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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 1934For the quarterly period ended March 31, 2011oro
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from  to
 Commission file number: 001-33631
 Crestwood Midstream Partners LP
  Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    56-2639586
(I.R.S. Employer Identification No.)717 Texas Avenue, Suite 3150, Houston, Texas
(Address of principal executive offices)
    
    77002
(Zip Code)
 (832) 519-2200
 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  April 29, 2011Common Units
    
    
    31,187,696Class C Units
    
    
    6,243,000




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##### Table of Contents



DEFINITIONS
  Bbl(s)
 Btu
 EBITDA
 hp
 LIBOR
 Management
 MMBtu
 MMBtud
 Mcf
 MMcf
 MMcfd
 MMcfe
 MMcfed
 NGL(s)
 Oil
 COMMONLY USED TERMS
  Alliance Midstream Assets
 Alliance System
 CMLP
 Credit Facility
 Crestwood
 Crestwood Holdings
 Crestwood Transaction
 Exchange Act
 FASB
 FASC Accounting Standards Codification
 Fayetteville Shale 
 Frontier
 Frontier Gas Acquisition
 GAAP
 General Partner
 Granite Wash System
 IDR
 Joinder Agreement
 Lake Arlington System
 Las Animas System 
 NYSE
 Omnibus Agreement
 Partnership Agreement
 Senior Notes
 Quicksilver
 SEC
 2




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##### 



CRESTWOOD MIDSTREAM PARTNERS LP
INDEX TO FORM 10-Q
For the Period Ended March 31, 2011
 PART I. FINANCIAL INFORMATION
    
    5Item 1.
    
    Financial Statements (Unaudited)
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    18Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    25Item 4.
    
    Controls and Procedures
    
    25PART II. OTHER INFORMATION
    
    26Item 1.
    
    Legal Proceedings
    
    26Item 1A.
    
    Risk Factors
    
    26Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    27Item 3.
    
    Defaults Upon Senior Securities
    
    27Item 4.
    
    (Removed and Reserved)
    
    27Item 5.
    
    Other Information
    
    27Item 6.
    
    Exhibits
    
    28Signatures
    
    29EX-31.1EX-31.2EX-32.1
  3




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FORWARD-LOOKING INFORMATION
  
    
    changes in general economic conditions;
    
    fluctuations in natural gas prices;
    
    failure or delays by our customers in achieving expected production from natural gas
projects;
    
    competitive conditions in our industry;
    
    actions or inactions taken or non-performance by third parties, including suppliers,
contractors, operators, processors, transporters and customers;
    
    ability to consummate acquisitions and successfully integrate the acquired business and
our ability to realize any cost savings and other synergies from such acquisitions;
    
    any disruption from the recent acquisition of midstream assets from Frontier making it
more difficult to maintain relationships with customers, employees or suppliers;
    
    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, including
environmental and climate change requirements;
    
    the effects of existing or future litigation;
    
    risks related to the substantial indebtedness incurred as a result of the Frontier Gas
Acquisition; and
    
    certain factors discussed elsewhere in this Quarterly Report.
 8-K
  4




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PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements (Unaudited)
 CRESTWOOD MIDSTREAM PARTNERS LP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
In thousands, except for per unit data - Unaudited
 Three Months Ended March 31,2011
    
    2010RevenueGathering revenue - related party
    
    $
    23,351
    
    
    $
    16,389Gathering revenue
    
    
    1,476
    
    
    
    1,115Processing revenue - related party
    
    
    6,637
    
    
    
    6,479Processing revenue
    
    
    516
    
    
    
    756Gas sales
    
    
    400
    
    
    
    -Total revenue
    
    
    32,380
    
    
    
    24,739ExpensesOperations and maintenance
    
    
    7,381
    
    
    
    7,393General and administrative
    
    
    6,370
    
    
    
    3,061Depreciation and accretion
    
    
    6,025
    
    
    
    5,365Total expenses
    
    
    19,776
    
    
    
    15,819Operating income
    
    
    12,604
    
    
    
    8,920Interest expense
    
    
    3,006
    
    
    
    2,678Income before income taxes
    
    
    9,598
    
    
    
    6,242Income tax provision
    
    
    222
    
    
    
    53Net income
    
    $
    9,376
    
    
    $
    6,189General partner interest in net income
    
    $
    888
    
    
    $
    357Common unitholders interest in net income
    
    $
    8,488
    
    
    $
    5,832Basic income (loss) per unit:Net income per limited partner unit - basic
    
    $
    0.27
    
    
    $
    0.20Diluted income (loss) per unit:Net income per limited partner unit - diluted
    
    $
    0.27
    
    
    $
    0.20Weighted average number of common units outstanding:Basic
    
    
    31,188
    
    
    
