##### 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 March 31, 2008
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from to
 Commission file number: 001-33631
 Quicksilver Gas Services LP
  Delaware
    
    56-2639586(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)777 West Rosedale, Fort Worth, Texas
    
    76104(Address of principal executive offices)
    
    (Zip Code)
 817-665-8620
 None
  þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)


o þ


.










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##### Table of Contents



DEFINITIONS
  Bbl Bbls  Btu  Exchange Act  LIBOR  MMBtu  MMBtud  Mcf  MMcf  MMcfd  MMcfe  MMcfed  NGL NGLs
 COMMONLY USED TERMS
  FASB  IPO  Omnibus Agreement  Partnership Agreement  Quicksilver  Quicksilver Counties  SEC  SFAS
 2




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##### Table of Contents



Explanatory Note
     Forward-Looking Information
  
    
    changes in general economic conditions;
    
    fluctuations in natural gas prices;
    
    failure or delays in the Parent and third parties achieving expected production from
natural gas projects;
    
    competitive conditions in our industry;
    
    actions taken by third-party operators, processors and transporters;
    
    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 future litigation; and
    
    factors discussed in our Form 10-K for the year ended December 31, 2007.
  3




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##### 



QUICKSILVER GAS SERVICES LP
INDEX TO FORM 10-Q
For the Period Ended March 31, 2008
  
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Condensed Consolidated Statements of Income
    
    
    5Condensed Consolidated Balance Sheets
    
    
    6Condensed Consolidated Statements of Cash Flows
    
    
    7Condensed Consolidated Statement of Partners Capital
    
    
    8Notes to Condensed Consolidated Interim Financial Statements
    
    
    9Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    24Item 4. Controls and Procedures
    
    
    24PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    25Item 1A. Risk Factors
    
    
    25Item 2. Unregistered Sales of Securities and Use of Proceeds
    
    
    25Item 3. Defaults Upon Senior Securities
    
    
    25Item 4. Submission of Matters to a Vote of Security Holders
    
    
    25Item 5. Other Information
    
    
    25Item 6. Exhibits
    
    
    26Signatures
    
    
    27
  4




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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 March 31,2008
    
    
    2007RevenuesGathering and transportation revenue  parent
    
    $
    6,477
    
    
    $
    2,411Gathering and transportation revenue
    
    
    820
    
    
    
    191Gas processing revenue  parent
    
    
    6,820
    
    
    
    2,503Gas processing revenue
    
    
    843
    
    
    
    267Other revenue  parent
    
    
    225
    
    
    
    Total revenues
    
    
    15,185
    
    
    
    5,372ExpensesOperations and maintenance  parent
    
    
    4,950
    
    
    
    2,717General and administrative  parent
    
    
    1,817
    
    
    
    496Depreciation and accretion
    
    
    3,156
    
    
    
    1,295Total expenses
    
    
    9,923
    
    
    
    4,508Operating income
    
    
    5,262
    
    
    
    864Other income
    
    
    5
    
    
    
    12Interest expense
    
    
    2,418
    
    
    
    Income before income taxes
    
    
    2,849
    
    
    
    876Income tax (benefit) provision
    
    
    (35
    )
    
    
    41Net income
    
    $
    2,884
    
    
    $
    835General partner interest in net income
    
    $
    56Common and subordinated unitholders interest in net income
    
    $
    2,828Earnings per common and subordinated unit  basic
    
    $
    0.12Earnings per common and subordinated unit  diluted
    
    $
    0.12Weighted average number of common and subordinated units
outstanding:Basic
    
    
    23,783Diluted
    
    
    23,924
  5




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QUICKSILVER GAS SERVICES LP
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
In thousands, except for unit data  Unaudited
 March 31,
    
    
    December 31,2008
    
    
    2007ASSETSCurrent assetsCash and cash equivalents
    
    $
    237
    
    
    $
    1,125Trade accounts receivable
    
    
    1,133
    
    
    
    882Accounts receivable from parent
    
    
    
    
    
    
    800Prepaid expenses and other current assets
    
    
    579
    
    
    
    690Total current assets
    
    
    1,949
    
    
    
    3,497Property, plant and equipment, net
    
    
    321,819
    
    
    
