##### 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 June 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
(State or other jurisdiction of 
incorporation or organization)
    
    56-2639586
(I.R.S. Employer Identification No.)
 777 West Rosedale, Fort Worth, Texas
(Address of principal executive offices)
    
    76104
(Zip Code)
 817-665-8620
 None
 þ o
 o o
  Large accelerated filer o
Accelerated filer þ
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company o o þ
  Title of Class
    
    Outstanding as of July 22, 2009Common Units
    
    12,313,451




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##### 



QUICKSILVER GAS SERVICES LP
INDEX TO FORM 10-Q
For the Period Ended June 30, 2009
 PART I. FINANCIAL INFORMATION
    
    
    5Item 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 INFORMATION
    
    
    26Item 1.
    
    Legal Proceedings
    
    
    26Item 1A.
    
    Risk Factors
    
    
    26Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    33Item 3.
    
    Defaults Upon Senior Securities
    
    
    33Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    33Item 5.
    
    Other Information
    
    
    33Item 6.
    
    Exhibits
    
    
    34Signatures
    
    
    35
  2




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




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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 current and future litigation; and
    
    certain factors discussed elsewhere in this quarterly report.
   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 June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008RevenueRevenue
Gathering and transportation revenue  Quicksilver
    
    $
    14,092
    
    
    $
    7,199
    
    
    $
    28,166
    
    
    $
    13,676Gathering and transportation revenue
    
    
    669
    
    
    
    1,633
    
    
    
    1,644
    
    
    
    2,453Gas processing revenue  Quicksilver
    
    
    8,684
    
    
    
    7,701
    
    
    
    17,386
    
    
    
    14,521Gas processing revenue
    
    
    311
    
    
    
    1,447
    
    
    
    1,049
    
    
    
    2,290Other revenue  Quicksilver
    
    
    225
    
    
    
    225
    
    
    
    450
    
    
    
    450Total revenue
    
    
    23,981
    
    
    
    18,205
    
    
    
    48,695
    
    
    
    33,390ExpensesOperations and maintenance
    
    
    6,003
    
    
    
    5,312
    
    
    
    11,414
    
    
    
    10,262General and administrative
    
    
    1,738
    
    
    
    1,422
    
    
    
    3,730
    
    
    
    3,239Depreciation and accretion
    
    
    5,768
    
    
    
    3,407
    
    
    
    10,809
    
    
    
    6,563Total expenses
    
    
    13,509
    
    
    
    10,141
    
    
    
    25,953
    
    
    
    20,064Operating income
    
    
    10,472
    
    
    
    8,064
    
    
    
    22,742
    
    
    
    13,326Other income
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    6Interest expense
    
    
    2,813
    
    
    
    2,421
    
    
    
    5,686
    
    
    
    4,839Income before income taxes
    
    
    7,660
    
    
    
    5,644
    
    
    
    17,057
    
    
    
    8,493Income tax provision
    
    
    248
    
    
    
    38
    
    
    
    211
    
    
    
    3Net income
    
    $
    7,412
    
    
    $
    5,606
    
    
    $
    16,846
    
    
    $
    8,490General partner interest in net income
    
    $
    233
    
    
    $
    126
    
    
    $
    504
    
    
    $
    182Common and subordinated unitholders interest in net income
    
    
    7,179
    
    
    
    5,480
    
    
    
    16,342
    
    
    
    8,308Earnings per common and subordinated unit:Basic
    
    $
    0.30
    
    
    $
    0.23
    
    
    $
    0.69
    
    
    $
    0.35Diluted
    
    
    0.27
    
    
    
    0.23
    
    
    
    0.61
    
    
    
    0.35Weighted average number of common and subordinated units
outstanding:Basic
    
    
    23,827
    
    
    
    23,783
    
    
    
    23,827
    
    
    
    23,783Diluted
    
    
    28,395
    
    
    
    23,924
    
    
    
    28,489
    
    
    
    23,924
  5




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QUICKSILVER GAS SERVICES LP
CONDENSED CONSOLIDATED BALANCE SHEETS
In thousands, except for unit data  Unaudited
 June 30,
    
    
    December 31,2009
    
    
    2008ASSETSCurrent assetsCash and cash equivalents
    
    $
    581
    
    
    $
    303Accounts receivable
    
    
    583
    
    
    
    2,082Accounts receivable from Quicksilver
    
    
    1,317
    
    
    
    Prepaid expenses and other current assets
    
    
    577
    
    
    
    594Total current assets
    
    
    3,058
    
    
    
    2,979Property, plant and equipment, net
    
    
    507,462
    
    
    
    488,120Other assets
    
    
    1,731
    
    
    