    28,502Diluted
    
    
    31,324
    
    
    
    29,019Distributions declared per unit (attributable to the period ended)
    
    $
    0.44
    
    
    $
    0.39
  5




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CRESTWOOD MIDSTREAM PARTNERS LP
CONDENSED CONSOLIDATED BALANCE SHEETS
In thousands, except for unit data - Unaudited
 March 31,
    
    December 31,2011
    
    2010ASSETSCurrent assetsCash and cash equivalents
    
    $
    11,546
    
    
    $
    2Accounts receivable
    
    
    1,383
    
    
    
    1,679Accounts receivable - related party
    
    
    29,177
    
    
    
    23,003Prepaid expenses and other
    
    
    601
    
    
    
    1,052Total current assets
    
    
    42,707
    
    
    
    25,736Property, plant and equipment, net
    
    
    531,526
    
    
    
    531,371Other assets
    
    
    12,824
    
    
    
    13,520Total assets
    
    $
    587,057
    
    
    $
    570,627LIABILITIES AND PARTNERS CAPITALCurrent liabilitiesAccounts payable - related party
    
    $
    4,580
    
    
    $
    4,267Accrued additions to property, plant and equipment
    
    
    4,209
    
    
    
    11,309Accounts payable and other
    
    
    21,263
    
    
    
    2,917Total current liabilities
    
    
    30,052
    
    
    
    18,493Long-term debt
    
    
    292,800
    
    
    
    283,504Asset retirement obligations
    
    
    10,081
    
    
    
    9,877Commitments and contingent liabilities (Note 9)Partners capitalCommon unitholders (31,187,696 units issued and outstanding at March 31, 2011 and December 31, 2010)
    
    
    253,429
    
    
    
    258,069General partner
    
    
    695
    
    
    
    684Total partners capital
    
    
    254,124
    
    
    
    258,753$
    587,057
    
    
    $
    570,627
  6




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CRESTWOOD MIDSTREAM PARTNERS LP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 In thousands  Unaudited
 Three Months Ended March 31,2011
    
    2010Operating activities:Net income
    
    $
    9,376
    
    
    $
    6,189Adjustments to reconcile net income to net cash provided by
(used in) operating activities:Depreciation
    
    
    5,890
    
    
    
    5,250Accretion of asset retirement obligations
    
    
    135
    
    
    
    115Deferred income taxes
    
    
    -
    
    
    
    53Equity-based compensation
    
    
    283
    
    
    
    667Non-cash interest expense
    
    
    678
    
    
    
    1,464Changes in assets and liabilities:Accounts receivable
    
    
    296
    
    
    
    232Prepaid expenses and other
    
    
    468
    
    
    
    (274
    )Accounts receivable  - related party
    
    
    (6,174
    )
    
    
    (16,367
    )Accounts payable  - related party
    
    
    313
    
    
    
    -Accounts payable and other
    
    
    18,347
    
    
    
    1,214Net cash provided by (used in) operating activities
    
    
    29,612
    
    
    
    (1,457
    )Investing activities:Capital expenditures
    
    
    (13,076
    )
    
    
    (17,163
    )Distribution to Quicksilver for Alliance Midstream Assets
    
    
    -
    
    
    
    (80,276
    )Net cash used in investing activities
    
    
    (13,076
    )
    
    
    (97,439
    )Financing activities:Proceeds from credit facility
    
    
    38,400
    
    
    
    112,000Repayments of credit facility
    
    
    (29,104
    )
    
    
    (11,600
    )Issuance of common units - net of offering costs
    
    
    -
    
    
    
    11,050Distributions paid to unitholders
    
    
    (14,288
    )
    
    
    (11,564
    )Taxes paid for equity-based compensation vesting
    
    
    -
    
    
    
    (1,144
    )Net cash provided by (used in) financing activities
    
    
    (4,992
    )
    
    
    98,742Net cash increase (decrease)
    
    
    11,544
    
    
    
    (154
    )Cash and cash equivalents at beginning of period
    
    
    2
    
    
    
    746Cash and cash equivalents at end of period
    
    $
    11,546
    
    
    $
    592Cash paid for interest
    
    $
    2,388
    
    
    $
    1,214Non-cash transactions:Working capital related to capital expenditures
    
    
    4,209
    
    
    
    16,430
  7




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CRESTWOOD MIDSTREAM PARTNERS LP
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS CAPITAL
In thousands  Unaudited
 Limited Partners
    
    GeneralCommon
    
    Partner
    
    TotalBalance at December 31, 2010
    
    $
    258,069
    
    
    $
    684
    
    
    $
    258,753Equity-based compensation
recognized
    
    
    283
    
    
    
    -
    
    
    
    283Distributions paid to partners
    
    
    (13,411
    )
    
    
    (877
    )
    
