##### 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 1934FOR THE QUARTERLY PERIOD ENDED
    SEPTEMBER 30, 2009ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934FOR THE TRANSITION PERIOD
    FROM          TO   Commission file number:
    001-33018
  Hiland Holdings GP,
    LP
 (Exact name of Registrant as
    specified in its charter)
  DELAWARE(State or other jurisdiction
    of
    incorporation or organization)

76-0828238(I.R.S. Employer
    Identification No.)205 West Maple, Suite 1100
    Enid, Oklahoma(Address of principal
    executive offices)

73701(Zip Code)    (580) 242-6040
 (Registrants telephone
    number, including area code)
  þ o
  Regulation S-T o o
  12b-2
  Large
    accelerated
    filer o
    Accelerated
    filer þ
    Non-accelerated
    filer o
    Smaller
    reporting
    company o   Rule 12b-2 o þ




---



##### 



HILAND
    HOLDINGS GP, LP
  INDEX
   
 PART I. FINANCIAL INFORMATIONItem 1.


Financial Statements (Unaudited)Consolidated Balance Sheets


3Consolidated Statements of Operations


4Consolidated Statements of Comprehensive Income
    (Loss)


5Consolidated Statements of Cash Flows


6Consolidated Statement of Changes in
    Partners Equity


7Condensed Notes to Consolidated Financial
    Statements (Unaudited)


8Item 2.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


41Item 3.


Quantitative and Qualitative Disclosures About
    Market Risks


62Item 4.


Controls and Procedures


64PART II. OTHER INFORMATIONItem 1.


Legal Proceedings


65Item 1A.


Risk Factors


65Item 2.


Unregistered Sales of Equity Securities and Use
    of Proceeds


69Item 3.


Defaults Upon Senior Securities


69Item 4.


Submission of Matters to a Vote of Security
    Holders


69Item 5.


Other Information


69Item 6.


Exhibits


69SIGNATURES


72Certification of CEO under Section 302Certification of CFO under Section 302Certification of CEO under Section 906Certification of CFO under Section 906EX-10.1EX-10.2EX-31.1EX-31.2EX-32.1EX-32.2   2




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##### Table of Contents



PART
    I. FINANCIAL INFORMATIONItem 1. Financial Statements
    (Unaudited)
    HILAND HOLDINGS GP, LPConsolidated Balance Sheets  September 30,


December 31,2009


2008(Unaudited)(In thousands, except unit amounts)ASSETSCurrent assets:Cash and cash equivalents

$
3,908


$
1,733Accounts receivable:Trade  net of allowance for doubtful accounts of $304


17,872



23,864Affiliates


918



2,34618,790



26,210Fair value of derivative assets


3,860



6,851Other current assets


940



1,936Total current assets


27,498



36,730Property and equipment, net


325,649



349,159Intangibles, net


34,516



40,780Fair value of derivative assets


608



7,141Other assets, net


1,322



1,750Total assets

$
389,593


$
435,560LIABILITIES AND PARTNERSHIP EQUITYCurrent liabilities:Accounts payable

$
11,452


$
22,833Accounts payable-affiliates


4,306



7,823Fair value of derivative liabilities


835



1,439Accrued liabilities and other


8,476



3,168Total current liabilities


25,069



35,263Commitments and contingencies (Note 9)Long-term debt


256,934



256,466Fair value of derivative liabilities


267Asset retirement obligation


2,593



2,483Partners equity:Common unitholders (21,613,500 units issued and outstanding)


(7,481
)


12,386Accumulated other comprehensive income (loss)


(481
)


3,111Total limited partners equity


(7,962
)


15,497Noncontrolling partners interest in Hiland Partners


112,692



125,851Total partners equity


104,730



141,348Total liabilities and partners equity

$
389,593


$
435,560    3




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##### Table of Contents



HILAND
    HOLDINGS GP, LP
  Consolidated
    Statements of Operations
 For the
    Three and Nine Months Ended
  Three Months Ended


Nine Months EndedSeptember 30,


September 30,2009


2008


2009


2008(Unaudited)(In thousands, except per unit amounts)Revenues:Midstream operationsThird parties

$
53,015


$
107,158


$
151,133


$
308,625Affiliates


626



7,390



2,525



10,433Compression services, affiliate


1,205



1,205



3,615



3,615Total revenues


54,846



115,753



157,273



322,673Operating costs and expenses:Midstream purchases (exclusive of items shown separately below)


18,526



45,616



52,943



139,258Midstream purchases  affiliate (exclusive of items
    shown separately below)


11,740



36,279



35,538



99,328Operations and maintenance


7,736



7,881



23,216



22,201Depreciation, amortization and accretion


10,758



9,842



31,841



28,513Property impairments


20,500







21,450



Bad debt






(7,799
)






304General and administrative


3,217



2,597



11,649



7,615Total operating costs and expenses


72,477



94,416



176,637



297,219Operating (loss) income


(17,631
)


21,337



(19,364
)


25,454Other income (expense):Interest and other income


10



99



92



276Amortization of deferred loan costs


(182
)


(169
)


(526
)


(493
)Interest expense


(2,728
)


(3,279
)


(7,777
)


(9,915
)Other income (expense), net


(2,900
)


(3,349
)


(8,211
)


(10,132
)Net (loss) income


(20,531
)


17,988



(27,575
)


15,322Less: Noncontrolling partners interest in (loss) income of
    Hiland Partners


(8,152
)


6,800



(9,762
)


4,402Limited Partners interest in net (loss) income

$
(12,379
)

$
11,188


$
(17,813
)

$
10,920Net (loss) income per limited partners unit 
    basic

$
(0.57
)

$
0.52


$
(0.82
)

$
0.51Net (loss) income per limited partners unit 
    diluted

$
(0.57
)

$
0.52


$
(0.82
)

$
0.51Weighted average limited partners units
    outstanding  basic


21,608



21,603



21,608



21,603Weighted average limited partners units
    outstanding  diluted


21,608



21,612



21,608



21,610    4




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##### Table of Contents



HILAND
    HOLDINGS GP, LP
  Consolidated
    Statements of Comprehensive Income (Loss)
 For the
    Three and Nine Months Ended
  Three Months Ended


Nine Months EndedSeptember 30,


September 30,2009


2008


2009


2008(Unaudited, in thousands)Net (loss) income

$
(20,531
)

$
17,988


$
(27,575
)

$
15,322Closed derivative transactions reclassified to income


(1,969
)


1,395



(5,848
)


6,478Change in fair value of derivatives


(1,143
)


13,219



(193
)


2,965Comprehensive (loss) income


(23,643
)


32,602



(33,616
)


24,765Less: Comprehensive (loss) income attributable to noncontrolling
    interest in Hiland Partners


(9,415
)


12,717



(12,211
)


8,211Comprehensive (loss) income attributable to limited partners

$
(14,228
)

$
19,885


$
(21,405
)

$
16,554    5




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##### Table of Contents



HILAND
    HOLDINGS GP, LP
  Consolidated Statements of Cash Flows
 For the Nine Months Ended
  September 30,


September 30,2009


2008(Unaudited, in thousands)Cash flows from operating activities:Net (loss) income

$
(27,575
)

$
15,322Adjustments to reconcile net (loss) income to net cash provided
    by operating activities:Depreciation and amortization


31,724



28,411Accretion of asset retirement obligation


117



102Property impairments


21,450



Amortization of deferred loan cost


526



493(Gain) loss on derivative transactions


(9
)


(3,685
)Proceeds from settlement of derivative contracts


3,155



Unit based compensation


945



1,274Bad debt






304Gain on sale of assets


(3
)


(12
)Increase in other assets


(57
)


(72
)(Increase) decrease in current assets:Accounts receivable  trade


5,991



(10,036
)Accounts receivable  affiliates


1,429



(4,145
)Other current assets


996



(1,322
)Increase (decrease) in current liabilities:Accounts payable


(2,498
)


(2,813
)Accounts payable  affiliates


(3,517
)


480Accrued liabilities and other


3,040



1,241Net cash provided by operating activities


35,714



25,542Cash flows from investing activities:Purchases of property and equipment


(32,299
)


