Forward-looking statements
This quarterly report contains forward-looking statements, as defined in
Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These forward-looking statements relate to, among other things, the following:
• our future financial and operating performance and results;

• our business strategy;

• market prices;

• our future derivative financial instrument activities; and

• our plans and forecasts.

We have based these forward-looking statements on our current assumptions, expectations and projections about future events.
We use the words "may," "expect," "anticipate," "estimate," "believe," "continue," "intend," "plan," "budget" and other similar words to identify forward-looking statements. You should read statements that contain these words carefully because they discuss future expectations, contain projections of results of operations or of our financial condition and/or state other "forward-looking" information. We do not undertake any obligation to update or revise publicly any forward-looking statements, except as required by law. These statements also involve risks and uncertainties that could cause our actual results or financial condition to materially differ from our expectations in this quarterly report, including, but not limited to:
• fluctuations in prices of oil and natural gas;

• Imports of foreign oil and natural gas, including liquefied natural gas;

• future capital requirements and availability of financing;

• continued disruption of credit and capital markets and the ability of financial institutions to honor their commitments;

• estimates of reserves and economic assumptions;

• geological concentration of our reserves;

• risks associated with drilling and operating wells;

• risks associated with the operation of natural gas pipelines and gathering systems;

• discovery, acquisition, development and replacement of oil and natural gas reserves;

• cash flow and liquidity;

• timing and amount of future production of oil and natural gas;

• availability of drilling and production equipment;

• marketing of oil and natural gas;

• developments in oil-producing and natural gas-producing countries;

• title to our properties;

• litigation;

• competition;

• general economic conditions, including costs associated with drilling and operations of our properties;

• environmental or other governmental regulations, including legislation to reduce emissions of greenhouse gases;

• receipt and collectability of amounts owed to us by purchasers of our production and counterparties to our derivative financial instruments;

• decisions whether or not to enter into derivative financial instruments;

• events similar to those of September 11, 2001;

• actions of third party co-owners of interests in properties in which we also own an interest; and

• fluctuations in interest rates.

We believe that it is important to communicate our expectations of future performance to our investors. However, events may occur in the future that we are unable to accurately predict, or over which we have no control. The forward looking statements in this report only speak as of the date of this report; we disclaim any obligation to update these statements unless required by securities laws, and we caution you to not rely on them unduly. When considering our forward- looking statements, keep in mind the risk factors and other cautionary statements in this quarterly report, and the risk factors included in our Annual Report on Form 10-K/A for the year ended December 31, 2008 (our "2008 Form 10-K/A").
Our revenues, operating results, financial condition and ability to borrow funds or obtain additional capital depend substantially on prevailing prices for oil and natural gas, the availability of capital from our revolving credit facilities and liquidity from capital markets. Declines in oil or natural gas prices may have a material adverse affect on our financial condition, liquidity, ability to obtain financing and operating results. Lower oil or natural gas prices also may reduce the amount of oil or natural gas that we can produce economically. A decline in oil or natural gas prices could have a material adverse effect on the estimated value and estimated quantities of our oil and natural gas reserves, our ability to fund our operations and our financial condition, cash flow, results of operations and access to capital. Historically, oil and natural gas prices and markets have been volatile, with prices fluctuating widely, and they are likely to continue to be volatile. Overview of QRCP
We are an integrated independent energy company involved in the acquisition, development, transportation, exploration, and production of natural gas, primarily from coal seams (coal bed methane, or "CBM"), and oil. We report our results of operations as two business segments, oil and gas production; and natural gas pipelines.
Our principal oil and gas production operations are located in the Cherokee Basin of southeastern Kansas and northeastern Oklahoma; Seminole County, Oklahoma; and West Virginia, New York and Pennsylvania in the Appalachian Basin. Our Cherokee Basin operations are primarily focused on developing CBM gas production through Quest Energy Partners, L.P. ("Quest Energy" or "QELP") and our Appalachian Basin operations are primarily focused on the development of natural gas production from the Marcellus Shale through QELP and Quest Eastern Resource LLC ("Quest Eastern").
Our principal natural gas pipelines operations consist of a gas gathering pipeline network that primarily serves our Cherokee Basin producing properties and an interstate natural gas transmission pipeline. Both of these systems are owned through Quest Midstream Partners, L.P. ("Quest Midstream" or QMLP"). In addition, we own a small gathering line in the Appalachian Basin that serves Quest Eastern's and Quest Energy's producing properties.
Unless otherwise indicated, references to "us," "we," "our," the "Company" or "QRCP" include our subsidiaries and controlled affiliates.
Since we control the general partner interests in Quest Energy and Quest Midstream, we reflect our ownership interest in these partnerships on a consolidated basis, which means that our financial results are combined with Quest Energy's and Quest Midstream's financial results and the results of our subsidiaries. The interest owned by non-controlling partners' share of income is reflected as noncontrolling interests in our results of operations. Since the initial public offering of Quest Energy in November 2007, QRCP's potential sources of revenue and cash flows consists almost exclusively of distributions on its partnership units in Quest Energy and Quest Midstream, because QRCP's Appalachian assets largely consist of undeveloped acreage. Our consolidated results of operations are derived from the results Quest Energy's and Quest Midstream's operations as well the results of Quest Eastern's operations related to the Appalachian Basin and our general and administrative expenses and our interest income (expense). Accordingly, the discussion of our financial position and results of operations in this Management's Discussion and Analysis of Financial Condition and Results of Operations primarily reflects the operating activities and results of operations of Quest Energy and Quest Midstream. Operating Highlights
The Company's significant operational highlights by area during the second quarter of 2009 include:
• Increased natural gas production by approximately 297,000 Mcf from the prior year quarter.