    
    (14,288
    )Net income
    
    
    8,488
    
    
    
    888
    
    
    
    9,376Balance at March 31, 2011
    
    $
    253,429
    
    
    $
    695
    
    
    $
    254,124
  8




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CRESTWOOD MIDSTREAM PARTNERS LP
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
UNAUDITED
 1. ORGANIZATION AND DESCRIPTION OF BUSINESS
 Organization
  Ownership PercentageCrestwood
    
    Public
    
    TotalGeneral partner interest
    
    
    1.5
    %
    
    
    
    -
    
    
    1.5
    %Limited partner interest:Common unitholders
    
    
    61.7
    %
    
    
    36.8
    %
    
    
    98.5
    %Total interests
    
    
    63.2
    %
    
    
    36.8
    %
    
    
    100.0
    %
 Description of Business
  Cowtown System
 -
    
    the Cowtown Pipeline, consisting of a gathering system and related gas
compression facilities.  This system gathers natural gas produced by our customers
and delivers it to the Cowtown and Corvette Plants for processing;-
    
    the Cowtown Plant, consisting of two natural gas processing units with a total
capacity of 200 MMcfd that extract NGLs from the natural gas stream and deliver our
customers residue gas and extracted NGLs to unaffiliated pipelines for sale
downstream; and-
    
    the Corvette Plant, consisting of a 125 MMcfd natural gas processing unit that
extracts NGLs from the natural gas stream and delivers our customers residue gas and
extracted NGLs to unaffiliated pipelines for sale downstream.
 Lake Arlington System
 Alliance System
 Acquisitions and Financings
 9




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Fayetteville Assets
 -
    
    Twin Groves / Prairie Creek / Woolly Hollow Systems.  Located in Conway and
Faulkner Counties, Arkansas and consists of a gathering system and a related
compression facility with a capacity of 350 MMcfd and a dehydration and treating
facility with capacity of 165 MMcfd. This system gathers natural gas produced by BHP
Billiton Petroleum, a wholly owned subsidiary of BHP Billiton Limited (BHP) / BP
p.l.c. (BP) and XTO Energy, Inc., a subsidiary of Exxon Mobil Corporation
(ExxonMobil), and interconnects with the Boardwalk Gas Transmission, the Ozark Gas
Transmission and the Fayetteville Express Pipeline.-
    
    Rose Bud System.  Located in White County, Arkansas and consists of a
gathering system and a related compression facility with a capacity of 60 MMcfd. This
system gathers natural gas produced by BHP / BP and ExxonMobil, and interconnects with
the Ozark Gas Transmission.-
    
    Wilson Creek System.  Located in Van Buren County, Arkansas and consists of
a gathering system and a related compression facility with a capacity of 100 MMcfd.
This system gathers natural gas produced by BHP and SH Exploration and interconnects
with the Ozark Gas Transmission.
 Granite Wash System
  
    
    the issuance by us of approximately 6.2 million units of new Class C units representing
limited partner interests, issued at a price of $24.50 per unit, to certain institutional
investors through a private placement transaction, resulting in net proceeds of
approximately $153 million; and
    
    the issuance of the Senior Notes.
   2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
 10




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Changes in Presentation 
 Use of Estimates 
 Net Income per Limited Partner Unit
 Three Months Ended March 31,2011
    
    2010(In thousands, except per unit data)Common unitholders interest in net income
    
    $
    8,488
    
    
    $
    5,832Weighted-average common units - basic
    
    
    31,188
    
    
    
    28,502Effect of unvested phantom units
    
    
    136
    
    
    
    517Weighted-average common units - diluted
    
    
    31,324
    
    
    
    29,019Basic earnings per unit:Net income per limited partner unit - basic
    
    $
    0.27
    
    
    $
    0.20Diluted earnings per unit:Net income per limited partner unit - diluted
    
    $
    0.27
    
    
    $
    0.20
 Comprehensive Income
 Recently Issued Accounting Standards
  3.   PARTNERS CAPITAL AND DISTRIBUTIONS
     11




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Attributable to the
    
    Per Unit
    
    Total Cash
    
    Total Cash IDRPayment Date
    
    Quarter Ended
    
    Distribution
    
    Distribution
    
    Distribution(In millions)
    
    (In millions)Pending
DistributionsMay 13, 2011
    
    March 31, 2011
    
    $
    0.44
    
    
    $
    14.7
    
    
    $
    0.759Completed
Distributions2011February 11, 2011
    
    December 31, 2010
    
    $
    0.43
    
    
    $
    14.3
    
    
    $
    0.6652010November 12, 2010
    
    September 30, 2010
    
    $
    0.42
    
    
    $
    13.9
    
    
    $
    0.570August 13, 2010
    
    June 30, 2010
    
    $
    0.42
    
    
    $
    12.7
    
    
    $
    0.522May 14, 2010
    
    March 31, 2010
    
    $
    0.39
    
    
    $
    11.6
    
    
    $
    0.261
  4.   PROPERTY, PLANT AND EQUIPMENT
  March 31,
    
    
    December 31,2011
    
    2010(In thousands)Gathering systems
    
    $
    167,362
    
    
    $
    158,975Processing plants and compression facilities
    
    
    364,054
    
    
    