(37,164
)Proceeds from disposals of property and equipment


12



18Net cash used in investing activities


(32,287
)


(37,146
)Cash flows from financing activities:Proceeds from short-term borrowings


2,295



Proceeds from long-term borrowings


12,000



41,350Payments on long-term borrowings


(11,000
)


Increase in deferred offering cost






(7
)Debt issuance costs


(41
)


(356
)Proceeds from Hiland Partners, LP unit options exercise






1,031General partner contribution for issuance of restricted common
    units and from conversion of vested phantom units


(3
)


Redemption of vested phantom units






(35
)Forfeiture of unvested restricted common units


22



Payments on capital lease obligations


(560
)


(369
)Cash distributions to non-controlling partners of Hiland
    Partners, LP


(1,803
)


(9,863
)Cash distributions to unitholders


(2,162
)


(18,160
)Net cash (used in) provided by financing activities


(1,252
)


13,591Increase for the period


2,175



1,987Beginning of period


1,733



10,602End of period

$
3,908


$
12,589Supplementary informationCash paid for interest, net of amounts capitalized

$
7,951


$
9,734    6




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##### Table of Contents



HILAND
    HOLDINGS GP, LP
  Consolidated
    Statement of Changes in Partners Equity
 For the
    Nine months ended September 30, 2009
  NoncontrollingAccumulated


PartnersOther


Interest inCommon


Comprehensive


HilandUnitholders


Income (Loss)


Partners


Total(Unaudited, in thousands)Balance, January 1, 2009

$
12,386


$
3,111


$
125,851


$
141,348Periodic cash distributions


(2,162
)






(1,803
)


(3,965
)Unit based compensation


108







837



945Distributions held in trust refunded to Hiland Partners on 2,750
    forfeited unvested restricted common units










18



18Other comprehensive income reclassified to income on closed
    derivative transactions






(3,478
)


(2,370
)


(5,848
)Change in fair value of derivatives






(114
)


(79
)


(193
)Net loss


(17,813
)






(9,762
)


(27,575
)Balance September 30, 2009

$
(7,481
)

$
(481
)

$
112,692


$
104,730    7




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##### Table of Contents



HILAND
    HOLDINGS GP, LP
  CONDENSED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)
  THREE AND
    NINE MONTHS ENDED SEPTEMBER 30, 2009 and 2008
 (in thousands, except unit information or unless otherwise
    noted)
  Note 1:
    Organization,
    Basis of Presentation and Principles of Consolidation          start-up
 8




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##### Table of Contents



HILAND
    HOLDINGS GP, LP
  CONDENSED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
  Form 10-K
  Principles
    of Consolidation
    Use of
    Estimates
    Concentration
    and Credit Risk
    Fair
    Value of Financial Instruments
   9




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##### Table of Contents



HILAND
    HOLDINGS GP, LP
  CONDENSED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
  Interest
    Rate Risk Management
    Commodity
    Risk Management
        Long
    Lived Assets
   10




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##### Table of Contents



HILAND
    HOLDINGS GP, LP
  CONDENSED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
      
    changes in general economic conditions in regions in which the
    assets are located;
    the availability and prices of NGLs and NGL products and
    competing commodities;
    the availability and prices of raw natural gas supply;
    Hiland Partners ability to negotiate favorable marketing
    agreements;
    the risks that third party oil and gas exploration and
    production activities will not occur or be successful;
    Hiland Partners dependence on certain significant
    customers and producers of natural gas; and
    competition from other midstream service providers and
    processors, including major energy companies.      Net
    Income (Loss) per Limited Partners Unit
    Noncontrolling
    Partners Interest in Hiland Partners
   11




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##### Table of Contents



HILAND
    HOLDINGS GP, LP
  CONDENSED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
    Contributions
    to Subsidiary
    Recent
    Accounting Pronouncements
           12




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##### Table of Contents



HILAND
    HOLDINGS GP, LP
  CONDENSED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
        earnings-per-share
     13




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##### Table of Contents



HILAND
    HOLDINGS GP, LP
  CONDENSED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
    Note 2:
    Merger
    Agreements       14




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##### Table of Contents



HILAND
    HOLDINGS GP, LP
  CONDENSED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
    Hart-Scott-Rodino
  Note 3:
    Property
    and Equipment and Asset Retirement Obligations    As of


As ofSeptember 30,


December 31,2009


2008Land

$
295


$
295Construction in progress


2,558



15,583Midstream pipeline, plants and compressors


446,341



410,330Compression and water injection equipment


19,421



19,391Other


4,987



4,621473,602



450,220Less: accumulated depreciation and amortization


147,953



101,061$
325,649


$
349,159   right-of-ways,
   15




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##### Table of Contents



HILAND
    HOLDINGS GP, LP
  CONDENSED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
    Asset retirement obligation, January 1, 2009

$
2,483Less: obligation extinguished


(17
)Add: additions on leased locations


10Add: accretion expense


117Asset retirement obligation, September 30, 2009

$
2,593   Note 4:
    Intangible
    Assets      As of


As ofSeptember 30,


December 31,2009


2008Gas sales contracts

$
32,564


$
32,564Compression contracts


18,515



18,515Customer relationships


10,492



10,49261,571



61,571Less accumulated amortization


27,055



20,791Intangible assets, net

$
34,516


$
40,780     Note 5:
    Derivatives  Interest
    Rate Swap
   16




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##### Table of Contents



HILAND
    HOLDINGS GP, LP
  CONDENSED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
      Fair ValueNotional

Interest

AssetDescription and Period

Amount

Rate

(Liability)Interest Rate SwapOctober 2009  December 2009

$
100,000



2.245
%

$
(512
)   Commodity
    Swaps
         17




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##### Table of Contents



HILAND
    HOLDINGS GP, LP
  CONDENSED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
        Three Months Ended

Nine Months EndedSeptember 30,

September 30,2009

2008

2009

2008Net gains (losses) on closed/settled transactions reclassified
    from (to) accumulated other comprehensive income

$
1,969


$
(1,395
)

$
5,848


$
(6,478
)Increases (decreases) in fair values of open derivatives
    recorded to (from) accumulated other comprehensive income

$
(1,143
)

$
13,219


$
(193
)

$
2,965Unrealized non-cash gains (losses) on ineffective portions of
    qualifying derivative transactions

$
(238
)

$
133


$
9


$
128Unrealized non-cash gains on non-qualifying derivatives

$



$
5,487


$



$
3,557       As of


As ofSeptember 30,


December 31,2009


2008Fair value of derivative assets  current

$
3,860


$
6,851Fair value of derivative assets  long term


608



7,141Fair value of derivative liabilities  current


(835
)


(1,439
)Fair value of derivative liabilities  long term


(267
)


Net fair value of derivatives

$
3,366


$
12,553    18




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##### Table of Contents



HILAND
    HOLDINGS GP, LP
  CONDENSED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
    AverageFixed


Fair ValueDescription and Production Period

Volume


Price


Asset(MMBtu)


(per MMBtu)Natural Gas  Sold Fixed for Floating Price SwapsOctober 2009  September 2010


2,136,000


$
6.87


$
3,537October 2010  December 2010


534,000


$
6.73



341$
3,878   Note 6:
    Fair
    Value Measurements    mark-to-market
  Level 1


Level 2


Level 3


TotalCommodity  based derivative assets

$



$
4,468


$



$
4,468Commodity  based derivative liabilities






(590
)






(590
)Interest  based derivative liabilities










(512
)


(512
)Total

$



$
3,878


$
(512
)

$
3,366  19




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##### Table of Contents



HILAND
    HOLDINGS GP, LP
  CONDENSED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
    Balance, January 1, 2009

$
(1,439
)Cash settlements from other comprehensive income


1,406Change in fair value of derivative


(479
)Balance, September 30, 2009

$
(512
)       Note 7:
    Long-Term
    Debt    As of


As ofSeptember 30,


December 31,2009


2008Hiland Partners-revolving credit facility

$
253,064


$
252,064Hiland Holdings-revolving credit facility


3,000



705Capital lease obligations


4,492



5,051260,556



257,820Less current portion:Capital lease obligations


622



649Hiland Holdings-revolving credit facility


3,000



705Long-term debt

$
256,934


$
256,466  20




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##### Table of Contents



HILAND
    HOLDINGS GP, LP
  CONDENSED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
  Hiland
    Partners Credit Facility
      step-up in-the-money in-the-money
      1
 21




