##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2007
 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
(Address of principal executive offices)
    
    76104
(Zip Code)
 (817) 665-8620
 None
  þ o
  o o þ
 o þ
 .




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##### 



EXPLANATORY NOTE
      2




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##### 



QUICKSILVER GAS SERVICES LP
INDEX TO FORM 10-Q
For the Period Ended September 30, 2007
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Condensed Consolidated Balance Sheets at September 30, 2007 and December 31, 2006
    
    4Condensed Consolidated Statements of Income for the Three and Nine Months
Ended September 30, 2007 and 2006
    
    5Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2007 and 2006
    
    6Condensed Consolidated Statement of Changes in Partners Capital for the Nine Months Ended September 30, 2007
    
    7Notes to Condensed Consolidated Interim Financial Statements
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    21Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    30Item 4. Controls and Procedures
    
    31PART II. OTHER INFORMATIONItem 1A. Risk Factors
    
    32Item 2. Unregistered Sales of Securities and Use of Proceeds
    
    32Item 6. Exhibits
    
    33Signatures
    
    34
 3




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##### 



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 QUICKSILVER GAS SERVICES LP
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 In thousands  Unaudited
 September 30,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent assetsCash and cash equivalents
    
    $
    18,099
    
    
    $
    2,797Trade accounts receivable
    
    
    925
    
    
    
    67Other current assets
    
    
    553
    
    
    
    147Total current assets
    
    
    19,577
    
    
    
    3,011Property, plant and equipment  net
    
    
    227,825
    
    
    
    130,791Other assets
    
    
    959
    
    
    
    821Total assets
    
    $
    248,361
    
    
    $
    134,623LIABILITIES, REDEEMABLE PARTNERS CAPITAL AND PARTNERS CAPITALCurrent liabilitiesCurrent portion of note payable to parent
    
    $
    825
    
    
    $
    Accounts payable to parent
    
    
    10,179
    
    
    
    Accrued additions to property, plant and equipment
    
    
    7,180
    
    
    
    6,608Accounts payable and other
    
    
    2,332
    
    
    
    1,294Total current liabilities
    
    
    20,516
    
    
    
    7,902Repurchase obligations to parent
    
    
    64,458
    
    
    
    Note payable to parent
    
    
    49,800
    
    
    
    Asset retirement obligations
    
    
    1,893
    
    
    
    503Deferred income tax liabilities
    
    
    151
    
    
    
    135Commitments
and contingent liabilities (Note 8)
    
    
    
    
    
    
    Redeemable partners capital
    
    
    
    
    
    
    7,431Partners CapitalCommon unitholders (12,263,625 units issued and outstanding
at September 30, 2007)
    
    
    110,740
    
    
    
    Subordinated unitholders (11,513,625 units issued and
outstanding at September 30, 2007)
    
    
    771
    
    
    
    General partner (469,944 units issued and outstanding
at September 30, 2007)
    
    
    32
    
    
    
    Net parent equity
    
    
    
    
    
    
    118,652Total partners capital
    
    
    111,543
    
    
    
    118,652Total liabilities, redeemable partners capital and partners capital
    
    $
    248,361
    
    
    $
    134,623
  4




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##### 



QUICKSILVER GAS SERVICES LP
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 In thousands except per unit data  Unaudited
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:Gathering and
transportation revenue  parent
    
    $
    4,102
    
    
    $
    1,948
    
    
    $
    9,612
    
    
    $
    4,663Gathering and transportation revenue
    
    
    500
    
    
    
    
    
    
    
    838
    
    
    
    Gas processing revenue  parent
    
    
    4,892
    
    
    
    2,125
    
    
    
    11,109
    
    
    
    5,327Gas processing revenue
    
    
    521
    
    
    
    
    
    
    
    912
    
    
    
    Other revenue  parent
    
    
    267
    
    
    
    
    
    
    
    300
    
    
    
    Total revenues
    
    
    10,282
    
    
    
    4,073
    
    
    
    22,771
    
    
    
    9,990Expenses:Operations and maintenance  parent
    
    
    3,072
    
    
    
    2,409
    
    
    
    8,063
    
    
    
    5,691General and administrative  parent
    
    
    1,217
    
    
    
    489
    
    
    
    2,353
    
    
    
    833Depreciation and amortization
    
    
    2,188
    
    
    
    1,032
    
    
    
    5,307
    
    
    
    2,119Total expenses
    
    
    6,477
    
    
    