• Increased oil production by approximately 2,000 Bbls from the prior year quarter.

• Increased total production by approximately 309,000 Mcfe from the prior year quarter.

• Reduced oil and gas production costs by $1.11 per Mcfe from the prior year quarter.

Financial Highlights
The Company's significant financial highlights during the first half of 2009 include:
• Reduced total debt by $25.4 million from December 31, 2008.

• Increased cash and cash equivalents by $28.6 million from December 31, 2008.

• Repriced derivatives and received $26 million

Recent Developments
Global Financial Crisis and Impact on Capital Markets and Commodity Prices During 2009 the global economy has continued to experience a significant downturn. There are two significant ramifications to the exploration and production industry as the economy continues to deteriorate. The first is that capital markets have essentially frozen. Equity, debt and credit markets shut down. Future growth opportunities have been and are expected to continue to be constrained by the lack of access to liquidity in the financial markets.
The second impact to the industry is that fear of global recession has resulted in a significant decline in oil and gas prices and the differential from NYMEX pricing to our sales point for our Cherokee Basin gas production has widened to unprecedented levels of volatility. While the differential has narrowed some, the volatility remains.
Our operations and financial condition are significantly impacted by these prices. On June 30, 2009, the spot market price for natural gas at Henry Hub was $ 3.89 per Mmbtu, a 70.3% decrease from June 30, 2008. The price of oil has shown similar volatility, with a $69.79 per Bbl spot market price for oil at Cushing, Oklahoma at June 30, 2009, a 50.1% decrease from June 30, 2008. In the second quarter of 2009, our average realized prices for oil and natural gas were $73.83 per Bbl and $2.72 per Mcf, respectively, compared with second quarter 2008 average realized prices of $111.25 per Bbl and $9.28 per Mcf, respectively. It is impossible to predict the duration or outcome of these price declines or the long-term impact on drilling and operating costs and the impacts, whether favorable or unfavorable, to our results of operations and liquidity. Natural gas prices came under pressure in the second half of 2008, and continued into 2009 as a result of lower domestic product demand that was caused by the weakening economy and concerns over excess supply of natural gas. In the Cherokee Basin, where we produce and sell most of our gas, there has been a widening of the historical discount of prices in the area to the NYMEX pricing point at Henry Hub as a result of elevated levels of natural gas drilling activity in the region and a lack of pipeline takeaway capacity. During the second quarter of 2009, this discount (or basis differential) in the Cherokee Basin ranged from $0.67 per Mmbtu to $1.06 per Mmbtu. Due to our relatively low level of oil production relative to gas and our existing commodity hedge positions, the volatility of oil prices had less of an effect on our operations.
Suspension of Distributions and Asset Sale Distributions on all of Quest Energy's and Quest Midstream's units continue to be suspended. Since these distributions would have been substantially all of QRCP's cash flows for 2009, the loss of these distributions was material to QRCP's financial position. QRCP received cash distributions from Quest Energy and Quest Midstream of $7.9 million for the six months ended June 30, 2008 and did not receive any cash distributions from Quest Energy and Quest Midstream for the six months ended June 30. 2009.
On February 13, 2009, we divested of approximately 23,000 net undeveloped acres and one well in Lycoming County, Pennsylvania to a private party for approximately $8.7 million.
Settlement Agreements
As discussed in our 2008 Form 10-K/A, we filed lawsuits, related to the Transfers, seeking, among other things, to recover the funds that were transferred. On May 19, 2009, we entered into settlement agreements with Mr. Cash, the controlled-entity and the other owners to settle this litigation. Under the terms of the settlement, and based on a settlement allocation agreed to by the board of directors of QRCP and QELP, QRCP received (1) approximately $2.4 million in cash and (2) 60% of the controlled-entity's interest in a gas well located in Louisiana and a landfill gas development project located in Texas and QELP received Mr. Cash's interest in STP Newco, Inc ("STP") which consisted of 100% of the common stock of the company.