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##### Table of Contents



HILAND
    HOLDINGS GP, LP
  CONDENSED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
  step-up
            Hiland
    Holdings Credit Facility
      debt-to-worth
 22




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##### Table of Contents



HILAND
    HOLDINGS GP, LP
  CONDENSED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
      debt-to-worth debt-to-worth
    Capital
    Lease Obligations
      Note 8:
    Share-Based
    Compensation  Hiland
    Holdings GP, LP Long Term Incentive Plan
   23




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##### Table of Contents



HILAND
    HOLDINGS GP, LP
  CONDENSED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
        WeightedAverageFair Valueat GrantRestricted Units

Units


Date ($)Unvested at January 1, 2009


16,500


$
22.52Granted


Vested


(6,000
)

$
22.25Forfeited


Unvested at September 30, 2009


10,500


$
22.67     Hiland
    Partners, LP Long Term Incentive Plan
   24




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##### Table of Contents



HILAND
    HOLDINGS GP, LP
  CONDENSED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
    Phantom Units.
    Weighted


WeightedAverage


AverageFair Value


Fair Value atat Grant


RedemptionPhantom Units

Units


Date ($)


Date ($)Unvested at January 1, 2009


50,794


$
47.74Granted


Vested and converted or redeemed


(8,250
)

$
49.34


$
7.40Forfeited


(5,050
)

$
45.11Unvested at September 30, 2009


37,494


$
47.75     Restricted Units.
 25




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##### Table of Contents



HILAND
    HOLDINGS GP, LP
  CONDENSED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
    WeightedAverageFair Valueper Unitat GrantRestricted Units

Units


Date ($)Unvested at January 1, 2009


18,500


$
48.73Granted


Vested


(6,000
)

$
44.29Forfeited


(4,250
)

$
47.56Unvested at September 30, 2009


8,250


$
52.56     Unit Options.
  Note 9:
    Commitments
    and Contingencies           26




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##### Table of Contents



HILAND
    HOLDINGS GP, LP
  CONDENSED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
    Robert
    Pasternack v. Hiland Partners, LP et al. No. 4397-VCS; Andrew Jones v. Hiland Partners, LP et
    al. No. 4558-VCS; Arthur G. Rosenberg v. Hiland Partners,
    LP et al. No. C3-09-211-02.
      Note 10:
    Significant
    Customers and Suppliers    For the Three Months


For the Nine MonthsEnded September 30,


Ended September 30,2009


2008


2009


2008Customer 1


24
%


5
%


21
%


15
%Customer 2


18
%


7
%


12
%


12
%Customer 3


12
%


10
%


14
%


9
%Customer 4


7
%


18
%


9
%


13
%Customer 5


2
%


14
%


2
%


10
%  27




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##### Table of Contents



HILAND
    HOLDINGS GP, LP
  CONDENSED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
      For the Three Months


For the Nine MonthsEnded September 30,


Ended September 30,2009


2008


2009


2008Supplier 1 (affiliated company)


39
%


45
%


41
%


42
%Supplier 2


20
%


14
%


19
%


15
%Supplier 3


16
%


17
%


16
%


18
%   Note 11:
    Related
    Party Transactions            Note 12:
    Reportable
    Segments       28




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##### Table of Contents



HILAND
    HOLDINGS GP, LP
  CONDENSED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
        For the Three Months Ended September 30,2009


2008Midstream


Compression





Midstream


CompressionSegment


Segment


Total


Segment


Segment


TotalRevenues

$
53,641


$
1,205


$
54,846


$
114,548


$
1,205


$
115,753Operating costs and expenses:Midstream purchases (exclusive of items shown separately below)


30,266







30,266



81,895







81,895Operations and maintenance


7,559



177



7,736



7,617



264



7,881Depreciation and amortization


9,861



897



10,758



8,946



896



9,842Property impairments


20,500







20,500











Bad debt














(7,799
)






(7,799
)General and administrative


3,146



71



3,217



2,570



27



2,597Total operating costs and expenses


71,332



1,145



72,477



93,229



1,187



94,416Operating (loss) income

$
(17,691
)

$
60



(17,631
)

$
21,319


$
18



21,337Other income (expense):Interest and other income










10











99Amortization of deferred loan costs










(182
)










(169
)Interest expense










(2,728
)










(3,279
)Net (loss) income










(20,531
)










17,988Less: Noncontrolling partners interest in (loss) income of
    Hiland Partners










(8,152
)










6,800Limited partners interest in net (loss) income









$
(12,379
)









$
11,188   29




---



##### Table of Contents



HILAND
    HOLDINGS GP, LP
  CONDENSED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
  Nine Months Ended September 30,2009


2008Midstream


Compression





Midstream


CompressionSegment


Segment


Total


Segment


Segment


TotalRevenues

$
153,658


$
3,615


$
157,273


$
319,058


$
3,615


$
322,673Operating costs and expenses:Midstream purchases (exclusive of items shown separately below)


88,481







88,481



238,586







238,586Operations and maintenance


22,612



604



23,216



21,428



773



22,201Depreciation and amortization


29,149



2,692



31,841



25,827



2,686



28,513Property impairments


21,450







21,450











Bad debt














304







304General and administrative


11,379



270



11,649



7,529



86



7,615Total operating costs and expenses


173,071



3,566



176,637



293,674



3,545



297,219Operating (loss) income

$
(19,413
)

$
49



(19,364
)

$
25,384


$
70



25,454Other income (expense):Interest and other income










92











276Amortization of deferred loan costs










(526
)










(493
)Interest expense










(7,777
)










(9,915
)Net (loss) income










(27,575
)










15,322Less: Noncontrolling partners interest in (loss) income of
    Hiland Partners










(9,762
)










4,402Limited partners interest in net (loss) income









$
(17,813
)









$
10,920  30




---



##### Table of Contents



HILAND
    HOLDINGS GP, LP
  CONDENSED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
   Note 13:
    Net
    Income (Loss) per Limited Partners Unit    For the Three Months Ended September 30,2009


2008Loss








IncomeAttributable








Attributableto Limited


Limited


Per


to Limited


Limited


PerPartners


Partner Units


Unit


Partners


Partner Units


Unit(Numerator)


(Denominator)


Amount


(Numerator)


(Denominator)


Amount(Loss) income per limited partner unit-basic:(Loss) income attributable to limited partners

$
(12,379
)





$
(0.57
)

$
11,188






$
0.52Weighted average limited partner units outstanding






21,608,000











21,603,000Income per limited partner unit  diluted: Restricted
    units


















9,000(Loss) income attributable to limited partners plus assumed
    conversions

$
(12,379
)


21,608,000


$
(0.57
)

$
11,188



21,612,000


$
0.52   For the Nine Months Ended September 30,2009


2008Loss








IncomeAvailable to








Available toLimited


Limited


Per


Limited


Limited


PerPartners


Partner Units


Unit


Partners


Partner Units


Unit(Numerator)


(Denominator)


Amount


(Numerator)


(Denominator)


Amount(Loss) income per limited partner unit-basic:(Loss) income attributable to limited partners

$
(17,813
)





$
(0.82
)

$
10,920






$
0.51Weighted average limited partner units outstanding






21,608,000











21,603,000Income per limited partner unit  diluted: Restricted
    units


















7,000(Loss) income attributable to limited partners plus assumed
    conversions

$
(17,813
)


21,608,000


$
(0.82
)

$
10,920



21,610,000


$
0.51    31




---



##### Table of Contents



HILAND
    HOLDINGS GP, LP
  CONDENSED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
   Note 14:
    Partners
    Capital and Cash Distributions  Hiland
    Holdings
        Date Cash