    3,930
    
    
    
    15,723
    
    
    
    8,643Operating income
    
    
    3,805
    
    
    
    143
    
    
    
    7,048
    
    
    
    1,347Other income
    
    
    114
    
    
    
    
    
    
    
    149
    
    
    
    Interest expense
    
    
    1,728
    
    
    
    
    
    
    
    1,939
    
    
    
    Income before income taxes
    
    
    2,191
    
    
    
    143
    
    
    
    5,258
    
    
    
    1,347Income tax provision
    
    
    92
    
    
    
    
    
    
    
    189
    
    
    
    Net income
    
    $
    2,099
    
    
    $
    143
    
    
    $
    5,069
    
    
    $
    1,347Allocation of net income for the three and nine
month periods ended September 30, 2007:Net income attributable to the period from
beginning of period to August 9, 2007
    
    $
    474
    
    
    
    
    
    
    $
    3,444Net income attributable to the period from
August 10, 2007 to September 30, 2007
    
    
    1,625
    
    
    
    
    
    
    
    1,625Net income
    
    $
    2,099
    
    
    
    
    
    
    $
    5,069General partner interest in net income for the
period from August 10, 2007 to September 30,
2007
    
    $
    32
    
    
    
    
    
    
    $
    32Common and subordinated unitholders interest
in net income for the period from August 10,
2007 to September 30, 2007
    
    $
    1,593
    
    
    
    
    
    
    $
    1,593Basic net income per common and subordinated
unit
    
    $
    0.07
    
    
    
    
    
    
    $
    0.07Diluted net income per common and subordinated
unit
    
    $
    0.07
    
    
    
    
    
    
    $
    0.07Basic average number of common and
subordinated units outstanding
    
    
    23,777
    
    
    
    
    
    
    
    23,777Diluted average number of common and
subordinated units outstanding
    
    
    23,787
    
    
    
    
    
    
    
    23,787
  5




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##### 



QUICKSILVER GAS SERVICES LP
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 In thousands  Unaudited
 For the Nine Months EndedSeptember 30,2007
    
    
    2006Operating activities:Net income
    
    $
    5,069
    
    
    $
    1,347Adjustments to reconcile net income to net cash provided
by operating activities:Depreciation and amortization
    
    
    5,253
    
    
    
    2,104Accretion of asset retirement obligations
    
    
    54
    
    
    
    15Amortization of debt issuance costs
    
    
    33
    
    
    
    Equity-based compensation
    
    
    45
    
    
    
    Deferred income tax expense
    
    
    16
    
    
    
    Non-cash interest expense on repurchase obligations
    
    
    1,228
    
    
    
    Non-cash interest expense on note payable to parent
    
    
    625
    
    
    
    Changes in assets and liabilities:Accounts receivable
    
    
    (858
    )
    
    
    Other current assets
    
    
    (229
    )
    
    
    Accounts payable to parent
    
    
    (1,095
    )
    
    
    Accounts payable and other
    
    
    1,038
    
    
    
    707Net cash provided by operating activities
    
    
    11,179
    
    
    
    4,173Investing activities:Additions to property, plant and equipment
    
    
    (55,184
    )
    
    
    (53,818
    )Net cash used in investing activities
    
    
    (55,184
    )
    
    
    (53,818
    )Financing activities:Proceeds from sale of assets to parent
    
    
    29,508
    
    
    
    Debt issuance costs paid
    
    
    (715
    )
    
    
    Proceeds from initial public offering
    
    
    112,298
    
    
    
    Costs incurred in connection with initial public offering
    
    
    (190
    )
    
    
    Distribution of initial public offering proceeds to
partners
    
    
    (119,806
    )
    
    
    Contributions by parent
    
    
    38,045
    
    
    
    45,139Contributions by redeemable partners
    
    
    167
    
    
    
    4,506Net cash provided by financing activities
    
    
    59,307
    
    
    
    49,645Net increase in cash and cash equivalents
    
    
    15,302
    
    
    
    Cash and cash equivalents at beginning of period
    
    
    2,797
    
    
    
    Cash and cash equivalents at end of period
    
    $
    18,099
    
    
    $
    Non-cash transactions:Changes in working capital related to the acquisition of
property, plant and equipment
    
    $
    (12,045
    )
    
    $
    (7,582
    )Prepaid insurance paid by parent
    
    $
    (176
    )
    
    $
    Debt issuance costs paid by parent
    
    $
    (277
    )
    
