    -
    
    
    
    429Price changes
    
    
    3,921
    
    
    
    178
    
    
    
    466
    
    
    
    4,565Revenue for the three
months ended September
30, 2009
    
    $
    15,157
    
    
    $
    8,450
    
    
    $
    691
    
    
    $
    24,298
 18




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##### Table of Contents



Total Revenue Volumes 
 Operations and Maintenance Expense 
 General and Administrative Expense 
 Adjusted Gross Margin EBITDA 
 Depreciation and Accretion Expense 
 Interest Expense
  Three Months Ended September 30,2009

    
    2008(In thousands)Interest cost:Revolving credit facility
    
    $
    1,001
    
    
    $
    847Repurchase obligation
    
    
    814
    
    
    
    1,736Subordinated note to Quicksilver
    
    
    423
    
    
    
    672Total cost
    
    
    2,238
    
    
    
    3,255Less interest capitalized
    
    
    -
    
    
    
    (552
    )Interest expense
    
    $
    2,238
    
    
    $
    2,703
 19




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##### Table of Contents



Nine Months Ended September 30, 2009 Compared with Nine Months Ended September 30, 2008
  Nine Months Ended September 30,2009

    
    2008(In thousands)Total revenues
    
    $
    72,993
    
    
    $
    52,694Operations and maintenance expense
    
    
    17,108
    
    
    
    15,034General and administrative expense
    
    
    5,463
    
    
    
    4,712Adjusted gross margin
    
    
    50,422
    
    
    
    32,948Other income
    
    
    1
    
    
    
    10EBITDA
    
    
    50,423
    
    
    
    32,958Depreciation and accretion expense
    
    
    16,554
    
    
    
    10,429Interest expense
    
    
    7,924
    
    
    
    7,542Income tax provision
    
    
    446
    
    
    
    109Net income
    
    $
    25,499
    
    
    $
    14,878
  Gathering

    
    Processing2009

    
    2008

    
    2009

    
    2008(MMcf)Cowtown System
    
    
    42,771
    
    
    
    42,459
    
    
    
    41,958
    
    
    
    40,870Lake Arlington Dry System
    
    
    17,237
    
    
    
    6,198
    
    
    
    -
    
    
    
    -Hill County Dry System
    
    
    5,564
    
    
    
    2,612
    
    
    
    -
    
    
    
    -Total
    
    
    65,572
    
    
    
    51,269
    
    
    
    41,958
    
    
    
    40,870
  Gathering

    
    Processing

    
    Other

    
    Total(In thousands)Revenue for the nine
months ended September
30, 2008
    
    $
    26,356
    
    
    $
    25,663
    
    
    $
    675
    
    
    $
    52,694Volume changes
    
    
    7,353
    
    
    
    683
    
    
    
    -
    
    
    
    8,036Price changes
    
    
    11,258
    
    
    
    539
    
    
    
    466
    
    
    
    12,263Revenue for the nine
months ended September
30, 2009
    
    $
    44,967
    
    
    $
    26,885
    
    
    $
    1,141
    
    
    $
    72,993
 20




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##### Table of Contents



Total Revenue Volumes 
 Operations and Maintenance Expense 
 General and Administrative Expense 
 Adjusted Gross Margin EBITDA 
 Depreciation and Accretion Expense 
 Interest Expense
  Nine Months Ended September 30,2009

    
    2008(In thousands)Interest cost:Revolving credit facility
    
    $
    3,325
    
    
    $
    1,691Repurchase obligation
    
    
    3,389
    
    
    
    4,663Subordinated note to Quicksilver
    
    
    1,520
    
    
    
    2,161Total cost
    
    
    8,234
    
    
    
    8,515Less interest capitalized
    
    
    (310
    )
    
    
    (973
    )Interest expense
    
    $
    7,924
    
    
    $
    7,542
 21




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##### Table of Contents



Liquidity and Capital Resources
  
    
    cash generated from operations;
    
    borrowings under our revolving credit agreement; and
    
    future capital market transactions.
  Cash Flows
 Nine Months Ended September 30,2009

    
    2008(In thousands)Net cash provided by operating activities
    
    $
    51,268
    
    
    $
    36,365Net cash used in investing activities
    
    
    (55,712
    )
    
    
    (112,200
    )Net cash provided by financing activities
    
    
    4,689
    
    
    
    75,052
  Cash Flows Provided by Operating Activities 
 Cash Flows Used in Investing Activities 
 Cash Flows Provided by Financing Activities 
  Capital Expenditures
  22




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
    
    expansion capital expenditures, which are made to construct additional assets, expand
and upgrade existing systems, 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
 Credit Agreement
  23




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##### Table of Contents




    
    incur further indebtedness;
    
    grant liens;
    
    sell assets; and
    
    engage in transactions with affiliates.
 Subordinated Note
 Long-Term Debt
 Repurchase Obligations to Quicksilver
 Contractual Obligations and Commercial Commitments
  Recently Issued Accounting Standards
  Critical Accounting Estimates
  
    
    depreciation expense for property, plant and equipment;
    
    repurchase obligations to Quicksilver;
    
    asset retirement obligations; and
    
    equity-based compensation.
  24




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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
  25




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
 th th th
  
 Item 1A. Risk Factors
  We are dependent on a single natural gas producer, Quicksilver, for a majority of our volumes.   The
loss of this customer would result in a material decline in our volumes, revenue and cash available
for distribution.
    We may not have sufficient available cash to enable us to make cash distributions to holders of our
common units and subordinated units at the current distribution rate under our cash distribution
policy.
  