Per Unit CashDistribution for

Distribution


Distribution


Total CashQuarter Ending

Paid


Amount


Distribution12/31/07


02/19/08


$
0.2550


$
5,51303/31/08


05/19/08



0.2800



6,05306/30/08


08/19/08



0.3050



6,59309/30/08


11/19/08



0.3175



6,86612/31/08


02/18/09



0.1000



2,16203/31/09










06/30/09










09/30/09










$
1.2575


$
27,187   Hiland
    Partners
   32




---



##### Table of Contents



HILAND
    HOLDINGS GP, LP
  CONDENSED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
      
    first,98% to the common units, pro rata, and 2% to
    Hiland Partners GP, LLC, until each common unit has received a
    minimum quarterly distribution of $0.45 plus any arrearages from
    prior quarters;
    second,98% to the subordinated units, pro rata, and 2%
    to Hiland Partners GP, LLC, until each subordinated unit has
    received a minimum quarterly distribution of $0.45; and
    third,98% to all units, pro rata, and 2% to Hiland
    Partners GP, LLC, until each unit has received a distribution of
    $0.495.       33




---



##### Table of Contents



HILAND
    HOLDINGS GP, LP
  CONDENSED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
    Date Cash

Per Unit CashDistribution for

Distribution

Distribution


Common


Subordinated


General Partner


Total CashQuarter Ending

Paid

Amount


Units


Units


Regular


Incentive


Distribution12/31/07

02/14/08

$
0.7950


$
4,169


$
3,243


$
182


$
1,492


$
9,08603/31/08

05/14/08


0.8275



4,364



3,376



194



1,789



9,72306/30/08

08/14/08


0.8625



5,446



2,639



208



2,107



10,40009/30/08

11/14/08


0.8800



5,574



2,694



214



2,268



10,75012/31/08

02/13/09


0.4500



2,849



1,377



86







4,31203/31/09
























06/30/09
























09/30/09
























$
3.8150


$
22,402


$
13,329


$
884


$
7,656


$
44,271     Date Cash

Per Unit CashDistribution for

Distribution

Distribution


Common


Subordinated


General Partner


Total CashQuarter Ending

Paid

Amount


Units


Units


Regular


Incentive


Distribution12/31/07

02/14/08

$
0.7950


$
1,035


$
3,243


$
182


$
1,492


$
5,95203/31/08

05/15/08


0.8275



1,077



3,376



194



1,789



6,43606/30/08

08/14/08


0.8625



2,003



2,639



208



2,107



6,95709/30/08

11/14/08


0.8800



2,043



2,694



214



2,268



7,21912/31/08

02/13/09


0.4500



1,045



1,377



86







2,50803/31/09
























06/30/09
























09/30/09
























$
3.8150


$
7,203


$
13,329


$
884


$
7,656


$
29,072  34




---



##### Table of Contents



HILAND
    HOLDINGS GP, LP
  CONDENSED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
   Note 15:
    Supplemental
    Information    HILAND
    HOLDINGS GP, LP
  Balance
    Sheets
  September 30,


December 31,2009


2008(Unaudited)(In thousands, except unit amounts)ASSETSCurrent assets:Cash and cash equivalents

$
352


$
561Accounts receivable-affiliates






2Other current assets


124



351Total current assets


476



914Investment in subsidiary






4,195Property and equipment, net


2,967



3,304Intangibles, net


4,614



5,138Other assets, net


20



66Total assets

$
8,077


$
13,617LIABILITIES AND PARTNERS EQUITYCurrent liabilities:Accounts payable

$
231


$
363Accounts payable-affiliates


353



163Other current liabilities


3,010



705Total current liabilities


3,594



1,231Long-term debtPartners equityCommon unitholders (21,613,500 units issued and outstanding)


4,483



12,386Total partners equity


4,483



12,386Total liabilities and partners equity

$
8,077


$
13,617  35




---



##### Table of Contents



HILAND
    HOLDINGS GP, LP
  CONDENSED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
  HILAND
    HOLDINGS GP, LP
  Statements
    of Operations
 For the
    Three and Nine Months Ended
  Three Months EndedSeptember 30,


Nine Months Ended September 30,2009


2008


2009


2008(Unaudited, in thousands)Operating costs and expenses:Depreciation and amortization

$
(287
)

$
(287
)

$
(860
)

$
(861
)General and administrative


(638
)


(339
)


(3,192
)


(1,192
)Operating loss


(925
)


(626
)


(4,052
)


(2,053
)Other income (expense):Equity in (loss) earnings of affiliates


569



11,841



(1,683
)


13,058Interest and other income


0



3



1



9Amortization of deferred loan costs


(33
)


(22
)


(77
)


(67
)Interest expense


(26
)


(8
)


(38
)


(27
)Other income (expense), net


510



11,814



(1,797
)


12,973Net (loss) income

$
(415
)

$
11,188


$
(5,849
)

$
10,920  36




---



##### Table of Contents



HILAND
    HOLDINGS GP, LP
  CONDENSED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
  HILAND
    HOLDINGS GP, LP
  Statements
    of Cash Flows
 For the
    Nine Months Ended
  For the Nine MonthsEnded September 30,2009


2008(Unaudited, in thousands)Cash flows from operating activities:Net (loss) income

$
(5,849
)

$
10,920Adjustments to reconcile net income to net cash provided by
    (used in) operating activities:Depreciation and amortization


860



861Amortization of deferred loan cost


77



67Unit based compensation


108



115Loss (earnings) in Hiland Partners, LP


1,683



(13,058
)(Increase) decrease in current assets:Accounts receivable  affiliates


2



3Other current assets


228



137Increase (decrease) in current liabilities:Accounts payable  trade


(132
)


44Accounts payable  affiliates


190



(258
)Other current liabilities


10



Net cash used in operating activities


(2,823
)


(1,169
)Cash flows from investing activities:Investment in subsidiaries


(1
)


(28
)Cash distributions received from subsidiaries


2,513



19,345Net cash provided by investing activities


2,512



19,317Cash flows from financing activities:Proceeds from short-term borrowings


3,000



Payments on short-term borrowings


(705
)


Proceeds from long-term borrowings






350Debt issuance costs


(31
)


(1
)Cash distributions to unitholders


(2,162
)


(18,160
)Net cash provided by (used in) financing activities


102



(17,811
)Increase (decrease) for the period


(209
)


337Beginning of period


561



105End of period

$
352


$
442Supplementary informationCash paid for interest

$
28


$
28  37




---



##### Table of Contents



HILAND
    HOLDINGS GP, LP
  CONDENSED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
   Note 16:
    Subsequent
    Events        Schedule 13E-3 Schedule 13E-3
       38




---



##### Table of Contents



Cautionary
    Statement About Forward-Looking Statements
  Form 10-Q
    
    with respect to the mergers: (1) the occurrence of any
    event, change or other circumstances that could give rise to the
    termination of the merger agreements or the failure of required
    conditions to close the mergers; (2) the outcome of any
    legal proceedings that have been or may be instituted against
    Hiland Partners
    and/or the
    Partnership and others; (3) the inability to obtain
    unitholder approval or the failure to satisfy other conditions
    to completion of the mergers, including the receipt of certain
    regulatory approvals; (4) risks that the proposed
    transaction disrupts current plans and operations and the
    potential difficulties in employee retention as a result of the
    mergers; (5) the performance of Harold Hamm, his affiliates
    and the Hamm family trusts, (6) the amount of the costs,
    fees, expenses and related charges and (7) the ability of
    the Hiland companies to receive clearance of the supplement to
    the definitive joint proxy statement a sufficient amount of time
    prior to the reconvened special meeting date to permit
    distribution of the supplement;
    the ability to comply with the certain covenants in our or
    Hiland Partners credit facilities and the ability to reach
    agreement with ours or Hiland Partners lenders in the
    event of a breach of such covenants;
    the ability to pay distributions to our unitholders;
    our expected receipt of distributions from Hiland Partners;
    Hiland Partners cash flow is affected by the volatility of
    natural gas and NGL product prices, which could adversely affect
    Hiland Partners ability to make distributions to its
    unitholders, including us;
    Hiland Partners continued ability to find and contract for
    new sources of natural gas supply;
    the general economic conditions in the United States of America
    as well as the general economic conditions and currencies in
    foreign countries;
    the amount of natural gas gathered on Hiland Partners
    gathering systems and the associated level of throughput in
    Hiland Partners natural gas processing and treating
    facilities given the recent reduction in drilling activity in
    its areas of operations;
    the fees Hiland Partners charges and the margins realized for
    its services;
    the prices and market demand for, and the relationship between,
    natural gas and NGLs;
    energy prices generally;
    the level of domestic crude oil and natural gas production;
    the availability of imported crude oil and natural gas;
    actions taken by foreign crude oil and natural gas producing
    nations;
    the political and economic stability of petroleum producing
    nations;
    the weather in Hiland Partners operating areas; 39