    $
    Cost in connection with the initial public offering paid
by parent
    
    $
    (2,465
    )
    
    $
    Issuance of subordinated note payable to parent
    
    $
    50,000
    
    
    $
    Repurchase obligations to parent  acquisition of
property, plant, and equipment by parent
    
    $
    (33,722
    )
    
    $
    
  6




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##### 



QUICKSILVER GAS SERVICES LP
 
 CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS CAPITAL
 In thousands  Unaudited
 Partners CapitalRedeemable
    
    Limited PartnersNet Parent Equity
    
    Partners Capital
    
    Common
    
    Subordinated
    
    General Partner
    
    TotalBalance at December 31, 2006
    
    $
    118,652
    
    
    $
    7,431
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    126,083Net income attributable to the
period from January 1, 2007 through
August 9, 2007
    
    
    3,119
    
    
    
    326
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,445Contributions
    
    
    38,045
    
    
    
    167
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38,212Initial public offering, net of
offering and other costs
    
    
    
    
    
    
    
    
    
    
    109,643
    
    
    
    
    
    
    
    
    
    
    
    109,643Distribution of initial public
offering proceeds
    
    
    (112,112
    )
    
    
    (7,694
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (119,806
    )Distribution of subordinated note
payable to parent
    
    
    (50,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (50,000
    )Reclass parents equity balance to
receivable from parent
    
    
    2,296
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,296Reclass redeemable partners capital
    
    
    
    
    
    
    (230
    )
    
    
    230
    
    
    
    
    
    
    
    
    
    
    
    Noncash compensation
    
    
    
    
    
    
    
    
    
    
    45
    
    
    
    
    
    
    
    
    
    
    
    45Net income attributable to the
period from August 10, 2007 through
September 30, 2007
    
    
    
    
    
    
    
    
    
    
    822
    
    
    
    771
    
    
    
    32
    
    
    
    1,625Balance at September 30, 2007
    
    $
    
    
    
    $
    
    
    
    $
    110,740
    
    
    $
    771
    
    
    $
    32
    
    
    $
    111,543
  7




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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
   
    
    Quicksilver affiliates contributed to KGS their 95% interest in Cowtown Gas Processing
Partners LP and their 93% interest in Cowtown Pipeline Partners LP,
    
    The Private Investors contributed to KGS their 5% interests in Cowtown Gas Processing
Partners LP and their 7% interests in Cowtown Pipeline Partners LP;
    
    KGS issued to Quicksilver 5,696,752 common units and 11,513,625 subordinated units;
    
    KGS issued to the Private Investors a total of 816,873 common units; and
    
    KGS issued to the General Partner
 -
    
    469,944 general partner units, and-
    
    all of KGS incentive distribution rights, which entitle the General Partner to
increasing percentages of any cash that KGS distributes in excess of $0.3450 per unit per
quarter.
    8




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##### 



PercentageUnits
    
    OwnershipCommon Unitholders:Public
    
    
    6,566,873
    
    
    
    27.1
    %Quicksilver
    
    
    5,696,752
    
    
    
    23.5
    %Subordinated Unitholders:Quicksilver
    
    
    11,513,625
    
    
    
    47.5
    %General Partner Unitholders:Quicksilver
    
    
    469,944
    
    
    
    1.9
    %Total
    
    
    24,247,194
    
    
    
    100
    %
   Description of Business
 2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
   Use of Estimates 
 Cash and Cash Equivalents
 Property, Plant and Equipment
 9




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##### 



Asset Retirement Obligations 
 Repurchase Obligations to Parent 
 Cowtown Pipeline Assets Repurchase:
 Lake Arlington Dry System and Hill County Dry System Repurchases:
  Other Assets
 Impairment of Long-Lived Assets
 10




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##### 



Environmental Liabilities
 Redeemable Partners Capital
 Revenue Recognition
 
    
    persuasive evidence of an exchange arrangement exists;
    
    delivery has occurred or services have been rendered;
    
    the price is fixed or determinable; and
    
    collectibility is reasonably assured
 Income Taxes
  Net Income per Limited Partner Unit
 Participating Securities and the
Two-Class Method Under FASB Statement No. 128
  Segment Information Disclosures about Segments of an Enterprise and Related
Information,
 Fair Value of Financial Instruments 
 11