    1,916$
    512,251
    
    
    $
    493,015LIABILITIES AND PARTNERS CAPITALCurrent liabilitiesCurrent maturities of debt
    
    $
    1,925
    
    
    $
    1,375Accounts payable to Quicksilver
    
    
    
    
    
    
    10,502Accrued additions to property, plant and equipment
    
    
    10,105
    
    
    
    17,433Accounts payable and other
    
    
    3,392
    
    
    
    1,930Total current liabilities
    
    
    15,422
    
    
    
    31,240Long-term debt
    
    
    195,900
    
    
    
    174,900Note payable to Quicksilver
    
    
    52,817
    
    
    
    52,271Repurchase obligations to Quicksilver
    
    
    133,443
    
    
    
    123,298Asset retirement obligations
    
    
    8,898
    
    
    
    5,234Deferred income tax liability
    
    
    580
    
    
    
    369Commitments and contingent liabilities (Note 8)Partners capitalCommon unitholders (12,313,451 and
12,269,714 units issued and
outstanding at June 30, 2009 and December 31, 2008, respectively)
    
    
    108,176
    
    
    
    108,036Subordinated unitholders (11,513,625 units issued and outstanding at
June 30, 2009 and December 31, 2008)
    
    
    (2,951
    )
    
    
    (2,328
    )General partner
    
    
    (34
    )
    
    
    (5
    )Total partners capital
    
    
    105,191
    
    
    
    105,703$
    512,251
    
    
    $
    493,015
  6




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QUICKSILVER GAS SERVICES LP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands  Unaudited
 Six Months Ended June 30,2009
    
    
    2008Operating activities:Net income
    
    $
    16,846
    
    
    $
    8,490Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation
    
    
    10,631
    
    
    
    6,478Accretion of asset retirement obligation
    
    
    178
    
    
    
    85Deferred income taxes
    
    
    211
    
    
    
    (55
    )Equity-based compensation
    
    
    870
    
    
    
    501Non-cash interest expense
    
    
    3,252
    
    
    
    4,607Changes in assets and liabilities:Accounts receivable
    
    
    1,499
    
    
    
    (1,435
    )Prepaid expenses and other assets
    
    
    32
    
    
    
    (562
    )Accounts receivable and payable with Quicksilver
    
    
    (2,284
    )
    
    
    5,170Accounts payable and other
    
    
    2,051
    
    
    
    801Net cash provided by operating activities
    
    
    33,286
    
    
    
    24,080Investing activities:Capital expenditures
    
    
    (35,780
    )
    
    
    (59,434
    )Net cash used in investing activities
    
    
    (35,780
    )
    
    
    (59,434
    )Financing activities:Proceeds from revolving credit facility borrowings
    
    
    31,500
    
    
    
    50,300Repayment of credit facility
    
    
    (10,500
    )
    
    
    Repayment of subordinated note payable to Quicksilver
    
    
    
    
    
    
    (550
    )Distributions to unitholders
    
    
    (18,165
    )
    
    
    (14,914
    )Other
    
    
    (63
    )
    
    
    Net cash provided by financing activities
    
    
    2,772
    
    
    
    34,836Net cash increase (decrease)
    
    
    278
    
    
    
    (518
    )Cash at beginning of period
    
    
    303
    
    
    
    1,125Cash at end of period
    
    $
    581
    
    
    $
    607Cash paid for interest
    
    $
    2,745
    
    
    $
    739Cash paid for income taxes
    
    
    
    
    
    
    Non-cash transactions:Working capital related to capital expenditures
    
    
    15,056
    
    
    
    29,497Acquisition of property, plant and equipment under repurchase
obligation
    
    
    (7,570
    )
    
    
    (46,732
    )
  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
    
    
    870
    
    
    
    
    
    
    
    
    
    
    
    870Distributions paid to partners
    
    
    (9,112
    )
    
    
    (8,520
    )
    
    
    (533
    )
    
    
    (18,165
    )Net income
    
    
    8,445
    
    
    
    7,897
    
    
    
    504
    
    
    
    16,846Other
    
    
    (63
    )
    
    
    
    
    
    
    
    
    
    
    (63
    )Balance at June 30, 2009
    
    $
    108,176
    
    
    $
    (2,951
    )
    
    $
    (34
    )
    
    $
    105,191
  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 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 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 
  Cowtown Pipeline
 Hill County Dry System
  Repurchase Obligation(1)
    
    
    KGS Repurchase(In millions)Cowtown Pipeline
    
    $
    68.4
    
    
    Optional at construction costHill County Dry System
    
    
    65.0
    
    
    Obligatory at fair value$
    133.4
 
 (1)
    