---



##### Table of Contents




    the extent of governmental regulation and taxation;
    hazards or operating risks incidental to the gathering, treating
    and processing of natural gas and NGLs that may not be fully
    covered by insurance;
    competition from other midstream companies;
    loss of key personnel;
    the availability and cost of capital and Hiland Partners
    ability to access certain capital sources;
    margin call risk with counterparties on Hiland Partners
    derivative instruments;
    changes in laws and regulations to which we and Hiland Partners
    are subject, including tax, environmental, transportation and
    employment regulations;
    the costs and effects of legal and administrative proceedings;
    the ability to successfully identify and consummate strategic
    acquisitions at purchase prices that are accretive to Hiland
    Partners financial results;
    risks associated with the construction of new pipelines and
    treating and processing facilities or additions to Hiland
    Partners existing pipelines and facilities;
    the completion of significant, unbudgeted expansion projects may
    require debt
    and/or
    equity financing which may not be available to Hiland Partners
    on acceptable terms, or at all; and
    increases in interest rates could increase Hiland Partners
    borrowing costs, adversely impact its unit price and its ability
    to issue additional equity, which could have an adverse effect
    on Hiland Partners cash flows and its ability to fund its
    growth.     40




---



##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations    General
    Trends and Outlook
    U.S. Natural Gas Supply and
    Outlook.
  U.S. Crude Oil Supply and Outlook.
  U.S. NGL Supply and Outlook.
   41




---



##### Table of Contents



Disruption
    to functioning of capital markets
    Overview
    of Hiland Holdings
      
    the 2% general partner interest in Hiland Partners;
    100% of the incentive distribution rights in Hiland
    Partners; and
    2,321,471 common units and 3,060,000 subordinated units of
    Hiland Partners, representing a 57.5% limited partner interest
    in Hiland Partners.  in-the-money in-the-money
 42




---



##### Table of Contents



Cash Distributions.
  Three Months


Nine MonthsEnded


EndedSeptember 30,


September 30,Hiland Partners Distributions

2008


2008Common units

$
2,003


$
4,115Subordinated units


2,639



9,258Ownership interest in Hiland Partners general partner


208



584General partners incentive distribution rights


2,107



5,388$
6,957


$
19,345     Overview
    of Hiland Partners
      
    Midstream Segment,which is engaged in purchasing,
    gathering, compressing, dehydrating, treating, processing and
    marketing of natural gas and the fractionating and marketing of
    NGLs. The midstream segment generated 95.1% and 96.4% of total
    segment margin for the three months ended September 30,
    2009 and 2008, respectively and 94.7% and 95.7% of total segment
    margin for the nine months ended September 30, 2009 and
    2008, respectively.
    Compression Segment,which is engaged in providing air
    compression and water injection services for oil and gas
    secondary recovery operations that are ongoing in North Dakota.
    The compression segment generated 4.9% and 3.6% of total segment
    margin for the three months ended September 30, 2009 and
    2008, respectively and 5.3% and 4.3% of total segment margin for
    the nine months ended September 30, 2009 and 2008,
    respectively.     43




---



##### Table of Contents



Recent
    Events
  Merger Agreements.
    Term Promissory Note.
  Hedging Transactions.
  SEC Filings.
   44




---



##### Table of Contents



Schedule 13E-3 Schedule 13E-3
    Distributions.
  Credit Facility.
  Historical
    Results of Operations
    Our
    Results of Operations
     45




---



##### Table of Contents



Three Months Ended September 30,2009


2008(In thousands)Total Segment Margin Data:Midstream revenues

$
53,641


$
114,548Midstream purchases


30,266



81,895Midstream segment margin


23,375



32,653Compression revenues(1)


1,205



1,205Total segment margin(2)

$
24,580


$
33,858Summary of Operations Data:Midstream revenues

$
53,641


$
114,548Compression revenues


1,205



1,205Total revenues


54,846



115,753Midstream purchases (exclusive of items shown separately below)


30,266



81,895Operations and maintenance


7,736



7,881Depreciation, amortization and accretion


10,758



9,842Property impairments


20,500



Bad debt






(7,799
)General and administrative


3,217



2,597Total operating costs and expenses


72,477



94,416Operating (loss) income


(17,631
)


21,337Other income (expense), net


(2,900
)


(3,349
)Net (loss) income


(20,531
)


17,988Less: Noncontrolling partners interest in income of Hiland
    Partners


(8,152
)


6,800Limited partners interest in net (loss) income

$
(12,379
)

$
11,188Hiland Partners Operating Data:Inlet natural gas (Mcf/d)


257,950



261,345Natural gas sales (MMBtu/d)


86,979



95,889NGL sales (Bbls/d)


7,115



6,036   46




---



##### Table of Contents



Nine Months Ended September 30,2009


2008(In thousands)Total Segment Margin Data:Midstream revenues

$
153,658


$
319,058Midstream purchases


88,481



238,586Midstream segment margin


65,177



80,472Compression revenues(1)


3,615



3,615Total segment margin(2)

$
68,792


$
84,087Summary of Operations Data:Midstream revenues

$
153,658


$
319,058Compression revenues


3,615



3,615Total revenues


157,273



322,673Midstream purchases (exclusive of items shown separately below)


88,481



238,586Operations and maintenance


23,216



22,201Depreciation, amortization and accretion


31,841



28,513Property impairments


21,450



Bad debt






304General and administrative


11,649



7,615Total operating costs and expenses


176,637



297,219Operating (loss) income


(19,364
)


25,454Other income (expense), net


(8,211
)


(10,132
)Net (loss) income


(27,575
)


15,322Less: Noncontrolling partners interest in (loss) income of
    Hiland Partners


(9,762
)


4,402Limited partners interest in net (loss) income

$
(17,813
)

$
10,920Hiland Partners Operating Data:Inlet natural gas (MCF/d)


268,937



245,098Natural gas sales (MMBTU/d)


88,703



89,615NGL sales (Bbls/d)


7,141



5,763     (1)
    
    Compression revenues and compression segment margin are the
    same. There are no compression purchases associated with the
    compression segment.(2)
    
    Reconciliation of total segment margin to operating income:  Three Months Ended September 30,2009


2008(In thousands)Reconciliation of Total Segment Margin to Operating LossOperating income

$
(17,631
)

$
21,337Add:Operations and maintenance expenses


7,736



7,881Depreciation, amortization and accretion


10,758



9,842Property impairments


20,500



Bad debt






(7,799
)General and administrative


3,217



2,597Total segment margin

$
24,580


$
33,858  47




---



##### Table of Contents



Nine Months Ended September 30,2009


2008(In thousands)Reconciliation of Total Segment Margin to Operating (loss)
    IncomeOperating income

$
(19,364
)

$
25,454Add:Operations and maintenance expenses


23,216



22,201Depreciation, amortization and accretion


31,841



28,513Property impairments


21,450



Bad debt






304General and administrative


11,649



7,615Total segment margin

$
68,792


$
84,087   Three
    Months Ended September 30, 2009 Compared with Three Months
    Ended September 30, 2008
  Revenues.
       48




---



##### Table of Contents



mid-continent
          Midstream Purchases.
  Midstream Segment Margin. percentage-of-proceeds
 49




---



##### Table of Contents



mark-to-market
  Operations and Maintenance.
  Depreciation, Amortization and
    Accretion.
  Property Impairments.
  Bad Debt.
  General and Administrative.
  Other Income (Expense).
  Noncontrolling Partners Interest in Income of Hiland
    Partners.
  Nine
    Months Ended September 30, 2009 Compared with Nine Months
    Ended September 30, 2008
  Revenues.
 50