    365,208Construction in progress - gathering
    
    
    22,968
    
    
    
    26,385Rights-of-way and easements
    
    
    34,283
    
    
    
    32,054Land
    
    
    4,251
    
    
    
    4,251Buildings and other
    
    
    3,494
    
    
    
    3,494596,412
    
    
    
    590,367Accumulated depreciation
    
    
    (64,886
    )
    
    
    (58,996
    )Net property, plant and equipment
    
    $
    531,526
    
    
    $
    531,371
 5.   DEBT
  March 31,
    
    
    December 31,2011
    
    2010(In thousands)Credit Facility
    
    $
    292,800
    
    
    $
    283,504Total
    
    $
    292,800
    
    
    $
    283,504
 Credit Facility -
 Bridge Loans -
 12




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7.75% Senior Notes due 2019
 6.   ASSET RETIREMENT OBLIGATIONS
  Asset retirement obligations as of December 31, 2010
    
    $
    9,877Incremental liability
    
    
    69Accretion expense
    
    
    135Asset retirement obligations as of March 31, 2011
    
    $
    10,081
  7.   EQUITY-BASED COMPENSATION
  Payable in unitsWeightedAverage GrantUnits
    
    
    Date Fair ValueUnvested phantom units - January 1, 2011
    
    
    121,526
    
    
    $
    27.11Vested
    
    
    -
    
    
    
    -Issued
    
    
    18,391
    
    
    
    27.73Cancelled
    
    
    (4,353
    )
    
    
    27.11Unvested phantom units - March 31, 2011
    
    
    135,564
    
    
    $
    27.19
    8.   INCOME TAXES
   13




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9.   COMMITMENTS AND CONTINGENT LIABILITIES
  10.   RELATED-PARTY TRANSACTIONS
     11.   SUBSEQUENT EVENTS
   
    
    the issuance by us of approximately 6.2 million units of new Class C units representing
limited partner interests, issued at a price of $24.50 per unit, to certain institutional
investors through a private placement transaction, resulting in net proceeds of
approximately $153 million; and
    
    the issuance of the Senior Notes.
  14




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12.   CONDENSED CONSOLDIATED FINANCIAL INFORMATION
  Condensed Consolidated Statements of Income
 For the Three Months Ended March 31, 2011CrestwoodCrestwood
    
    Restricted
    
    
    
    
    
    MidstreamMidstream
    
    Guarantor
    
    
    
    
    
    Partners LPPartners LP
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(in thousands)Revenue
    
    $
    -
    
    
    $
    32,380
    
    
    $
    -
    
    
    $
    32,380Operating expenses
    
    
    6,372
    
    
    
    13,404
    
    
    
    -
    
    
    
    19,776Operating income
    
    
    (6,372
    )
    
    
    18,976
    
    
    
    -
    
    
    
    12,604Interest expense
    
    
    3,006
    
    
    
    -
    
    
    
    -
    
    
    
    3,006Income before income tax
    
    
    (9,378
    )
    
    
    18,976
    
    
    
    -
    
    
    
    9,598Income tax provision
    
    
    -
    
    
    
    222
    
    
    
    -
    
    
    
    222Net income before equity in net earnings of
subsidiaries
    
    
    (9,378
    )
    
    
    18,754
    
    
    
    -
    
    
    
    9,376Equity in net earnings of subsidiaries
    
    
    18,754
    
    
    
    -
    
    
    
    (18,754
    )
    
    
    -Net Income
    
    $
    9,376
    
    
    $
    18,754
    
    
    $
    (18,754
    )
    
    $
    9,376
 For the Three Months Ended March 31, 2010CrestwoodCrestwood
    
    Restricted
    
    
    
    
    
    MidstreamMidstream
    
    Guarantor
    
    
    
    
    
    Partners LPPartners LP
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(in thousands)Revenue
    
    $
    -
    
    
    $
    24,739
    
    
    $
    -
    
    
    $
    24,739Operating expenses
    
    
    3,061
    
    
    
    12,758
    
    
    
    -
    
    
    
    15,819Operating income
    
    
    (3,061
    )
    
    
    11,981
    
    
    
    -
    
    
    
    8,920Other income
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Interest expense
    
    
    2,678
    
    
    
    -
    
    
    
    -
    
    
    