    Quicksilver expects capital expenditures of approximately $4 million for the
remainder of 2009 for assets subject to the repurchase obligations.  Net Income per Limited Partner Unit
 10




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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands, except per unit data)Common and subordinated unitholders interest in net income
    
    $
    7,179
    
    
    $
    5,480
    
    
    $
    16,342
    
    
    $
    8,308Impact of interest on subordinated note to Quicksilver
    
    
    492
    
    
    
    
    
    
    
    1,075
    
    
    
    Income available assuming conversion of convertible debt
    
    $
    7,671
    
    
    $
    5,480
    
    
    $
    17,417
    
    
    $
    8,308Weighted average common and subordinated units  basic
    
    
    23,827
    
    
    
    23,783
    
    
    
    23,827
    
    
    
    23,783Effect of restricted phantom units
    
    
    487
    
    
    
    141
    
    
    
    487
    
    
    
    141Effect of subordinated note to Quicksilver (1)
    
    
    4,081
    
    
    
    
    
    
    
    4,174
    
    
    
    Weighted average common and subordinated units  diluted
    
    
    28,395
    
    
    
    23,924
    
    
    
    28,488
    
    
    
    23,924Earnings per common and subordinated unit:Basic
    
    $
    0.30
    
    
    $
    0.23
    
    
    $
    0.69
    
    
    $
    0.35Diluted
    
    $
    0.27
    
    
    $
    0.23
    
    
    $
    0.61
    
    
    $
    0.35
 
 (1)
    
    Assumes that convertible debt is converted at a price of $13.41 per unit and
$13.11 per unit, using the average closing price per unit for the three and six months ended June
30, 2009, respectively. Note 6, Long-Term Debt, in the consolidated financial statements in our
2008 Annual Report on Form 10-K contains a more complete description of our indebtedness. Comprehensive Income
 Recently Issued Accounting Standards Affecting KGS
 Pronouncements Implemented
 Business Combinations Business Combinations
 Noncontrolling Interests in Consolidated Financial Statements  an amendment of
ARB No. 51
 11




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Effective Date of FASB Statement No. 157
 Disclosures about Derivative Instruments and Hedging Activities,
 Emerging Issues Task Force Application of the Two-Class Method
under FASB Statement No. 128, Earnings per Share, to Master Limited Partnerships, (EITF 07-4), Earnings per Share
  Determining Whether Instruments Granted in Share-Based
Payments Transactions Are Participating Securities
 Subsequent Events
 Pronouncements Not Yet Implemented
 The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles
 3. PARTNERS CAPITAL AND DISTRIBUTIONS
  12




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Attributable to the
    
    Per Unit
    
    Total CashPayment Date
    
    Quarter Ended
    
    Distribution(1)
    
    Distribution(In millions)Pending DistributionsAugust 14, 2009 (2)
    
    June 30, 2009
    
    $
    0.370
    
    
    $
    9.1Completed DistributionsMay 15, 2009 (2)
    
    March 31, 2009
    
    $
    0.370
    
    
    $
    9.1February 13, 2009 (2)
    
    December 31, 2008
    
    $
    0.370
    
    
    $
    9.1November 14, 2008 (3)
    
    September 30, 2008
    
    $
    0.350
    
    
    $
    8.5August 14, 2008 (3)
    
    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 $90,000 to the general partner(3)
    
    Total cash distribution includes an Incentive Distribution Rights amount of
approximately $20,000 to the general partner 4. PROPERTY, PLANT AND EQUIPMENT
  June 30,
    
    
    December 31,2009
    
    
    2008(In thousands)Gathering and transportation systems
    
    $
    203,113
    
    
    $
    179,594Processing plants
    
    
    280,791
    
    
    
    157,353Construction in progress  plant
    
    
    
    
    
    
    106,563Construction in progress  pipeline
    
    
    12,354
    
    
    
    27,994Rights-of-way and easements
    
    
    44,074
    
    
    
    39,473Land
    
    
    1,321
    
    
    
    1,239Buildings and other
    
    
    2,372
    
    
    
    1,836544,025
    
    
    
    514,052Accumulated depreciation
    
    
    (36,563
    )
    
    
    (25,932
    )Net property, plant and equipment
    
    $
    507,462
    
    
    $
    488,120
 5. RELATED-PARTY TRANSACTIONS
    13




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6. LONG-TERM DEBT
  June 30,
    
    
    December 31,2009
    
    
    2008(In thousands)Credit Agreement
    
    $
    195,900
    
    
    $
    174,900Subordinated Note to Quicksilver
    
    
    54,742
    
    
    