---



##### Table of Contents



912 MMBtu/d,
     51




---



##### Table of Contents



Midstream Purchases.
  Midstream Segment Margin. percentage-of-proceeds mark-to-market
  Operations and Maintenance.
  Depreciation, Amortization and
    Accretion.
 52




---



##### Table of Contents



Property Impairments.
  Bad Debt.
  General and Administrative.
  Other Income (Expense).
  Noncontrolling Partners Interest in Income (Loss) of
    Hiland Partners.
  LIQUIDITY
    AND CAPITAL RESOURCES
  U.S.
    Natural Gas, Crude Oil and NGL Supplies and
    Outlook
     53




---



##### Table of Contents



Disruption
    to Functioning of Capital Markets
    Overview
  step-up in-the-money in-the-money
   54




---



##### Table of Contents



in-the-money
  Cash
    Flows from Operating Activities
        Cash
    Flows Used for Investing Activities
    Cash
    Flows from Financing Activities
   55




---



##### Table of Contents



Capital
    Requirements
    
    maintenance capital expenditures, which are capital expenditures
    made to replace partially or fully depreciated assets to
    maintain the existing operating capacity of Hiland
    Partners assets and to extend their useful lives, or other
    capital expenditures that are incurred in maintaining existing
    system volumes and related cash flows; and
    expansion capital expenditures such as those to acquire
    additional assets to grow Hiland Partners business, to
    expand and upgrade gathering systems, processing plants,
    treating facilities and fractionation facilities and to
    construct or acquire similar systems or facilities.  and/or
    North
    Dakota Bakken
  68-mile
 56




---



##### Table of Contents



Financial
    Derivatives and Commodity Hedges
      Average


Fair ValueFixed


AssetDescription and Production Period

Volume


Price


(Liability)(MMBtu)


(per MMBtu)Natural Gas  Sold Fixed for Floating Price SwapsOctober 2009  September 2010


2,136,000


$
6.87


$
3,537October 2010  December 2010


534,000


$
6.73



341$
3,878     Fair ValueNotional

Interest

AssetDescription and Period

Amount

Rate

(Liability)Interest Rate SwapOctober 2009  December 2009

$
100,000



2.245
%

$
(512
)   Off-Balance
    Sheet Arrangements
    Available
    Credit
    Credit
    Facilities
  Hiland
    Holdings Credit Facility
   57




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##### Table of Contents



debt-to-worth
    debt-to-worth debt-to-worth
    Hiland
    Partners Credit Facility
       58




---



##### Table of Contents



step-up in-the-money in-the-money
      1 step-up
       59




---



##### Table of Contents



Impact
    of Inflation
    Recent
    Accounting Pronouncements
             60




---



##### Table of Contents



earnings-per-share
     61




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##### Table of Contents



Significant
    Accounting Policies and Estimates
    Form 10-K
  Item 3.
    Quantitative
    and Qualitative Disclosures about Market Risk    Commodity Price Risks.
  Natural Gas Price Change ($/MMBtu)Three Months Ended September 30,2009

2008NGL Price Change ($/gal)





$
0.10


$
(0.10
)

$
0.10


$
(0.10
)$
0.01


$
177,000


$
159,000


$
130,000


$
156,000$
(0.01
)

$
(159,000
)

$
(177,000
)

$
(159,000
)

$
(134,000
)      62




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##### Table of Contents



Average


Fair ValueFixed


AssetDescription and Production Period

Volume


Price


(Liability)(MMBtu)


(per MMBtu)Natural Gas  Sold Fixed for Floating Price SwapsOctober 2009  September 2010


2,136,000


$
6.87


$
3,537October 2010  December 2010


534,000


$
6.73



341$
3,878   Interest Rate Risk. floating-to-fixed
  Fair ValueNotional

Interest

AssetDescription and Period

Amount

Rate

(Liability)Interest Rate SwapOctober 2009  December 2009

$
100,000



2.245
%

$
(512
)   Credit Risk.
   63




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##### Table of Contents



Item 4.
    Controls
    and Procedures  Evaluation
    of Disclosure Controls and Procedures
  (a)
    Evaluation
    of disclosure controls and procedures.  Rule 13a-15(b) Rules 13a-15(e) 15d-15(e) Form 10-Q.
  (b)
    Changes
    in internal control over financial reporting.  Rules 13a-15(f) 15d-15(f)
 64




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##### Table of Contents



PART II
    OTHER INFORMATION Item 1.
    Legal
    Proceedings  Robert
    Pasternack v. Hiland Partners, LP et al. No. 4397-VCS; Andrew Jones v. Hiland Partners, LP et
    al. No. 4558-VCS; Arthur G. Rosenberg v. Hiland Partners,
    LP et al. No. C3-09-211-02.
        Item 1A.
    Risk
    Factors  The
    failure to complete the Hiland Holdings Merger could adversely
    affect the price of our common units and otherwise have an
    adverse effect on us.
   65




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##### Table of Contents



Form 10-Q);
  and/or
    
    Certain costs relating to the Hiland Holdings Merger, including
    legal, accounting and financial advisory fees, are payable by us
    whether or not the Hiland Holdings Merger is completed.
    Under circumstances set out in the merger agreement, if the
    Hiland Holdings Merger is not completed we may be required to
    reimburse up to $1,067,000 availability of Mr. Hamm and his
    affiliates expenses associated with the Hiland Holdings
    Merger.
    Our managements and our employees attention will
    have been diverted from our
    day-to-day
    operations, we may experience unusually high employee attrition
    and our business and customer relationships may be disrupted.  We are
    subject to litigation related to the Hiland Holdings
    Merger.
  Robert Pasternack v. Hiland Partners,
    LP et al. No. 4397-VCS; Andrew Jones v. Hiland Partners, LP et
    al. No. 4558-VCS; Arthur G. Rosenberg v. Hiland Partners,
    LP et al. No. C3-09-211-02.
   66




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##### Table of Contents



day-to-day
  If
    commodity prices and inlet natural gas volumes do not improve
    above the expected prices and inlet natural gas volumes for the
    fourth quarter of 2009, Hiland Partners may be in violation of
    its maximum consolidated funded debt to EBITDA covenant ratio as
    early as December 31, 2009, unless the ratio is amended, its
    senior secured revolving credit facility is restructured, Hiland
    Partners receives an infusion of equity capital or Hiland
    Partners is able to monetize
    in-the-money
    hedge positions. Failure to comply with the covenants could
    cause an event of default under the Hiland Partners credit
    facility.
    
    EBITDA to interest expense of not less than 3.0 to 1.0; and
    consolidated funded debt to EBITDA of not more than 4.0 to 1.0
    with the option to increase the consolidated funded debt to
    EBITDA ratio to not more than 4.75 to 1.0 for a period of up to
    nine months following an acquisition or a series of acquisitions
    totaling $40 million in a
    12-month
    period (subject to an increased applicable interest rate margin
    and commitment fee rate).  in-the-money
 67




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##### Table of Contents



If the
    Hiland Partners Merger is completed and the Hiland Holdings
    Merger is not completed, it could create certain conflicts of
    interest between us and Harold Hamm, who, with his affiliates,
    controls our general partner and the general partner of Hiland
    Partners.
      A
    substantial portion of our partnership interests in Hiland
    Partners are subordinated to Hiland Partners common units,
    which will result in decreased distributions to us in the future
    until Hiland Partners has paid all distribution arrearages on
    the Hiland Partners common units. Additionally, if Hiland
    Partners is unable to meet its minimum quarterly distribution in
    the future, distributions to us could further
    decrease.
      If we
    fail to renegotiate our credit facility, we may be required to
    sell common units in Hiland Partners to satisfy our outstanding
    debt obligations and any current liabilities that we may incur
    in the operation of our business in the future.
   68




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##### Table of Contents



Form 10-K Form 10-K
  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  Item 6.
    Exhibits  EXHIBITS
  ExhibitNumber