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##### 



Equity Based Compensation  Share-Based Payment
 Recently Issued Accounting Standards Fair
Value Measurements
 Accounting for Uncertainty in Income
Taxes  an interpretation of FASB Statement No. 109
 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
 3.  PARTNERS CAPITAL AND DISTRIBUTIONS
 General.
    provide for the proper conduct of KGS business;  comply with applicable law, any of KGS debt instruments or other agreements; or  provide funds for distributions to the unitholders and to the General Partner for
any one or more of the next four quarters.
   General Partner Interest and Incentive Distribution Rights.
 12




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##### 



Subordinated
Units.
 Distributions of Available Cash from Operating Surplus during the Subordination
Period.
  first
  second
  third
  fourth
  fifth
  sixth
 13




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##### 




 Distributions of Available Cash from Operating Surplus after the Subordination
Period.
  first
  second
  third
  fourth
  thereafter
 4. NET INCOME PER COMMON AND SUBORDINATED
   5.  PROPERTY, PLANT AND EQUIPMENT AND ASSET RETIREMENT OBLIGATIONS
  DepreciableLife
    
    
    September 30, 2007
    
    
    December 31, 2006(in thousands)Gathering and transportation systems
    
    20 years
    
    $
    89,364
    
    
    $
    36,572Processing plants
    
    20-25 years
    
    
    104,055
    
    
    
    53,035Rights-of-way and easements
    
    20 years
    
    
    25,456
    
    
    
    13,135Construction in progress
    
    
    
    
    
    
    17,766
    
    
    
    31,612236,641
    
    
    
    134,354Less: accumulated depreciation
    
    
    
    
    
    
    (8,816
    )
    
    
    (3,563
    )Net property, plant and equipment
    
    
    
    
    
    $
    227,825
    
    
    $
    130,791
 14




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##### 



Asset Retirement Obligations
 Nine Months Ended September 30,2007
    
    
    2006(in thousands)Beginning asset retirement obligations
    
    $
    503
    
    
    $
    29Additional liability incurred
    
    
    1,336
    
    
    
    451Accretion expense
    
    
    54
    
    
    
    15Ending asset retirement obligations
    
    $
    1,893
    
    
    $
    495
  6.  RELATED PARTY TRANSACTIONS
  Omnibus Agreement
 
    
    restrictions on Quicksilvers ability to engage in certain midstream business
activities or own certain related assets in eight specified counties in North Texas
referred to in our Registration Statement on Form S-1 (No. 333-140599) as the Quicksilver
Counties;
    
    Quicksilvers right to construct and operate pipeline assets in the Lake Arlington
area of Tarrant County, Texas and in Hill County, Texas, and KGS obligation to purchase
those assets from Quicksilver at their fair market value within two years after the assets
commence commercial service;
    
    KGS obligation to reimburse Quicksilver for all expenses incurred by Quicksilver (or
payments made on KGS behalf) in conjunction with Quicksilvers provision of general and
administrative services to KGS, including salary and benefits of Quicksilver personnel,
KGS public company expenses, general and administrative expenses and salaries and benefits
of KGS executive management who are Quicksilvers employees;
    
    KGS obligation to reimburse Quicksilver for all insurance coverage expenses it
incurs or payments it makes with respect to KGS assets; and
    
    Quicksilvers obligation to indemnify KGS for certain liabilities and KGS obligation
to indemnify Quicksilver for certain liabilities.
 Services and Secondment Agreement
 Gas Gathering and Processing Agreement
 15




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##### 



Contribution, Conveyance and Assumption Agreement
 
    
    the transfer of all of the interests in Pipeline Partners and Processing Partners to KGS and its subsidiaries;
    
    the issuance of the incentive distribution rights to the General Partner and the continuation of its 2.0%
General Partner interest in KGS;
    
    KGS issuance of 5,696,752 common units, 11,513,625 subordinated units and the right to receive $162.1 million,
to Holdings in exchange for the contributed interests; and
    
    KGS issuance of 816,873 common units and the right to receive $7.7 million to the Private Investors in exchange
for the contributed interests.
 Centralized cash management
 Services to affiliates
 Allocation of costs
 16




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##### 



Nine Months EndedSeptember 30,(in thousands)2007
    
    
    2006Net parent equityBeginning balance
    
    $
    118,652
    
    
    $
    48,949Net change in parent advances:Contribution of property, plant and equipment
    
    
    45,040
    
    
    
    53,818Distribution to parent
    
    
    
    
    
    
    (4,506
    )Settled revenue with parent
    
    
    (11,760
    )
    