    273,948Other assets
    
    
    1,198
    
    
    
    965$
    324,966
    
    
    $
    278,410LIABILITIES AND PARTNERS CAPITALCurrent liabilitiesCurrent portion of note payable to parent
    
    $
    1,100
    
    
    $
    1,100Accounts payable to parent
    
    
    105
    
    
    
    Accrued additions to property, plant and equipment
    
    
    18,667
    
    
    
    23,624Accounts payable and other
    
    
    2,690
    
    
    
    2,700Total current liabilities
    
    
    22,562
    
    
    
    27,424Long-term debt
    
    
    31,500
    
    
    
    5,000Note payable to parent
    
    
    51,091
    
    
    
    50,569Repurchase obligations to parent
    
    
    110,743
    
    
    
    82,251Asset retirement obligations
    
    
    2,975
    
    
    
    2,793Deferred income tax liability
    
    
    22
    
    
    
    173Commitments and contingent liabilities (Note 8)Partners CapitalCommon unitholders (12,269,714 and 12,263,625 units issued and
outstanding at March 31, 2008 and December 31, 2007, respectively)
    
    
    107,872
    
    
    
    109,830Subordinated unitholders (11,513,625 units issued and outstanding at March
31, 2008 and December 31, 2007)
    
    
    (1,729
    )
    
    
    356General Partner
    
    
    (70
    )
    
    
    14Total partners capital
    
    
    106,073
    
    
    
    110,200$
    324,966
    
    
    $
    278,410
  6




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QUICKSILVER GAS SERVICES LP
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands  Unaudited
 Three Months Ended March 31,2008
    
    
    2007Operating activities:Net income
    
    $
    2,884
    
    
    $
    835Items included in net income not affecting cashDepreciation
    
    
    3,115
    
    
    
    1,287Accretion of asset retirement obligation
    
    
    41
    
    
    
    8Deferred income taxes
    
    
    (151
    )
    
    
    41Equity-based compensation
    
    
    267
    
    
    
    Amortization of debt issuance costs
    
    
    52
    
    
    
    Amortization of other current assets
    
    
    140Non-cash interest expense on repurchase obligations to parent
    
    
    1,434
    
    
    
    Non-cash interest expense on note payable to parent
    
    
    797
    
    
    
    Changes in assets and liabilitiesAccounts receivable
    
    
    (251
    )
    
    
    (204
    )Prepaid expenses and other current assets
    
    
    (29
    )
    
    
    (326
    )Accounts receivable from parent
    
    
    4,557
    
    
    
    Accounts payable and other
    
    
    (10
    )
    
    
    118Net cash provided by operating activities
    
    
    12,846
    
    
    
    1,759Investing activities:Additions to properties, plant and equipment
    
    
    (32,681
    )
    
    
    (23,702
    )Net cash used in investing activities
    
    
    (32,681
    )
    
    
    (23,702
    )Financing activitiesProceeds from revolving credit facility borrowings
    
    
    26,500
    
    
    
    Repayment of subordinated note to parent
    
    
    (275
    )
    
    
    Issuance costs of equity units paid
    
    
    (3
    )
    
    
    Contributions by parent
    
    
    
    
    
    
    21,955Contributions by other partners
    
    
    
    
    
    
    167Distributions to unitholders
    
    
    (7,275
    )
    
    
    Net cash provided by financing activities
    
    
    18,947
    
    
    
    22,122Net (decrease) increase in cash
    
    
    (888
    )
    
    
    179Cash at beginning of period
    
    
    1,125
    
    
    
    2,797Cash at end of period
    
    $
    237
    
    
    $
    2,976Non-cash transactions:Changes in working capital related to the acquisition of property, plant and
equipment
    
    $
    (8,894
    )
    
    $
    (3,019
    )Repurchase obligations to parent  acquisition of property, plant and equipment
by parent
    
    $
    (27,058
    )
    
    $
    
  7




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QUICKSILVER GAS SERVICES LP
 
 CONDENSED CONSOLIDATED STATEMENT OF PARTNERS CAPITAL
In thousands  Unaudited
 Partners CapitalLimited PartnersGeneralCommon
    