Description1
.1



Underwriting Agreement by and between Hiland Holdings GP, LP and
    Lehman Brothers Inc., as representative of the underwriters
    named therein dated as of September 19, 2006. (incorporated
    by reference to Exhibit 1.1 of Registrants Statement
    on
    Form S-1
    (File
    No. 333-134491))2
.1



Contribution Agreement among Hiland Holdings GP, LP, Hiland
    Partners GP Holdings, LLC, Hiland Partners GP, Inc., Continental
    Gas Holdings, Inc., HHGP Holding, LLC, Harold Hamm DST Trust,
    Harold Hamm HJ Trust, Randy Moeder, Equity Financial Services,
    Inc. and Ken Maples dated May 24, 2006. (incorporated by
    reference to Exhibit 2.1 of Registrants Statement on
    Form S-1
    (File
    No. 333-134491))2
.2



Acquisition Agreement by and among Hiland Operating, LLC, Hiland
    Partners, LLC and the members of Hiland Partners, LLC dated as
    of September 1, 2005 (incorporated by reference to
    Exhibit 2.2 of Hiland Partners, LPs
    Form 8-K
    filed on September 29, 2005)2
.3



Amendment No. 1 dated September 12, 2006 to
    Contribution Agreement among Hiland Holdings GP, LP, Hiland
    Partners GP Holdings, LLC, Hiland Partners GP, Inc., Continental
    Gas Holdings, Inc., HHGP Holding, LLC, Harold Hamm DST Trust,
    Harold Hamm HJ Trust, Randy Moeder, Equity Financial Services,
    Inc. and Ken Maples dated May 24, 2006. (incorporated by
    reference to Exhibit 2.3 of Registrants Statement on
    Form S-1
    (File
    No. 333-134491)) 69




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##### Table of Contents



ExhibitNumber

Description2
.4



Agreement and Plan of Merger, dated as of June 1, 2009, by
    and between Hiland Holdings GP, LP, Hiland Partners GP Holdings,
    LLC, HH GP Holding, LLC and HPGP MergerCo, LLC (incorporated by
    reference to Exhibit 2.1 of the Registrants
    Form 8-K
    filed on June 1, 2009). Schedules and Exhibits are omitted
    pursuant to Section 601(b)(2) of
    Regulation S-K.
    by reference to Exhibit 2.1 of the Registrants
    Form 8-K
    filed on June 1, 2009). Schedules and Exhibits are omitted
    pursuant to Section 601(b)(2) of
    Regulation S-K.2
.5



Equity Commitment Letter Agreement, dated as of June 1,
    2009, by and between Harold Hamm and HH GP Holding, LLC
    (incorporated by reference to Exhibit 2.3 of the
    Registrants
    Form 8-K
    filed on June 1, 2009).2
.6



Support Agreement, dated as of June 1, 2009, by and between
    Hiland Holdings GP, LP, Hiland Partners GP Holdings, LLC, Harold
    Hamm, Continental Gas Holdings, Inc., Bert Mackie, as trustee of
    the Harold Hamm DST Trust and the Harold Hamm HJ Trust, HH GP
    Holding, LLC and HPGP MergerCo, LLC (incorporated by reference
    to Exhibit 2.5 of the Registrants
    Form 8-K
    filed on June 1, 2009).2
.7



Agreement and Plan of Merger, dated as of June 1, 2009, by
    and between Hiland Partners, LP, Hiland Partners GP, LLC, HH GP
    Holding, LLC and HLND MergerCo, LLC (incorporated by reference
    to Exhibit 2.2 of the Registrants
    Form 8-K
    filed on June 1, 2009). Schedules and Exhibits are omitted
    pursuant to Section 601(b)(2) of
    Regulation S-K.2
.8



Equity Commitment Letter Agreement, dated as of June 1,
    2009, by and between Harold Hamm and HH GP Holding, LLC
    (incorporated by reference to Exhibit 2.4 of the
    Registrants
    Form 8-K
    filed on June 1, 2009).2
.9



Support Agreement, dated as of June 1, 2009, by and between
    Hiland Partners, LP, Hiland Partners GP, LLC, Hiland Holdings
    GP, LP, Hiland Partners GP Holdings, LLC, HH GP Holding, LLC and
    HLND MergerCo, LLC (incorporated by reference to
    Exhibit 2.6 of the Registrants
    Form 8-K
    filed on June 1, 2009).2
.10



Amendment No. 1, dated October 26, 2009, to the
    Agreement and Plan of Merger, dated as of June 1, 2009, by
    and between Hiland Holdings GP, LP, Hiland Partners GP Holdings
    LLC, HH GP Holding, LLC and HPGP MergerCo, LLC (incorporated by
    reference to Exhibit 2.1 of Registrants
    Form 8-K
    filed on October 27, 2009).2
.11



Amendment No. 1, dated October 26, 2009, to the
    Agreement and Plan of Merger, dated as of June 1, 2009, by
    and between Hiland Partners, LP, Hiland Partners GP, LLC, HH GP
    Holding, LLC and HLND MergerCo, LLC (incorporated by reference
    to Exhibit 2.1 of Hiland Partners
    Form 8-K
    filed on October 27, 2009).3
.1



Certificate of Limited Partnership of Hiland Holdings GP, LP
    (incorporated by reference to Exhibit 3.1 of
    Registrants Statement on
    Form S-1
    (File
    No. 333-134491))3
.2



Amended and Restated Agreement of Limited Partnership of Hiland
    Holdings GP, LP (incorporated by reference to Exhibit 3.1
    of Registrants
    Form 10-Q
    filed on November 13, 2006)3
.3



Certificate of Formation of Hiland Partners GP Holdings, LLC
    (incorporated by reference to Exhibit 3.3 of
    Registrants Statement on
    Form S-1
    (File
    No. 333-134491))3
.4



Amended and Restated Limited Liability Company Agreement of
    Hiland Partners GP Holdings, LLC(incorporated by reference to
    Exhibit 3.2 of Registrants
    Form 10-Q
    filed on November 13, 2006)4
.1



Certificate of Limited Partnership of Hiland Holdings GP, LP
    (incorporated by reference to Exhibit 3.1 of
    Registrants Statement on
    Form S-1
    (File
    No. 333-134491))4
.2



Amended and Restated Agreement of Limited Partnership of Hiland
    Holdings GP, LP (incorporated by reference to Exhibit 3.1
    of Registrants
    Form 10-Q
    filed on November 13, 2006)4
.3



Certificate of Formation of Hiland Partners GP Holdings, LLC
    (incorporated by reference to Exhibit 3.3 of
    Registrants Statement on
    Form S-1
    (File
    No. 333-134491))4
.4



Amended and Restated Limited Liability Company Agreement of
    Hiland Partners GP Holdings, LLC(incorporated by reference to
    Exhibit 3.2 of Registrants
    Form 10-Q
    filed on November 13, 2006) 70




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##### Table of Contents



ExhibitNumber

Description10
.1



First Amended and Restated Senior Secured Credit Agreement10
.2



Term Promissory Note19
.1



Code of Ethics for Chief Executive Officer and Senior Finance
    Officers (incorporated by reference to Exhibit 19.1 of
    Registrants annual report on
    Form 10-K
    filed on March 20, 2007)21
.1



List of Subsidiaries of Hiland Holdings GP, LP (incorporated by
    reference to Exhibit 21.1 of Registrants Statement on
    Form S-1
    (File
    No. 333-134491))31
.1



Certification of Chief Executive Officer under Section 302
    of the Sarbanes-Oxley Act of 200231
.2



Certification of Chief Financial Officer under Section 302
    of the Sarbanes-Oxley Act of 200232
.1



Certification of Chief Executive Officer under Section 906
    of the Sarbanes-Oxley Act of 200232
.2



Certification of Chief Financial Officer under Section 906
    of the Sarbanes-Oxley Act of 2002     +
    
    Denotes a management contract or compensatory plan or
    arrangement.
    