    2,678Income  before income tax
    
    
    (5,739
    )
    
    
    11,981
    
    
    
    -
    
    
    
    6,242Income tax provision
    
    
    -
    
    
    
    53
    
    
    
    -
    
    
    
    53Net income before equity in net earnings of
subsidiaries
    
    
    (5,739
    )
    
    
    11,928
    
    
    
    -
    
    
    
    6,189Equity in net earnings of subsidiaries
    
    
    11,928
    
    
    
    -
    
    
    
    (11,928
    )
    
    
    -Net income
    
    $
    6,189
    
    
    $
    11,928
    
    
    $
    (11,928
    )
    
    $
    6,189
 15




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##### Table of Contents



Condensed Consolidated Balance Sheet
 March 31, 2011CrestwoodCrestwood
    
    Restricted
    
    
    
    
    
    MidstreamMidstream
    
    Guarantor
    
    
    
    
    
    Partners LPPartners LP
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(in thousands)ASSETSCurrent assets
    
    $
    369,482
    
    
    $
    24,809
    
    
    $
    (351,584
    )
    
    $
    42,707Properties, plant and equipment - net
    
    
    9,225
    
    
    
    522,301
    
    
    
    -
    
    
    
    531,526Investment in subsidiaries
    
    
    186,363
    
    
    
    -
    
    
    
    (186,363
    )
    
    
    -Other assets
    
    
    12,203
    
    
    
    621
    
    
    
    -
    
    
    
    12,824Total assets
    
    $
    577,273
    
    
    $
    547,731
    
    
    $
    (537,947
    )
    
    $
    587,057LIABILITIES AND PARTNERS CAPITALCurrent liabilities
    
    $
    30,348
    
    
    $
    351,288
    
    
    $
    (351,584
    )
    
    $
    30,052Long-term liabilities
    
    
    292,800
    
    
    
    10,081
    
    
    
    -
    
    
    
    302,881Partners capital
    
    
    254,125
    
    
    
    186,362
    
    
    
    (186,363
    )
    
    
    254,124Total liabilities and partners capital
    
    $
    577,273
    
    
    $
    547,731
    
    
    $
    (537,947
    )
    
    $
    587,057
 December 31, 2010CrestwoodCrestwood
    
    Restricted
    
    
    
    
    
    MidstreamMidstream
    
    Guarantor
    
    
    
    
    
    Partners LPPartners LP
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(in thousands)ASSETSCurrent assets
    
    $
    291,637
    
    
    $
    23,843
    
    
    $
    (289,744
    )
    
    $
    25,736Properties, plant and equipment - net
    
    
    11,142
    
    
    
    520,229
    
    
    
    -
    
    
    
    531,371Investment in subsidiaries
    
    
    228,587
    
    
    
    -
    
    
    
    (228,587
    )
    
    
    -Other assets
    
    
    12,890
    
    
    
    630
    
    
    
    -
    
    
    
    13,520Total assets
    
    $
    544,256
    
    
    $
    544,702
    
    
    $
    (518,331
    )
    
    $
    570,627LIABILITIES AND PARTNERS CAPITALCurrent liabilities
    
    $
    1,999
    
    
    $
    306,238
    
    
    $
    (289,744
    )
    
    $
    18,493Long-term liabilities
    
    
    283,504
    
    
    
    9,877
    
    
    
    -
    
    
    
    293,381Partners capital
    
    
    258,753
    
    
    
    228,587
    
    
    
    (228,587
    )
    
    
    258,753Total liabilities and partners capital
    
    $
    544,256
    
    
    $
    544,702
    
    
    $
    (518,331
    )
    
    $
    570,627
 16




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##### Table of Contents



Condensed Consolidated Statement of Cash Flows
 For the Three Months Ended March 31, 2011CrestwoodCrestwood
    
    Restricted
    
    
    
    
    
    MidstreamMidstream
    
    Guarantor
    
    
    
    
    
    Partners LPPartners LP
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(in thousands)Net cash provided by operating activities
    
    $
    6,240
    
    
    $
    23,372
    
    
    $
    -
    
    
    $
    29,612Capital expenditures
    
    
    -
    
    
    
    (13,076
    )
    
    
    -
    
    
    
    (13,076
    )Net cash used in investing activities
    
    
    -
    
    
    
    (13,076
    )
    
    
    -
    
    
    
    (13,076
    )Proceeds from revolving credit facility borrowings
    
    
    38,400
    
    
    
    -
    
    
    
    -
    
    
    
    38,400Repayments of credit facility
    
    
    (29,104
    )
    
    
    -
    
    
    
    -
    
    
    
    (29,104
    )Distributions to unitholders
    
    
    (14,288
    )
    
    
    -
    
    
    
    -
    
    
    