    
    (9,989
    )Payments received by parent for trade accounts receivable
    
    
    (625
    )
    
    
    Payments made to settle expenses by parent
    
    
    4,378
    
    
    
    5,361Allocation of general and administrative overhead
    
    
    850
    
    
    
    455Contribution of other current assets
    
    
    162
    
    
    
    Net change in parent advances
    
    
    38,045
    
    
    
    45,139Parent share of net income
    
    
    3,119
    
    
    
    1,255Distribution of initial public offering proceeds
    
    
    (112,112
    )
    
    
    Distribution of subordinated note payable to parent
    
    
    (50,000
    )
    
    
    Reclassify to receivable from parent
    
    
    2,296
    
    
    
    Ending balance
    
    $
    
    
    
    $
    95,343General and administrative expense  parentAllocation of general and administrative overhead
    
    $
    1,576
    
    
    $
    455Management fee
    
    
    
    
    
    
    120Audit, insurance expense and other
    
    
    777
    
    
    
    258Total general and administrative expense  parent
    
    $
    2,353
    
    
    $
    833
 7.  LONG-TERM DEBT
 Credit Agreement
 .
 Subordinated Promissory Note to Parent
 17




---



##### 



8.  COMMITMENTS AND CONTINGENT LIABILITIES
 Litigation
 Casualties or Other Risks
    Regulatory Compliance
 Environmental Compliance
 18




---



##### 



Commitments
  9.  INCOME TAXES
 Accounting for Income Taxes
   10. EQUITY PLAN
  19




---



##### 



Payable in cash
    
    
    Payable in unitsWeighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageGrant Date
    
    
    
    
    
    
    Grant DateShares
    
    
    Fair Value
    
    
    Shares
    
    
    Fair ValueNumber of unvested unitsOutstanding  January 1, 2007
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Vested
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issued
    
    
    84,961
    
    
    
    21.36
    
    
    
    9,833
    
    
    
    21.36Cancelled
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Unvested Phantom Units  September 30, 2007
    
    
    84,961
    
    
    $
    21.36
    
    
    
    9,833
    
    
    $
    21.36
  11. SUBSEQUENT EVENTS
   20




---



##### 



ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 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 costs or
expenditures;
    
    the effects of existing and future laws and governmental regulations;
    
    the effects of future litigation; and
    
    factors discussed in our Registration Statement on Form S-1 (No. 333-140599).
  Overview
  Our Operations
  How We Evaluate Our Operations
  21




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Volume
 Adjusted Gross Margin
 Operating Expenses
 EBITDA
  
    
    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.
 General Trends and Outlook
  Natural Gas Supply, Demand and Outlook
  22




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##### 



Impact of Interest Rates and Inflation
  Items Impacting Comparability of Our Financial Results
  
    
    Quicksilvers Barnett Shale operations began in 2004 and have subsequently grown
significantly.
    
    our facilities and operations have been in a startup phase, and we have incurred expenses
that we do not expect to be recurring.
    
    expenses are largely independent of gathering and processing volumes and are more
directly related to the capacity of our facilities and operations.
    
    revenues have been dependent on Quicksilvers ability to connect wells to our system.
 Critical Accounting Policies and Estimates
  Depreciation Expense and Cost Capitalization Policies.
 23




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##### 



Asset Retirement Obligations 
 Results of Operations
 Three Months Ended September 30, 2007 Compared with Three Months Ended September 30, 2006 .
  Three months ended September 30,2007
    
    
    2006(in thousands)Total revenues
    
    $
    10,282
    
    
    $
    4,073Operations and maintenance expense
    
    
    3,072
    
    
    
    2,409General and administrative expense
    
    
    1,217
    
    
    
    489Adjusted gross margin
    
    
    5,993
    
    
    
    1,175Other income
    
    
    114
    
    
    
    EBITDA
    
    
    6,107
    
    
    
    1,175Depreciation and amortization expense
    
    
    2,188
    
    
    
    1,032Interest expense
    
    
    1,728
    
    
    
    Income tax provision
    
    
    92
    
    
    
    Net income
    
    $
    2,099
    
    
    $
    143Operating Data:Daily throughput (MMcf)
    
    
    98.2
    
    
    
    40.9Total throughput (Mcf)
    
    
    9,031,571
    
    
    