    Portions of this exhibit have been omitted pursuant to a request
    for confidential treatment. 71




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##### Table of Contents



SIGNATURES
    HILAND HOLDINGS GP, LP
  By:
    Hiland Partners GP Holdings, LLC, its general partner  By:
    /s/  Joseph
    L. Griffin   Chief Executive Officer, President and Director
 (principal executive officer)
  By:
    /s/  Matthew
    S. Harrison   Chief Financial Officer,
    Vice President-Finance, Secretary and Director
 (principal financial and accounting officer)
 72




---



##### Table of Contents



Exhibit Index
  ExhibitNumber

Description1
.1



Underwriting Agreement by and between Hiland Holdings GP, LP and
    Lehman Brothers Inc., as representative of the underwriters
    named therein dated as of September 19, 2006. (incorporated
    by reference to Exhibit 1.1 of Registrants Statement
    on
    Form S-1
    (File
    No. 333-134491))2
.1



Contribution Agreement among Hiland Holdings GP, LP, Hiland
    Partners GP Holdings, LLC, Hiland Partners GP, Inc., Continental
    Gas Holdings, Inc., HHGP Holding, LLC, Harold Hamm DST Trust,
    Harold Hamm HJ Trust, Randy Moeder, Equity Financial Services,
    Inc. and Ken Maples dated May 24, 2006. (incorporated
    by reference to Exhibit 2.1 of Registrants Statement
    on
    Form S-1
    (File
    No. 333-134491))2
.2



Acquisition Agreement by and among Hiland Operating, LLC, Hiland
    Partners, LLC and the members of Hiland Partners, LLC dated as
    of September 1, 2005 (incorporated by reference to
    Exhibit 2.2 of Hiland Partners, LPs
    Form 8-K
    filed on September 29, 2005)2
.3



Amendment No. 1 dated September 12, 2006 to
    Contribution Agreement among Hiland Holdings GP, LP, Hiland
    Partners GP Holdings, LLC, Hiland Partners GP, Inc., Continental
    Gas Holdings, Inc., HHGP Holding, LLC, Harold Hamm DST Trust,
    Harold Hamm HJ Trust, Randy Moeder, Equity Financial Services,
    Inc. and Ken Maples dated May 24, 2006. (incorporated by
    reference to Exhibit 2.3 of Registrants Statement on
    Form S-1
    (File
    No. 333-134491))2
.4



Agreement and Plan of Merger, dated as of June 1, 2009, by
    and between Hiland Holdings GP, LP, Hiland Partners GP Holdings,
    LLC, HH GP Holding, LLC and HPGP MergerCo, LLC (incorporated by
    reference to Exhibit 2.1 of the Registrants
    Form 8-K
    filed on June 1, 2009). Schedules and Exhibits are omitted
    pursuant to Section 601(b)(2) of
    Regulation S-K.2
.5



Equity Commitment Letter Agreement, dated as of June 1,
    2009, by and between Harold Hamm and HH GP Holding, LLC
    (incorporated by reference to Exhibit 2.3 of the
    Registrants
    Form 8-K
    filed on June 1, 2009).2
.6



Support Agreement, dated as of June 1, 2009, by and between
    Hiland Holdings GP, LP, Hiland Partners GP Holdings, LLC, Harold
    Hamm, Continental Gas Holdings, Inc., Bert Mackie, as trustee of
    the Harold Hamm DST Trust and the Harold Hamm HJ Trust, HH GP
    Holding, LLC and HPGP MergerCo, LLC (incorporated by reference
    to Exhibit 2.5 of the Registrants
    Form 8-K
    filed on June 1, 2009).2
.7



Agreement and Plan of Merger, dated as of June 1, 2009, by
    and between Hiland Partners, LP, Hiland Partners GP, LLC, HH GP
    Holding, LLC and HLND MergerCo, LLC (incorporated by reference
    to Exhibit 2.2 of the Registrants
    Form 8-K
    filed on June 1, 2009). Schedules and Exhibits are omitted
    pursuant to Section 601(b)(2) of
    Regulation S-K.2
.8



Equity Commitment Letter Agreement, dated as of June 1,
    2009, by and between Harold Hamm and HH GP Holding, LLC
    (incorporated by reference to Exhibit 2.4 of the
    Registrants
    Form 8-K
    filed on June 1, 2009).2
.9



Support Agreement, dated as of June 1, 2009, by and between
    Hiland Partners, LP, Hiland Partners GP, LLC, Hiland Holdings
    GP, LP, Hiland Partners GP Holdings, LLC, HH GP Holding, LLC and
    HLND MergerCo, LLC (incorporated by reference to
    Exhibit 2.6 of the Registrants
    Form 8-K
    filed on June 1, 2009).2
.10



Amendment No. 1, dated October 26, 2009, to the
    Agreement and Plan of Merger, dated as of June 1, 2009, by
    and between Hiland Holdings GP, LP, Hiland Partners GP Holdings
    LLC, HH GP Holding, LLC and HPGP MergerCo, LLC
    (incorporated by reference to Exhibit 2.1 of
    Registrants
    Form 8-K
    filed on October 27, 2009).2
.11



Amendment No. 1, dated October 26, 2009, to the
    Agreement and Plan of Merger, dated as of June 1, 2009, by
    and between Hiland Partners, LP, Hiland Partners GP, LLC, HH GP
    Holding, LLC and HLND MergerCo, LLC (incorporated by reference
    to Exhibit 2.1 of Hiland Partners
    Form 8-K
    filed on October 27, 2009).3
.1



Certificate of Limited Partnership of Hiland Holdings GP, LP
    (incorporated by reference to Exhibit 3.1 of
    Registrants Statement on
    Form S-1
    (File
    No. 333-134491))3
.2



Amended and Restated Agreement of Limited Partnership of Hiland
    Holdings GP, LP (incorporated by reference to Exhibit 3.1
    of Registrants
    Form 10-Q
    filed on November 13, 2006) 73




---



##### Table of Contents



ExhibitNumber

Description3
.3



Certificate of Formation of Hiland Partners GP Holdings, LLC
    (incorporated by reference to Exhibit 3.3 of
    Registrants Statement on
    Form S-1
    (File
    No. 333-134491))3
.4



Amended and Restated Limited Liability Company Agreement of
    Hiland Partners GP Holdings, LLC(incorporated by reference to
    Exhibit 3.2 of Registrants
    Form 10-Q
    filed on November 13, 2006)4
.1



Certificate of Limited Partnership of Hiland Holdings GP, LP
    (incorporated by reference to Exhibit 3.1 of
    Registrants Statement on
    Form S-1
    (File
    No. 333-134491))4
.2



Amended and Restated Agreement of Limited Partnership of Hiland
    Holdings GP, LP (incorporated by reference to Exhibit 3.1
    of Registrants
    Form 10-Q
    filed on November 13, 2006)4
.3



Certificate of Formation of Hiland Partners GP Holdings, LLC
    (incorporated by reference to Exhibit 3.3 of
    Registrants Statement on
    Form S-1
    (File
    No. 333-134491))4
.4



Amended and Restated Limited Liability Company Agreement of
    Hiland Partners GP Holdings, LLC(incorporated by reference to
    Exhibit 3.2 of Registrants
    Form 10-Q
    filed on November 13, 2006)10
.1



First Amended and Restated Senior Secured Credit Agreement10
.2



Term Promissory Note19
.1



Code of Ethics for Chief Executive Officer and Senior Finance
    Officers (incorporated by reference to Exhibit 19.1 of
    Registrants annual report on
    Form 10-K
    filed on March 20, 2007)21
.1



List of Subsidiaries of Hiland Holdings GP, LP (incorporated by
    reference to Exhibit 21.1 of Registrants Statement on
    Form S-1
    (File
    No. 333-134491))31
.1



Certification of Chief Executive Officer under Section 302
    of the Sarbanes-Oxley Act of 200231
.2



Certification of Chief Financial Officer under Section 302
    of the Sarbanes-Oxley Act of 200232
.1



Certification of Chief Executive Officer under Section 906
    of the Sarbanes-Oxley Act of 200232
.2



Certification of Chief Financial Officer under Section 906
    of the Sarbanes-Oxley Act of 2002     +
    
    Denotes a management contract or compensatory plan or
    arrangement.
    
    Portions of this exhibit have been omitted pursuant to a request
    for confidential treatment. 74