    53,646250,642
    
    
    
    228,546Current maturities of debt
    
    
    (1,925
    )
    
    
    (1,375
    )Long-term debt
    
    $
    248,717
    
    
    $
    227,171
  Long-Term Debt
 7. ASSET RETIREMENT OBLIGATIONS
  Six Months EndedJune 30, 2009(In thousands)Beginning asset retirement obligations
    
    $
    5,234Additional liability incurred
    
    
    3,486Accretion expense
    
    
    178Ending asset retirement obligations
    
    $
    8,898
 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 GrantDate Fair
    
    
    
    
    
    Date FairUnits
    
    Value
    
    Units
    
    ValueUnvested phantom units  January 1, 2009
    
    
    60,319
    
    
    $
    21.63
    
    
    
    139,918
    
    
    $
    25.15Vested
    
    
    (1,150
    )
    
    
    13.76
    
    
    
    (49,789
    )
    
    
    25.25Issued
    
    
    920
    
    
    
    13.40
    
    
    
    405,428
    
    
    
    10.06Cancelled
    
    
    (5,973
    )
    
    
    21.36
    
    
    
    (8,284
    )
    
    
    17.03Unvested phantom units  June 30, 2009
    
    
    54,116
    
    
    $
    21.68
    
    
    
    487,273
    
    
    $
    12.72
   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 June 30, 2009 Compared with Three Months Ended June 30, 2008
  Three Months Ended June 30,2009
    
    
    2008(In thousands, except volume data)Total revenues
    
    $
    23,981
    
    
    $
    18,205Operations and maintenance expense
    
    
    6,003
    
    
    
    5,312General and administrative expense
    
    
    1,738
    
    
    
    1,422Adjusted gross margin
    
    
    16,240
    
    
    
    11,471Other income
    
    
    1
    
    
    
    1EBITDA
    
    
    16,241
    
    
    
    11,472Depreciation and accretion expense
    
    
    5,768
    
    
    
    3,407Interest expense
    
    
    2,813
    
    
    
    2,421Income tax provision
    
    
    248
    
    
    
    38Net income
    
    $
    7,412
    
    
    $
    5,606Volume Data:Volumes gathered (MMcf)
    
    
    20,263
    
    
    
    17,127Volumes processed (MMcf)
    
    
    14,108
    
    
    
    14,593
  Gathering
    
    Processing2009
    
    2008
    
    2009
    
    2008(MMcf)Cowtown System
    
    
    14,425
    
    
    
    14,764
    
    
    
    14,108
    
    
    
    14,593Lake Arlington Dry System
    
    
    4,657
    
    
    
    1,700
    
    
    
    
    
    
    
    Hill County Dry System
    
    
    1,181
    
    
    
    663
    
    
    
    
    
    
    
    Total
    
    
    20,263
    
    
    
    17,127
    
    
    
    14,108
    
    
    
    14,593
  Gathering
    
    
    Processing
    
    
    Other
    
    
    Total(In thousands)Revenue for the three months ended June 30, 2008
    
    $
    8,832
    
    
    $
    9,148
    
    
    $
    225
    
    
    $
    18,205Volume changes
    
    
    1,617
    
    
    
    (304
    )
    
    
    
    
    
    
    1,313Price changes
    
    
    4,312
    
    
    
    151
    
    
    
    
    
    
    
    4,463Revenue for the three months ended June 30, 2009
    
    $
    14,761
    
    
    $
    8,995
    
    
    $
    225
    
    
    $
    23,981
 18




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Total Revenue Volumes 
 Operations and Maintenance Expense 
 General and Administrative Expense 
 Adjusted Gross Margin EBITDA 
 Depreciation and Accretion Expense 
 Interest Expense
  Three Months Ended June 30,2009
    
    
    2008(In thousands)Interest cost:Revolving credit facility
    
    $
    1,119
    
    
    $
    527Repurchase obligation
    
    
    1,192
    
    
    
    1,494Subordinated note to Quicksilver
    
    
    502
    
    
    
    692Total cost
    
    
    2,813
    
    
    
    2,713Less interest capitalized
    
    
    
    
    
    
    (292
    )Interest expense
    
    $
    2,813
    
    
    $
    2,421
 19




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Six Months Ended June 30, 2009 Compared with Six Months Ended June 30, 2008
  Six Months Ended June 30,2009
    
    
    2008(In thousands, except volume data)Total revenues
    
    $
    48,695
    
    
    $
    33,390Operations and maintenance expense
    
    
    11,414
    
    
    
    10,262General and administrative expense
    
    
    3,730
    
    
    