    3,762,661
 Total Revenues 
 Operations and Maintenance Expense 
 24




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##### 



General and Administrative Expense  .
 Adjusted Gross Margin 
 Depreciation and Amortization Expense 
 Interest
Expense
 Income
Tax Provision
 Nine Months Ended September 30, 2007 Compared with Nine Months Ended September 30, 2006
  Nine months ended September 30,2007
    
    
    2006(in thousands)Total revenues
    
    $
    22,771
    
    
    $
    9,990Operations and maintenance expense
    
    
    8,063
    
    
    
    5,691General and administrative expense
    
    
    2,353
    
    
    
    833Adjusted gross margin
    
    
    12,355
    
    
    
    3,466Other income
    
    
    149
    
    
    
    EBITDA
    
    
    12,504
    
    
    
    3,466Depreciation and amortization expense
    
    
    5,307
    
    
    
    2,119Interest expense
    
    
    1,939
    
    
    
    Income tax provision
    
    
    189
    
    
    
    Net income
    
    $
    5,069
    
    
    $
    1,347Operating Data:Daily throughput (MMcf)
    
    
    73.3
    
    
    
    33.2Total throughput (Mcf)
    
    
    20,014,673
    
    
    
    9,054,755
 Total Revenues 
 Operations and Maintenance Expense 
 General and Administrative Expense  .
 25




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##### 



Adjusted Gross Margin 
 Depreciation and Amortization Expense 
 Interest
Expense
 Income
Tax Provision
 Liquidity and Capital Resources
  
    
    cash generated from operations;
    
    borrowings under our revolving credit facility;
    
    future debt offerings; and
    
    issuances of additional partnership units.
  Cash Flows
  
    
    At December 31, 2004, Quicksilver had produced only 103,339 Mcf in the Fort Worth Basin
for the year then ended, and there were only two wells connected to KGS system.
    
    At December 31, 2005, Quicksilver had produced 3,560,605 Mcf in the Fort Worth Basin for
the year then ended, all of which was gathered, processed and transported on KGS system,
and had 39 wells connected to KGS system. At December 31, 2005, we had invested
$53.8 million in KGS pipeline and plant assets.
    
    At December 31, 2006, Quicksilver had throughput of 13,495,818 Mcf on KGS system for the
year then ended, and had 88 wells connected to KGS system. The system consisted of
120 miles of gathering pipelines, a 22-mile NGL transportation pipeline and two operating
units which can process 200 MMcf/d of natural gas.
 Working Capital (Deficit) 
  Cash Flows from Operations 
  26




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##### 



Cash Flows Used in Investing Activities 
 Cash Flows Provided by Financing Activities 
  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.
       27




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##### 



Revolving Credit Facility
  
    
    incur further indebtedness;
    
    grant liens;
    
    pay distributions; and;
    
    engage in transactions with affiliates.
   Subordinated Note
  
    
    accrued and unpaid interest on the note will be due and payable quarterly on the last
business day of each calendar quarter, beginning on March 31, 2008, and on the maturity date
of the note, provided that such interest payments may be added to the outstanding principal
amount at any time when the payment of interest is prohibited pursuant to the subordination
provisions described below; and
    
    the principal amount of the note will be due and payable:
    
    
    an event of default under the revolving credit facility;
    
    the existence of a pending judicial proceeding with respect to any event of default under
the revolving credit facility; or
    
    our ratio of total indebtedness (which includes the $50.0 million subordinated note
payable to Quicksilver) to Consolidated EBITDA (as determined in accordance with our
revolving credit facility) as of the end of the fiscal quarter immediately preceding the
date of such payment was equal to or greater than 3.5 to 1.0 or would be greater than 3.5 to
1.0 after giving pro forma effect to such payment.
 28




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##### 



Repurchase Obligations to Parent
  Cowtown Pipeline Assets Repurchase:
 Lake Arlington Dry System and Hill County Dry System Repurchases:
  Total Contractual Cash Obligations
  Payments Due by PeriodContractual Obligations
    
    Total
    
    
    2007
    
    
    2008-2010
    
    
    2011-2012
    
    
    Thereafter($ Millions)Long-Term Debt (including interest) (1)
    
    $
    50.6
    
    
    $
    1.1
    
    
    $
    3.3
    
    
    $
    2.2
    
    
    $
    44.0Repurchase Obligations to Parent (2)
    
    
    64.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Construction Commitments
    
    
    47.6
    
    
    
    3.5
    
    
    
    44.1
    
    
    
    
    
    
    