While QRCP estimates the value of these assets to be less than the amount of the unauthorized transfers and cost of the internal investigation, Mr. Cash represented that they comprise all of Mr. Cash's net worth and the majority of the value of the controlled-entity. We did not take Mr. Cash's stock in QRCP, which he represented had been pledged to secure personal loans with a principal balance far in excess of the current market value of the stock.

STP owns interests in certain oil producing properties in Oklahoma, and other assets and liabilities. STP's accounting and operation records provided to QELP, at the date of the settlement, were in poor condition and we are in the process of reconstructing the financial records in order to determine the estimated fair value of the assets acquired and liabilities assumed in connection with the settlement. Based on documents we received prior to the settlement, the estimated fair value of the net assets to be assumed was expected to provide QELP reimbursement for all of the costs of the internal investigation and the costs of the litigation against Mr. Cash that have been paid by QELP; however, the financial information we received prior to closing contained errors related to Mr. Cash's ownership interests in the properties as well as amounts due vendors and royalty owners. Based on work performed to date we believe that the actual estimated fair value of net assets of STP that QELP received is less than previously expected. We expect to complete our analysis of STP's financial information and our final valuation of the oil producing properties obtained from STP by December 31, 2009. We also are in the process of determining what further actions can be taken with regards to this and intend to pursue all remedies available under the law.

Based on the information available at this time, we have estimated the fair value of the assets and liabilities obtained in connection with the settlement. As additional information becomes available other assets and/or liabilities may be identified and recorded.

The estimated fair value of the assets and liabilities received is as follows (in thousands):

                                             QRCP        QELP        Total
              Cash, net of legal expenses   $ 2,420     $     -     $ 2,420
              Oil & gas properties              896       1,076       1,972
              Other assets                       50           -          50
              Current liabilities                 -        (326 )      (326 )
              Long-term debt                      -        (719 )      (719 )

              Net assets received           $ 3,366     $    31     $ 3,397

Recombination
On July 2, 2009, we entered into an Agreement and Plan of Merger ("The Merger Agreement") with Quest Energy, Quest Midstream, and other parties thereto pursuant to which we would form a new, yet to be named, publicly-traded corporation that, through a series of mergers and entity conversions, would wholly-own all three entities (the "Recombination").
While we anticipate completion of the Recombination before year-end, it remains subject to the satisfaction of a number of conditions, including, among others, the arrangement of one or more satisfactory credit facilities for New Quest, the approval of the transaction by the unitholders of Quest Energy, the unitholders of Quest Midstream and our stockholders, and consents from each entity's existing lenders. There can be no assurance that these conditions will be met or that the Recombination will occur.
Upon completion of the Recombination, the equity of New Quest would be owned approximately 44% by current Quest Midstream common unitholders, approximately 33% by QELP's current common unitholders (other than QRCP), and approximately 23% by our current stockholders.
Additionally, in connection with the Merger Agreement, on July 2, 2009, we entered into a Support Agreement with Quest Energy, Quest Midstream and certain Quest Midstream unitholders (the "Support Agreement"). Pursuant to the Support Agreement, we have, subject to certain conditions, agreed to vote the common and subordinated units of Quest Energy and Quest Midstream that we own in favor of the Recombination and the holders of approximately 43% of the common units of Quest Midstream have, subject to certain conditions, agreed to vote their common units in favor of the Recombination.