    
    Subordinated
    
    
    Partner
    
    
    TotalBalance at December 31, 2007
    
    $
    109,830
    
    
    $
    356
    
    
    $
    14
    
    
    $
    110,200Initial public offering, net of offering
and other costs
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    (3
    )Distributions paid to partners
    
    
    (3,681
    )
    
    
    (3,454
    )
    
    
    (140
    )
    
    
    (7,275
    )Equity-based compensation
    
    
    267
    
    
    
    
    
    
    
    
    
    
    
    267Net income
    
    
    1,459
    
    
    
    1,369
    
    
    
    56
    
    
    
    2,884Balance at March 31, 2008
    
    $
    107,872
    
    
    $
    (1,729
    )
    
    $
    (70
    )
    
    $
    106,073
  8




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QUICKSILVER GAS SERVICES LP
 
 NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
UNAUDITED
 1. ORGANIZATION AND DESCRIPTION OF BUSINESS
 Organization
  Initial Public Offering
  PercentageOwnershipCommon unitholders:Public
    
    
    27.1
    %Quicksilver
    
    
    23.5
    %Subordinated unitholders:Quicksilver
    
    
    47.5
    %Total limited partner interest
    
    
    98.1
    %
   Description of Business
   9




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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
    Use of Estimates 
 Repurchase Obligations to Parent 
 Cowtown Pipeline Assets Repurchase:
 Lake Arlington Dry System and Hill County Dry System Repurchases:
 10




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ConstructionEstimate of
    
    
    CostsConstruction
    
    
    RecognizedJune 5, 2007
    
    
    Costs as of
    
    
    through MarchSales Price
    
    
    March 31, 2008
    
    
    31, 2008
    
    
    KGS RepurchaseCowtown Pipeline Assets
    
    $
    22.9
    
    
    $
    62.8
    
    
    $
    53.6
    
    
    Optional at CostLake Arlington Dry System
    
    
    3.6
    
    
    
    55.2
    
    
    
    25.7
    
    
    Obligatory at Fair ValueHill County Dry System
    
    
    3.0
    
    
    
    55.8
    
    
    
    27.4
    
    
    Obligatory at Fair ValueInterest cost included in liability
    
    
    
    
    
    
    
    
    
    
    4.0$
    29.5
    
    
    $
    173.8
    
    
    $
    110.7
  Net Income per Limited Partner Unit
  Three MonthsEnded March 31,2008(In thousands, exceptper unit data)Common and subordinated unitholders interest in net income
    
    $
    2,828Weighted average common and subordinated units  basic
    
    
    23,783Effect of restricted phantom units
    
    
    141Weighted average common and subordinated units  diluted
    
    
    23,924Earnings per common and subordinated unit  basic
    
    $
    0.12Earnings per common and subordinated unit  diluted
    
    $
    0.12
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Recently Issued Accounting Standards
 Pronouncements Implemented
 Fair Value Measurements,
    The Fair Value Option for Financial Assets and
Financial Liabilities  Including an amendment of FASB Statement No. 115
 Amendment of FASB
Interpretation No. 39 Accounting for Derivative Instruments and Hedging Activities
 Pronouncements Not Yet Implemented
 Business Combinations Business Combinations
 Noncontrolling Interests in Consolidated Financial Statements  an amendment of ARB
No. 5,1
 12




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Disclosures about Derivative Instruments and Hedging Activities,
 3. PARTNERS CAPITAL AND DISTRIBUTIONS
   
    
    provide for the proper conduct of business;
    
    comply with applicable law, debt or other agreements; and
    
    provide funds for distributions to the unitholders and to the general partner
for any one or more of the next four quarters.
  13




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4. PROPERTY, PLANT AND EQUIPMENT
  March 31,
    
    
    December 31,Depreciable Life
    
    
    2008
    
    
    2007(in thousands)Gathering and transportation systems
    
    20 years
    
    $
    126,347
    
    
    $
    106,478Processing plants
    
    20-25 years
    
    
    129,847
    
    
    
    117,571Construction in progress
    
    
    
    
    
    
    47,869
    
    
    
    32,682Rights-of-way and easements
    
    20 years
    
    
    30,559
    
    
    