    (14,288
    )Advances to Affiliates
    
    
    52,376
    
    
    
    (52,376
    )
    
    
    -
    
    
    
    -Net cash (used in) provided by financing activities
    
    
    47,384
    
    
    
    (52,376
    )
    
    
    -
    
    
    
    (4,992
    )Net cash increase (decrease)
    
    
    53,624
    
    
    
    (42,080
    )
    
    
    -
    
    
    
    11,544Cash and cash equivalents at beginning of period
    
    
    2
    
    
    
    -
    
    
    
    -
    
    
    
    2Cash or cash equivalents at end of period
    
    $
    53,626
    
    
    $
    (42,080
    )
    
    $
    -
    
    
    $
    11,546
 For the Three Months Ended March 31, 2010CrestwoodCrestwood
    
    Restricted
    
    
    
    
    
    MidstreamMidstream
    
    Guarantor
    
    
    
    
    
    Partners LPPartners LP
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(in thousands)Net cash (used in) provided by operating activities
    
    $
    (3,699
    )
    
    $
    2,242
    
    
    $
    -
    
    
    $
    (1,457
    )Capital expenditures
    
    
    -
    
    
    
    (17,163
    )
    
    
    -
    
    
    
    (17,163
    )Distributions to Quicksilver for Alliance Midstream
Assets
    
    
    -
    
    
    
    (80,276
    )
    
    
    -
    
    
    
    (80,276
    )Net cash used in investing activities
    
    
    -
    
    
    
    (97,439
    )
    
    
    -
    
    
    
    (97,439
    )Proceeds from revolving credit facility borrowings
    
    
    112,000
    
    
    
    -
    
    
    
    -
    
    
    
    112,000Repayments of credit facility
    
    
    (11,600
    )
    
    
    -
    
    
    
    -
    
    
    
    (11,600
    )Proceeds from issuance of equity
    
    
    11,088
    
    
    
    -
    
    
    
    -
    
    
    
    11,088Equity issuance cost paid
    
    
    (38
    )
    
    
    -
    
    
    
    -
    
    
    
    (38
    )Distributions to unitholders
    
    
    (11,564
    )
    
    
    -
    
    
    
    -
    
    
    
    (11,564
    )Taxes paid for equity-based compensation vesting
    
    
    (1,144
    )
    
    
    -
    
    
    
    -
    
    
    
    (1,144
    )Advances to Affiliates
    
    
    138,529
    
    
    
    (138,529
    )
    
    
    
    
    
    
    -Net cash (used in) provided by financing activities
    
    
    237,271
    
    
    
    (138,529
    )
    
    
    -
    
    
    
    98,742Net cash increase (decrease)
    
    
    233,572
    
    
    
    (233,727
    )
    
    
    -
    
    
    
    (154
    )Cash and cash equivalents at beginning of period
    
    
    746
    
    
    
    -
    
    
    
    
    
    
    
    746Cash or cash equivalents at end of period
    
    $
    234,318
    
    
    $
    (233,727
    )
    
    $
    -
    
    
    $
    592
 17




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##### Table of Contents



ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Form 10-K
 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.
 Operating Expenses
 EBITDA
  18




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##### Table of Contents




    
    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.
 2011 Recent Developments
 Las Animas Acquisition
 Bridge Loans -
 Frontier Gas Acquisition -
    Class C Units -
  Senior Notes -
 Joinder Agreement to Credit Facility -
  19




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##### Table of Contents



RESULTS OF OPERATIONS
 Three Months Ended March 31, 2011 Compared with Three Months Ended March 31, 2010
  Three Months Ended March 31,2011
    
    2010(In thousands)Total revenues
    
    $
    32,380
    
    
    $
    24,739Operations and maintenance expense
    
    
    7,381
    
    
    
    7,393General and administrative expense
    
    
    6,370
    
    
    
    3,061EBITDA
    
    
    18,629
    
    
    
    14,285Depreciation and accretion expense
    
    
    6,025
    
    
    
    5,365Interest expense
    
    
    3,006
    
    
    
    2,678Income tax provision
    
    
    222
    
    
    
    53Net income
    
    $
    9,376
    
    
    $
    6,189
  Gathering
    
    Processing2011
    
    2010
    
    2011
    
    2010(MMcf)Cowtown System
    
    
    12,184
    
    
    
    11,430
    
    
    
    10,960
    
    
    
    11,244Lake Arlington System
    
    
    9,549
    
    
    
    4,410
    
    
    
    -
    
    
    
    -Alliance System
    
    
    17,150
    
    
    
    9,957
    
    
    
    -
    
    
    
    -Las Animas System
    
    
    518
    
    
    
    -
    
    
    
    -
    
    
    
    -Total
    
    
    39,401
    
    
    