Credit Agreement Amendments
QRCP
QRCP and Royal Bank of Canada ("RBC") are parties to an Amended and Restated Credit Agreement, as amended (the "Credit Agreement"), dated as of July 11, 2008, for a $35 million term loan, due and maturing on July 11, 2010. In May 2009, QRCP entered into a Fourth Amendment to the Credit Agreement that, among other things, waived certain events of default related to the financial covenants and collateral requirements under the Credit Agreement, extended certain financial reporting deadlines and permitted the settlement agreements with Mr. Cash discussed elsewhere herein and in our 2008 Form 10-K/A.
In June 2009, QRCP entered into a Fifth Amendment to the Credit Agreement that, among other things, amended and/or waived certain of the representations and covenants contained in the Credit Agreement. Quest Energy
Quest Energy is a party, as a guarantor, to an Amended and Restated Credit Agreement with Quest Cherokee, as the borrower, Royal Bank of Canada ("RBC"), as administrative agent and collateral agent, KeyBank National Association, as documentation agent and the lenders party thereto (together with all amendments, the "Quest Cherokee Credit Agreement"). Concurrent with the PetroEdge acquisition, Quest Energy and Quest Cherokee entered into a Second Lien Senior Term Loan Agreement (the "Second Lien Loan Agreement," together with the Quest Cherokee Credit Agreement, the "Quest Cherokee Agreements").
In June 2009, Quest Energy and Quest Cherokee entered into amendments to the Quest Cherokee Agreements that, among other things, permit Quest Cherokee's obligations under oil and gas derivative contracts with BP Corporation North America, Inc. ("BP") or any of its affiliates to be secured by the liens under the Quest Cherokee Credit Agreement on a pari passu basis with the obligations under the Quest Cherokee Credit Agreement and defer until August 15, 2009, Quest Energy's obligation to deliver to RBC unaudited consolidated balance sheets and related statements of income and cash flows for the fiscal quarters ending September 30, 2008 and March 31, 2009.
In July 2009, the borrowing base under the Quest Cherokee Credit Agreement was reduced from $190 million to $160 million, which, following the principal payment of $15 million Quest Energy made on June 30, 2009, resulted in the outstanding borrowings under the Quest Cherokee Credit Agreement exceeding the new borrowing base by $14 million (the "Borrowing Base Deficiency"). In anticipation of the reduction in the borrowing base, Quest Energy amended or exited certain of its above market natural gas price derivative contracts and, in return, received approximately $26 million. At the same time, Quest Energy entered into new natural gas price derivative contracts to increase the total amount of its future proved developed natural gas production hedged to approximately 85% through 2013. On July 8, 2009, Quest Energy repaid the $14 million Borrowing Base Deficiency.
Results of Operations
The following discussion of financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes, which are included elsewhere in this report.
Operating segment data for the periods indicated are as follows (in thousands):

                                                  Three Months Ended                 Six Months Ended
                                                       June 30,                          June 30,
                                                 2009             2008             2009             2008
Revenues:
Oil and gas sales                             $   16,107        $ 49,144        $   38,382        $  87,458
Natural gas pipelines                             19,616          15,823            39,926           31,387
Elimination of inter-segment revenue             (12,030 )        (8,675 )         (24,537 )        (17,338 )

Natural gas pipelines, net of
inter-segment revenue                              7,586           7,148            15,389           14,049

Total segment revenues                        $   23,693        $ 56,292        $   53,771        $ 101,507

Operating profit (loss):
Oil and gas production                        $   (8,233 )      $ 15,615        $ (121,205 )      $  24,233
Natural gas pipelines                              8,705           3,438            17,887            7,782