    Total Contractual Obligations (3)
    
    $
    162.7
    
    
    $
    4.6
    
    
    $
    47.4
    
    
    $
    2.2
    
    
    $
    44.0
 
 (1)
    
    With respect to the revolving credit facility, based on an interest rate of 7.83%, which is
the current LIBOR interest rate of 5.58% plus a margin of 2.25%. With respect to the $50.0
million subordinated note payable to Parent, based on an interest rate 8.83%, which is the
current LIBOR interest rate of 5.58% plus 3.25% per annum.(2)
    
    As described above under Repurchase Obligations to Parent, KGS is obligated to purchase
certain pipeline assets from Quicksilver at their fair market value within two years of their
commencement of commercial operation. The Repurchase 29




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##### 



Obligations to Parent balance, of $64.5
million, includes $31.8 million related to Cowtown Assets that KGS has the option to purchase.
KGS cannot presently predict the deadline for completing the purchase of these assets or the
ultimate purchase price. KGS intends to exercise its purchase rights
related to these assets. The total estimated remaining to complete
the construction of the assets subject to the repurchase obligation
is approximately $59.5 million.(3)
    
    These amounts do not include the $90.0 million that KGS expects to spend in fiscal year 2007
for the construction of additions to its gathering system to connect new wells and the cost to
construct the third processing unit that KGS expects to become operational during the first
quarter of 2009, a portion of which is budgeted for fiscal year 2007 capital expenditures. Off-Balance Sheet Arrangements
  Recently Issued Accounting Pronouncements
 Fair Value Measurements
 Accounting for Uncertainty in Income
Taxes  an interpretation of FASB Statement No. 109
 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
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Credit Risk
  Interest Rate Risk
  30




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##### 



Item 4. Controls and Procedures
 Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  31




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##### 



PART II  OTHER INFORMATION
 
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
      32




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##### 



Item 6. Exhibits:
 Exhibit No.
    
    Description10.1
    
    Credit Agreement, dated as of August 10, 2007, among Quicksilver Gas Services LP
and the lenders and agents identified therein (filed as Exhibit 10.1 to the
Companys Form 8-K filed August 16, 2007 and included herein by reference).10.2
    
    Fifth Amended and Restated Gas Gathering and Processing Agreement, dated August
10, 2007, among Quicksilver Resources Inc., Cowtown Pipeline Partners L.P. and
Cowtown Gas Processing Partners L.P. (filed as Exhibit 10.6 to the Companys
Form 8-K filed August 16, 2007 and included herein by reference).10.3
    
    Omnibus Agreement, dated August 10, 2007, among Quicksilver Gas Services LP,
Quicksilver Gas Services GP LLC and Quicksilver Resources Inc. (filed as Exhibit
10.4 to the Companys Form 8-K filed August 16, 2007 and included herein by
reference).10.4
    
    2007 Equity Plan (filed as Exhibit 99.1 to the Companys Form S-8, File No.
333-145326, filed August 10, 2007 and included herein by reference).10.5
    
    Services and Secondment Agreement, dated August 10, 2007, between Quicksilver
Resources Inc. and Quicksilver Gas Services GP LLC (filed as Exhibit 10.5 to the
Companys Form 8-K filed August 16, 2007 and included herein by reference).10.6
    
    Contribution, Conveyance and Assumption Agreement, dated August 10, 2007, among
Quicksilver Gas Services LP, Quicksilver Gas Services GP LLC, Cowtown Gas
Processing L.P., Cowtown Pipeline L.P., Quicksilver Gas Services Holdings LLC,
Quicksilver Gas Services Operating GP LLC, Quicksilver Gas Services Operating
LLC and the private investors named therein (filed as Exhibit 10.3 to the
Companys Form 8-K filed August 16, 2007 and included herein by reference).10.7
    
    Form of Indemnification Agreement by and between Quicksilver Gas Services GP LLC
and its officers and directors (filed as Exhibit 10.7 to the Companys Form
S-1/A, File No. 333-140599, filed July 17, 2007 and included herein by
reference).10.8
    
    Form of Phantom Unit Award Agreement for Directors (3-year) (filed as Exhibit
10.8 to the Companys Form S-1/A, File No. 333-140599, filed July 17, 2007 and
included herein by reference).10.9
    
    Form of Phantom Unit Award Agreement for Directors (1-year) (filed as Exhibit
10.9 to the Companys Form S-1/A, File No. 333-140599, filed July 17, 2007 and
included herein by reference).10.10
    