    25,797
    
    
    
    10,960
    
    
    
    11,244
  Gathering
    
    Processing
    
    Other
    
    Total(In thousands)Revenue for the three months ended March 31, 2010
    
    $
    17,504
    
    
    $
    7,235
    
    
    $
    -
    
    
    $
    24,739Volume changes
    
    
    9,231
    
    
    
    (183
    )
    
    
    -
    
    
    
    9,048Price changes
    
    
    (2,808
    )
    
    
    101
    
    
    
    400
    
    
    
    (2,307
    )Revenue for the three months ended March 31, 2011
    
    $
    23,927
    
    
    $
    7,153
    
    
    $
    400
    
    
    $
    31,480
 Total Revenue Volumes 
 Operations and Maintenance Expense 
 General and Administrative Expense 
 20




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##### Table of Contents



EBITDA 
 Depreciation and Accretion Expense 
 Interest Expense
  Three Months Ended March 31,2011
    
    2010(In thousands)Interest:Revolving Credit Facility
    
    $
    3,042
    
    
    $
    2,082Subordinated note
    
    
    -
    
    
    
    596Total
    
    
    3,042
    
    
    
    2,678Less interest capitalized
    
    
    (36
    )
    
    
    -Interest expense
    
    $
    3,006
    
    
    $
    2,678
 21




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##### Table of Contents



Liquidity and Capital Resources
  
    
    cash generated from operations;
    
    borrowings under our Credit Facility; and
    
    future capital market transactions.
   Known Trends and Uncertainties
  
    
    natural gas prices;
    
    dependency on Quicksilver and the Fort Worth Basin; and
    
    regulatory requirements.
    Significant Economic Factors That Impact our Business
   22




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##### Table of Contents



Cash Flows
 Three Months Ended March 31,2011
    
    2010(In thousands)Net cash provided by (used in) operating activities
    
    $
    29,612
    
    
    $
    (1,457
    )Net cash used in investing activities
    
    
    (13,076
    )
    
    
    (97,439
    )Net cash provided by (used in) financing activities
    
    
    (4,992
    )
    
    
    98,742
 Cash Flows Used in Operating Activities 
 Cash Flows Used in Investing Activities 
 Cash Flows Used in Financing Activities 
  Capital Expenditures
  
    
    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.
    23




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##### Table of Contents



Other Matters
  Debt
 Credit Facility
 Bridge Loans -
 7.75% Senior Notes due 2019
 Contractual Obligations and Commercial Commitments
  Off-Balance Sheet Arrangements
  Recently Issued Accounting Standards
  Critical Accounting Estimates
  
    
    depreciation expense for property, plant and equipment;
    
    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
  
 Item 1A. Risk Factors
  We are exposed to the credit risks of Quicksilver, and other third-party customers and any material
non-payment or non-performance by these customers could adversely affect our business, results of
operations and financial condition and our ability to make cash distributions to our unitholders.
   Our pipelines may be subject to more stringent safety regulation.
  Our level of indebtedness could adversely affect our ability to raise additional capital to fund
our operations, limit our ability to react to changes in our business or our industry and place us
at a competitive disadvantage.
   
    
    refinancing or restructuring our debt;
 26




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##### Table of Contents




    
    selling assets;
    
    reducing or delaying scheduled expansions and capital investments; or
    
    seeking to raise additional capital.
   
    
    increase our vulnerability to general adverse economic and industry conditions;
    
    limit our ability to fund future capital expenditures and working capital, to engage in
future acquisitions or development activities, or to otherwise realize the value of our
assets and opportunities fully because of the need to dedicate a substantial portion of our
cash flow from operations to payments of interest and principal on our debt or to comply
with any restrictive terms of our debt;
    
    limit our flexibility in planning for, or reacting to, changes in our business and the
industry in which we operate;
    
    result in an event of default if we fail to satisfy our obligations with respect to our
indebtedness or fail to comply with the financial and other restrictive covenants contained
in agreements governing our indebtedness, which event of default could result in all of our
debt becoming immediately due and payable and could permit our lenders to foreclose on any
of our assets securing such debt;
    
    require a substantial portion of cash flow from operations to be dedicated to the
payment of principal and interest on our indebtedness, therefore reducing our ability to
use our cash flow to fund our operations, capital expenditures and future business
opportunities;
    
    increase our cost of borrowing;
    
    restrict us from making strategic acquisitions or causing us to make non-strategic
divestitures;
    
    limit our flexibility in planning for, or reacting to, changes in our business or
industry in which we operate, placing us at a competitive disadvantage compared to our
competitors who are less highly leveraged and who therefore may be able to take advantage
of opportunities that our leverage prevents us from exploring;
    
    impair our ability to obtain additional financing in the future; and
    
    place us at a competitive disadvantage compared to our competitors that have less debt.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. (Removed and Reserved)
  
 Item 5. Other Information
  27




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##### Table of Contents



Item 6. Exhibits:
 Exhibit No.
    