    
    the fees we charge and the margins we realize for our services;
    
    the level of production, and the price of natural gas, NGLs, and condensate;
    
    the volume of natural gas and NGLs we gather and process;
    
    the level of competition from other midstream energy companies;
    
    the level of our operating cost structure; and
    
    prevailing economic conditions.
 26




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##### Table of Contents




    
    the level of capital expenditures we make;
    
    our ability to make borrowings under our revolving credit agreement;
    
    the cost of acquisitions;
    
    our debt service requirements;
    
    fluctuations in our working capital needs;
    
    our ability to access capital markets;
    
    compliance with our debt agreements; and
    
    the amount of cash reserves established by our general partner.
 The amount of cash we have available for distribution to holders of our common units and
subordinated units depends primarily on our cash flow and not solely on profitability.
   Estimates of oil and gas reserves depend on many assumptions that may be inaccurate and any
material inaccuracies could materially reduce the production that we gather and process and
consequently could adversely affect our financial performance and our ability to make cash
distributions.
  
    
    historical production from the area compared with production from other comparable
producing areas;
    
    the assumed effects of regulations by governmental agencies;
    
    assumptions concerning future oil and gas prices; and
    
    assumptions concerning future operating costs, severance and excise taxes, development
costs and workover and remedial costs.
  Because of the natural decline in production from existing wells in our area of operations, our
success depends on our ability to obtain new sources of supplies of natural gas.   Any decrease in
supplies of natural gas could result in a material decline in the volumes we gather and process.
   27




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##### Table of Contents



Our construction of new assets may not result in revenue increases and is subject to regulatory,
environmental, political, legal and economic risks, which could adversely affect our cash flows,
results of operations and financial condition.
  If we do not make acquisitions on economically acceptable terms, our future growth will be limited.
   
    
    mistaken assumptions about volumes, revenue and costs, including synergies;
    
    an inability to integrate successfully the businesses we acquire;
    
    the assumption of unknown liabilities;
    
    limitations on rights to indemnity from the seller;
    
    mistaken assumptions about the overall costs of equity or debt;
    
    the diversion of managements and employees attention from other business matters;
    
    unforeseen difficulties operating in new product areas, with new customers, or new
geographic areas; and
    
    customer or key employee losses at the acquired businesses.
 We depend on our midstream assets to generate our revenue, and if the utilization of these assets
were reduced significantly, there could be a material adverse effect on our revenue, earnings, and
ability to make distributions to our unitholders.
  28




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##### Table of Contents




    
    operational problems, labor difficulties or environmental proceedings or other
litigation that compel curtailing of all or a portion of the operations;
 
    
    catastrophic events at our facilities or at downstream facilities owned by others;
    
    an inability to obtain sufficient quantities of natural gas; or
    
    prolonged reductions in exploration or production activity by producers in the areas in
which we operate.
   Pipelines and facilities interconnected to our natural gas and NGL pipelines and facilities could
become unavailable to transport natural gas and NGLs, and our revenue and cash available for
distribution could be adversely affected.
  A change in the jurisdictional characterization of some of our assets by federal, state or local
regulatory agencies or a change in policy by those agencies may result in increased regulation of
our assets, which may cause our revenue to decline and operating expenses to increase.
   We are subject to environmental laws and regulations that may expose us to significant costs and
liabilities.
  29




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##### Table of Contents



We may incur significant costs and liabilities as a result of pipeline integrity management program
testing and any related pipeline repair or preventative or remedial measures.
  
    
    perform ongoing assessments of pipeline integrity;
    
    identify and characterize applicable threats to pipeline segments that could impact a
high consequence area;
    
    maintain processes for data collection, integration and analysis;
    
    repair and remediate pipelines as necessary; and
    
    implement preventive and mitigating actions.
  We will be required to make substantial capital expenditures to increase our asset base.   If we are
unable to obtain needed capital or financing on satisfactory terms, our ability to make cash
distributions may be diminished or our financial leverage could increase.
  We do not own all of the land on which our pipelines and facilities are located, which could
disrupt our operations.
  30




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##### Table of Contents



Our business involves many hazards and operational risks, some of which may not be fully covered by
insurance.   The occurrence of a significant accident or other event that is not fully insured could
curtail our operations and have a material adverse effect on our cash flows and, accordingly, the
market price for our common units.
  
    
    damage to pipelines and plants, related equipment and surrounding properties caused by
natural disasters and acts of terrorism;
    
    inadvertent damage from construction, farm and utility equipment;
    
    leaks or losses of natural gas or NGLs as a result of the malfunction of equipment or
facilities;
    
    fires and explosions; and
    
    other hazards that could also result in personal injury, loss of life, pollution or
suspension of operations.
   The provisions of our revolving credit agreement and the risks associated with our debt could
adversely affect our business, financial condition, results of operations, ability to make
distributions to unitholders and value of our units.
  
    
    incur additional debt;
    
    make distributions on or redeem or repurchase units;
    
    make certain investments and acquisitions;
    
    incur or permit certain liens to exist;
    
    enter into certain types of transactions with affiliates;
    
    merge, consolidate or amalgamate with another company; and
    
    transfer or otherwise dispose of assets.
  We are exposed to the credit risks of Quicksilver, and any material nonpayment by Quicksilver could
reduce our ability to make distributions to our unitholders.
  31




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##### Table of Contents



The loss of key personnel could adversely affect our ability to operate.
  
 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
  32




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##### Table of Contents



Item 6. Exhibits
 Exhibit No.
    
    Description*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 33




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##### Table of Contents



SIGNATURES
   QUICKSILVER GAS SERVICES LP
By: 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 34




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description*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