    26,905Land
    
    
    
    
    
    
    952
    
    
    
    952Buildings
    
    40 years
    
    
    802
    
    
    
    802Field equipment
    
    20 years
    
    
    108
    
    
    
    108336,484
    
    
    
    285,498Less: accumulated depreciation
    
    
    
    
    
    
    (14,665
    )
    
    
    (11,550
    )Net property, plant and equipment
    
    
    
    
    
    $
    321,819
    
    
    $
    273,948
 5. RELATED-PARTY TRANSACTIONS
 Transactions With Related Parties
  Three Months Ended March 31,2008
    
    
    2007(in thousands)General and administrative expense  parentAllocation of general and administrative overhead
    
    $
    557
    
    
    $
    342Audit and tax services
    
    
    468
    
    
    
    83Equity-based compensation expense
    
    
    357
    
    
    
    Legal services
    
    
    139
    
    
    
    Insurance expense
    
    
    85
    
    
    
    11Management fee
    
    
    
    
    
    
    60Other
    
    
    211
    
    
    
    Total general and administrative expense  parent
    
    $
    1,817
    
    
    $
    496
 14




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6. LONG-TERM DEBT
  March 31,
    
    
    December 31,2008
    
    
    2007(In thousands)Revolving
credit facility
    
    $
    31,500
    
    
    $
    5,000Subordinated note to Parent
    
    
    52,191
    
    
    
    51,66983,691
    
    
    
    56,669Less current maturities
    
    
    (1,100
    )
    
    
    (1,100
    )Total long-term debt
    
    $
    82,591
    
    
    $
    55,569
 Long-term Debt
  7. ASSET RETIREMENT OBLIGATIONS
 Asset Retirement Obligations
 Three Months Ended March 31,2008
    
    
    2007(in thousands)Beginning asset retirement obligations
    
    $
    2,793
    
    
    $
    503Additional liability incurred
    
    
    141
    
    
    
    1,006Accretion expense
    
    
    41
    
    
    
    8Ending asset retirement obligations
    
    $
    2,975
    
    
    $
    1,517
  8. COMMITMENTS AND CONTINGENT LIABILITIES
   15




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9. INCOME TAXES
   10. EQUITY-BASED COMPENSATION
  Payable in cash
    
    
    Payable in unitsWeighted
    
    
    
    
    
    
    WeightedAverage Grant
    
    
    
    
    
    
    Average GrantDate Fair
    
    
    
    
    
    
    Date FairUnits
    
    
    Value
    
    
    Units
    
    
    ValueUnvested Phantom Units - December 31, 2007
    
    
    84,961
    
    
    $
    21.36
    
    
    
    9,833
    
    
    $
    21.36Vested
    
    
    
    
    
    
    
    
    
    
    (6,089
    )
    
    
    21.36Issued
    
    
    2,751
    
    
    
    23.63
    
    
    
    137,148
    
    
    
    25.25Cancelled
    
    
    (3,000
    )
    
    
    21.36
    
    
    
    
    
    
    
    Unvested Phantom Units  March 31, 2008
    
    
    84,712
    
    
    $
    21.43
    
    
    
    140,892
    
    
    $
    25.15
   16




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ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
  Our Operations
  How We Evaluate Our Operations
  Volume
 
    
    the level of successful drilling and production activity in areas currently dedicated to
our systems,
    
    our ability to compete with other gas gathering and processing companies for volumes from
successful new wells in other areas, and
    
    our pursuit of new opportunities where a limited number of gas gathering and processing
companies conduct business.
  Adjusted Gross Margin
 Operating Expenses
 EBITDA
 17




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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 energy
industry without regard to financing methods, capital structure or historical cost basis;
and
    
    the viability of acquisitions and capital expenditure projects and the overall rates of
return on alternative investment opportunities.
  Three Months Ended March 31,2008
    
    2007(In thousands, except volume data)Volumes gathered (MMcf)
    
    
    14,551
    
    
    
    5,518Volumes processed (MMcf)
    
    
    12,156
    
    
    
    4,830Adjusted Gross Margin (1)
    
    $
    8,418
    
    
    $
    2,159Operations and maintenance expense
    
    $
    4,950
    
    
    $
    2,717EBITDA (1)
    