    3,239Adjusted gross margin
    
    
    33,551
    
    
    
    19,889Other income
    
    
    1
    
    
    
    6EBITDA
    
    
    33,552
    
    
    
    19,895Depreciation and accretion expense
    
    
    10,809
    
    
    
    6,563Interest expense
    
    
    5,686
    
    
    
    4,839Income tax provision
    
    
    211
    
    
    
    3Net income
    
    $
    16,846
    
    
    $
    8,490Volume Data:Volumes gathered (MMcf)
    
    
    44,049
    
    
    
    31,678Volumes processed (MMcf)
    
    
    28,760
    
    
    
    26,749
  Gathering
    
    Processing2009
    
    2008
    
    2009
    
    2008(MMcf)Cowtown System
    
    
    29,532
    
    
    
    27,329
    
    
    
    28,760
    
    
    
    26,749Lake Arlington Dry System
    
    
    10,935
    
    
    
    3,024
    
    
    
    
    
    
    
    Hill County Dry System
    
    
    3,582
    
    
    
    1,325
    
    
    
    
    
    
    
    Total
    
    
    44,049
    
    
    
    31,678
    
    
    
    28,760
    
    
    
    26,749
  Gathering
    
    
    Processing
    
    
    Other
    
    
    Total(In thousands)Revenue for the six months ended June 30, 2008
    
    $
    16,129
    
    
    $
    16,811
    
    
    $
    450
    
    
    $
    33,390Volume changes
    
    
    6,299
    
    
    
    1,264
    
    
    
    
    
    
    
    7,563Price changes
    
    
    7,382
    
    
    
    360
    
    
    
    
    
    
    
    7,742Revenue for the six months ended June 30, 2009
    
    $
    29,810
    
    
    $
    18,435
    
    
    $
    450
    
    
    $
    48,695
 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
  Six Months Ended June 30,2009
    
    
    2008(In thousands)Interest cost:Revolving credit facility
    
    $
    2,325
    
    
    $
    844Repurchase obligation
    
    
    2,575
    
    
    
    2,927Subordinated note to Quicksilver
    
    
    1,096
    
    
    
    1,489Total cost
    
    
    5,996
    
    
    
    5,260Less interest capitalized
    
    
    (310
    )
    
    
    (421
    )Interest expense
    
    $
    5,686
    
    
    $
    4,839
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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
 Six Months Ended June 30,2009
    
    2008(In thousands)Net cash provided by operating activities
    
    $
    33,287
    
    
    $
    24,080Net cash used in investing activities
    
    
    (35,780
    )
    
    
    (59,434
    )Net cash provided by financing activities
    
    
    2,772
    
    
    
    34,836
  Cash Flows Provided by Operating Activities 
 Cash Flows Used in Investing Activities 
 Cash Flows Provided by Financing Activities 
  Capital Expenditures
  
    
    expansion capital expenditures, which are made to construct additional assets, expand
and upgrade existing systems, or acquire additional assets; or
 22




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##### Table of Contents




    
    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
  
    
    incur further indebtedness;
    
    grant liens;
    
    pay distributions; and
    
    engage in transactions with affiliates.
  23




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##### Table of Contents



Subordinated Note
 Long-Term Debt
 Repurchase Obligations to Quicksilver
 Contractual Obligations and Commercial Commitments
  Recently Issued Accounting Standards
  Critical Accounting Estimates
  
    
    Depreciation expense and capitalization limits 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 of, 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.
  
    
    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
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##### Table of Contents




    
    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.
  32




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##### Table of Contents



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
  33




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##### Table of Contents



Item 6. Exhibits
 Exhibit No.
    
    Description10.1
    
    Option, Right of First Refusal, and Waiver in Amendment to Omnibus Agreement and Gas
Gathering and Processing Agreement, dated as of June 9, 2009, among Quicksilver Resources
Inc., Quicksilver Gas Services LP, Quicksilver Gas Services GP LLC, Cowtown Pipeline
Partners L.P. and Cowtown Gas Processing Partners L.P. (filed as Exhibit 10.1 to the
Companys Form 8-K filed June 11, 2009 and included herein by reference).*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 34




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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 35




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description10.1
    
    Option, Right of First Refusal, and Waiver in Amendment to Omnibus Agreement and Gas
Gathering and Processing Agreement, dated as of June 9, 2009, among Quicksilver Resources
Inc., Quicksilver Gas Services LP, Quicksilver Gas Services GP LLC, Cowtown Pipeline
Partners L.P. and Cowtown Gas Processing Partners L.P. (filed as Exhibit 10.1 to the
Companys Form 8-K filed June 11, 2009 and included herein by reference).*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