    Form of Phantom Unit Award Agreement for Non-Directors (Cash) (filed as Exhibit
10.10 to the Companys Form S-1/A, File No. 333-140599, filed July 17, 2007 and
included herein by reference).10.11
    
    Form of Phantom Unit Award Agreement for Non-Directors (Units) (filed as Exhibit
10.11 to the Companys Form S-1/A, File No. 333-140599, filed July 25, 2007 and
included herein by reference).10.12
    
    Subordinated Promissory Note, dated as of August 10, 2007, made by Quicksilver
Gas Services LP payable to the order of Quicksilver Resources Inc. (filed as
Exhibit 10.2 to the Companys Form 8-K filed August 16, 2007 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 33




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##### 



SIGNATURES
   QUICKSILVER GAS SERVICES LP

By: QUICKSILVER GAS SERVICES GP LLC, its General PartnerBy:
    /s/ Thomas F. DardenThomas F. DardenPresident and Chief Executive OfficerBy:
    /s/ Philip CookPhilip CookSenior Vice President  Chief Financial Officer 34




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##### 



Exhibit No.
    
    Description10.1
    
    Credit Agreement, dated as of August 10, 2007, among Quicksilver Gas Services LP
and the lenders and agents identified therein (filed as Exhibit 10.1 to the
Companys Form 8-K filed August 16, 2007 and included herein by reference).10.2
    
    Fifth Amended and Restated Gas Gathering and Processing Agreement, dated August
10, 2007, among Quicksilver Resources Inc., Cowtown Pipeline Partners L.P. and
Cowtown Gas Processing Partners L.P. (filed as Exhibit 10.6 to the Companys
Form 8-K filed August 16, 2007 and included herein by reference).10.3
    
    Omnibus Agreement, dated August 10, 2007, among Quicksilver Gas Services LP,
Quicksilver Gas Services GP LLC and Quicksilver Resources Inc. (filed as Exhibit
10.4 to the Companys Form 8-K filed August 16, 2007 and included herein by
reference).10.4
    
    2007 Equity Plan (filed as Exhibit 99.1 to the Companys Form S-8, File No.
333-145326, filed August 10, 2007 and included herein by reference).10.5
    
    Services and Secondment Agreement, dated August 10, 2007, between Quicksilver
Resources Inc. and Quicksilver Gas Services GP LLC (filed as Exhibit 10.5 to the
Companys Form 8-K filed August 16, 2007 and included herein by reference).10.6
    
    Contribution, Conveyance and Assumption Agreement, dated August 10, 2007, among
Quicksilver Gas Services LP, Quicksilver Gas Services GP LLC, Cowtown Gas
Processing L.P., Cowtown Pipeline L.P., Quicksilver Gas Services Holdings LLC,
Quicksilver Gas Services Operating GP LLC, Quicksilver Gas Services Operating
LLC and the private investors named therein (filed as Exhibit 10.3 to the
Companys Form 8-K filed August 16, 2007 and included herein by reference).10.7
    
    Form of Indemnification Agreement by and between Quicksilver Gas Services GP LLC
and its officers and directors (filed as Exhibit 10.7 to the Companys Form
S-1/A, File No. 333-140599, filed July 17, 2007 and included herein by
reference).10.8
    
    Form of Phantom Unit Award Agreement for Directors (3-year) (filed as Exhibit
10.8 to the Companys Form S-1/A, File No. 333-140599, filed July 17, 2007 and
included herein by reference).10.9
    
    Form of Phantom Unit Award Agreement for Directors (1-year) (filed as Exhibit
10.9 to the Companys Form S-1/A, File No. 333-140599, filed July 17, 2007 and
included herein by reference).10.10
    
    Form of Phantom Unit Award Agreement for Non-Directors (Cash) (filed as Exhibit
10.10 to the Companys Form S-1/A, File No. 333-140599, filed July 17, 2007 and
included herein by reference).10.11
    
    Form of Phantom Unit Award Agreement for Non-Directors (Units) (filed as Exhibit
10.11 to the Companys Form S-1/A, File No. 333-140599, filed July 25, 2007 and
included herein by reference).10.12
    
    Subordinated Promissory Note, dated as of August 10, 2007, made by Quicksilver
Gas Services LP payable to the order of Quicksilver Resources Inc. (filed as
Exhibit 10.2 to the Companys Form 8-K filed August 16, 2007 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