    Description2.1
    
    Purchase and Sale Agreement by and between Frontier Gas Services, LLC and Crestwood
Midstream Partners LP, dated as of February 18, 2011 (incorporated by reference to
Exhibit 2.1 of the Companys Current Report on Form 8-K filed with the Commission on
February 22, 2011)3.1
    
    Second Amendment to Second Amended and Restated Agreement of Limited Partnership of
Crestwood Midstream Partners LP dated as of April 1, 2011 (incorporated by reference to
Exhibit 3.1 of the Companys Current Report on Form 8-K filed with the Commission on
April 5, 2011)4.1
    
    Indenture, dated April 1, 2011, among Crestwood Midstream Partners LP and Crestwood
Midstream Finance Corporation, the Guarantors named therein and The Bank of New York
Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 of the
Companys Current Report on Form 8-K filed with the Commission on April 5, 2011).4.2
    
    Form of Note representing all 7.75% Senior Notes due 2019 (incorporated by
reference to Exhibit 4.2 of the Companys Current Report on Form 8-K filed with the
Commission on April 5, 2011).4.3
    
    Registration Rights Agreement, dated April 1, 2011, among Crestwood Midstream
Partners LP and Crestwood Midstream Finance Corporation, the Guarantors named therein and
UBS Securities LLC, BNP Paribas Securities Corp., RBC Capital Markets, LLC and RBS
Securities Inc., as the initial purchasers.  (incorporated by reference to Exhibit 4.3 of
the Companys Current Report on Form 8-K filed with the Commission on April 5, 2011).4.4
    
    Class C Unit Registration Rights Agreement, dated April 1, 2011, by and between
Crestwood Midstream Partners LP and the purchasers named therein (incorporated by
reference to Exhibit 4.4 of the Companys Current Report on Form 8-K filed with the
Commission on April 5, 2011).10.1
    
    Class C Unit Purchase Agreement by and among Crestwood Midstream Partners LP and
the purchasers named therein, dated as of February 18, 2011 (incorporated by reference to
Exhibit 2.1 of the Companys Current Report on Form 8-K filed with the Commission on
February 22, 2011)*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 28




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##### Table of Contents



SIGNATURES
   CRESTWOOD MIDSTREAM PARTNERS LPBy: CRESTWOOD GAS SERVICES GP LLC, its
General PartnerBy:
    /s/ William G. ManiasWilliam G. ManiasSenior Vice President  Chief Financial Officer
 29




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description2.1
    
    Purchase and Sale Agreement by and between Frontier Gas Services, LLC and Crestwood
Midstream Partners LP, dated as of February 18, 2011 (incorporated by reference to
Exhibit 2.1 of the Companys Current Report on Form 8-K filed with the Commission on
February 22, 2011)3.1
    
    Second Amendment to Second Amended and Restated Agreement of Limited Partnership of
Crestwood Midstream Partners LP dated as of April 1, 2011 (incorporated by reference to
Exhibit 3.1 of the Companys Current Report on Form 8-K filed with the Commission on
April 5, 2011)4.1
    
    Indenture, dated April 1, 2011, among Crestwood Midstream Partners LP and Crestwood
Midstream Finance Corporation, the Guarantors named therein and The Bank of New York
Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 of the
Companys Current Report on Form 8-K filed with the Commission on April 5, 2011).4.2
    
    Form of Note representing all 7.75% Senior Notes due 2019 (incorporated by
reference to Exhibit 4.2 of the Companys Current Report on Form 8-K filed with the
Commission on April 5, 2011).4.3
    
    Registration Rights Agreement, dated April 1, 2011, among Crestwood Midstream
Partners LP and Crestwood Midstream Finance Corporation, the Guarantors named therein and
UBS Securities LLC, BNP Paribas Securities Corp., RBC Capital Markets, LLC and RBS
Securities Inc., as the initial purchasers.  (incorporated by reference to Exhibit 4.3 of
the Companys Current Report on Form 8-K filed with the Commission on April 5, 2011).4.4
    
    Class C Unit Registration Rights Agreement, dated April 1, 2011, by and between
Crestwood Midstream Partners LP and the purchasers named therein (incorporated by
reference to Exhibit 4.4 of the Companys Current Report on Form 8-K filed with the
Commission on April 5, 2011).10.1
    
    Class C Unit Purchase Agreement by and among Crestwood Midstream Partners LP and
the purchasers named therein, dated as of February 18, 2011 (incorporated by reference to
Exhibit 2.1 of the Companys Current Report on Form 8-K filed with the Commission on
February 22, 2011)*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