    $
    8,423
    
    
    $
    2,171
 
 (1)
    
    See the reconciliation of these amounts to amounts reported under GAAP in Results of Operations. 18




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RESULTS OF OPERATIONS
 Three Months Ended March 31, 2008 Compared with Three Months Ended March 31, 2007 .
  Three Months Ended March 31,2008
    
    
    2007(In thousands, except volume data)Total revenues
    
    $
    15,185
    
    
    $
    5,372Operations and maintenance expense
    
    
    4,950
    
    
    
    2,717General and administrative expense
    
    
    1,817
    
    
    
    496Adjusted gross margin
    
    
    8,418
    
    
    
    2,159Other income
    
    
    5
    
    
    
    12EBITDA
    
    
    8,423
    
    
    
    2,171Depreciation and accretion expense
    
    
    3,156
    
    
    
    1,295Operating Income
    
    
    5,267
    
    
    
    876Interest expense
    
    
    2,418
    
    
    
    Income tax (benefit) provision
    
    
    (35
    )
    
    
    41Net income
    
    $
    2,884
    
    
    $
    835Volume Data:Volumes gathered (MMcf)
    
    
    14,551
    
    
    
    5,518Volumes processed (MMcf)
    
    
    12,156
    
    
    
    4,830
 Total Revenues 
 Operations and Maintenance Expense 
 General and Administrative Expense  .
 Adjusted Gross Margin 
 19




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Depreciation and Accretion Expense 
 Interest Expense
 Liquidity and Capital Resources
  
    
    cash generated from operations;
    
    borrowings under our revolving credit facility; and
    
    future debt and equity offerings.
  Cash Flows
 For the Three Months EndedMarch 31,2008
    
    2007(In thousands)Net cash provided by operating activities
    
    $
    12,846
    
    
    $
    1,759Net cash used in investing activities
    
    
    (32,681
    )
    
    
    (23,702
    )Net cash provided by financing activities
    
    
    18,947
    
    
    
    22,122
  Cash Flows Provided by Operating Activities 
 Cash Flows Used in Investing Activities 
 Cash Flows Provided by Financing Activities 
 Working Capital (Deficit) 
 20




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Capital Expenditures
  
    
    expansion capital expenditures, which are made to construct additional assets, to expand and
upgrade existing systems, including compression, and facilities or to acquire additional
assets; or
    
    maintenance capital expenditures, which are made to replace partially or fully depreciated
assets, to maintain the existing operating capacity of our assets and extend their useful
lives or to maintain existing system volumes and related cash flows.
  Debt
  Revolving Credit Facility -
 
    
    incur further indebtedness;
    
    grant liens;
    
    pay distributions; and
    
    engage in transactions with affiliates.
   Subordinated Note 
 Repurchase Obligations to Parent -
 21




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Cowtown Pipeline Assets Repurchase:
 Lake Arlington Dry System and Hill County Dry System Repurchases:
  ConstructionEstimate of
    
    
    CostsConstruction
    
    
    RecognizedJune 5, 2007
    
    
    Costs as of
    
    
    through MarchSales Price
    
    
    March 31, 2008
    
    
    31, 2008
    
    
    KGS RepurchaseCowtown Pipeline Assets
    
    $
    22.9
    
    
    $
    62.8
    
    
    $
    53.6
    
    
    Optional at CostLake Arlington Dry System
    
    
    3.6
    
    
    
    55.2
    
    
    
    25.7
    
    
    Obligatory at Fair ValueHill County Dry System
    
    
    3.0
    
    
    
    55.8
    
    
    
    27.4
    
    
    Obligatory at Fair ValueInterest cost included in liability
    
    
    
    
    
    
    
    
    
    
    4.0$
    29.5
    
    
    $
    173.8
    
    
    $
    110.7
  Recently Issued Accounting Standards
  22




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Critical Accounting Estimates
  
    
    Depreciation Expense and Cost Capitalization Policies;
    
    Repurchase Obligations to Parent;
    
    Asset Retirement Obligations; and
    
    Equity-Based Compensation
  23




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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
  24




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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  25




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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 26




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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
 27




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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