Total segment operating profit (loss)                472          19,053          (103,318 )         32,015
General and administrative expenses              (10,486 )        (6,198 )         (18,368 )        (11,941 )
Recovery of misappropriated funds, net
of liabilities assumed                             3,397               -             3,397                -

Total operating income (loss)                 $   (6,617 )      $ 12,855        $ (118,289 )      $  20,074

Three Months Ended June 30, 2009 Compared to the Three Months Ended June 30, 2008
Oil and Gas Production Segment
Oil and gas production segment data for the periods indicated are as follows (in thousands):

                                               Three Months Ended
                                                    June 30,                  Increase/
                                               2009          2008             (Decrease)
 Oil and gas sales                           $ 16,107     $ 49,144     $ (33,037 )     (67.2 )%
 Oil and gas production costs                $  7,274     $ 12,631     $  (5,357 )     (42.4 )%
 Transportation expense (intercompany)       $ 12,030     $  8,675     $   3,355        38.7 %
 Depreciation, depletion and amortization    $  5,036     $ 12,223     $  (7,187 )     (58.8 )%

 Production Data:
 Natural gas production (Mmcf)                  5,392        5,095           297         5.8 %
 Oil production (Mbbl)                             19           17             2        11.8 %
 Total production (Mmcfe)                       5,506        5,197           309         5.9 %
 Average daily production (Mmcfe/d)              60.5         57.1           3.4         6.0 %

                                               Three Months Ended
                                                    June 30,                  Increase/
                                               2009          2008            (Decrease)
 Average Sales Price per Unit:
 Natural gas (Mcf)                           $   2.72     $   9.28     $  (6.56 )     (70.7 )%
 Oil (Bbl)                                   $  73.83     $ 111.25     $ (37.42 )     (33.6 )%
 Natural gas equivalent (Mcfe)               $   2.93     $   9.46     $  (6.53 )     (69.0 )%
 Average Unit Costs per Mcfe:
 Production costs                            $   1.32     $   2.43     $  (1.11 )     (45.7 )%
 Transportation expense (intercompany)       $   2.18     $   1.67     $   0.51        30.5 %
 Depreciation, depletion and amortization    $   0.91     $   2.35     $   1.44       (61.3 )%

Oil and Gas Sales. Oil and gas sales decreased $33.0 million, or 67.2%, to $16.1 million during the three months ended June 30, 2009. This decrease was the result of a decrease in average realized prices, offset by a small increase in volumes. The decrease in average realized prices resulted in decreased revenues of $36.0 million. Our average realized prices on an equivalent basis (Mcfe), decreased to $2.93 per Mcfe for the three months ended June 30, 2009 from $9.46 per Mcfe for the three months ended June 30, 2008. Offsetting this decrease were additional volumes of 297 Mmcfe, accounting for an increase in revenues by $3.0 million. The increased volumes primarily resulted from the PetroEdge acquisition.
Oil and Gas Operating Expenses. Oil and gas operating expenses consist of oil and gas production costs, which include lease operating expenses, severance taxes and ad valorem taxes, and transportation expense. Oil and gas operating expenses decreased $2.0 million, or 9.4%, to $19.3 million during the three months ended June 30, 2009, from $21.3 million during the three months ended June 30, 2008.
Oil and gas production costs decreased $5.4 million, or 42.4%, to $7.3 million during the three months ended June 30, 2009, from $12.6 million during the three months ended June 30, 2008. This decrease was primarily due cost-cutting measures implemented in the third quarter of 2008. Field headcount was reduced by 31.9% while simultaneously reducing overtime hours for the three months ended June 30, 2009 compared to the three months ended June 30, 2008. The reductions came at the same time we absorbed the operations of PetroEdge which increased our total production, further reducing our cost per Mcfe. Production costs including gross production taxes and ad valorem taxes were $1.32 per Mcfe for the three months ended June 30, 2009 as compared to $2.43 per Mcfe for the three months ended June 30, 2008. The decrease in per unit cost was due to the cost-cutting measure discussed above, as well as higher volumes over which to spread fixed costs.
Transportation expense increased $3.4 million, or 38.7%, to $12.0 million during the three months ended June 30, 2009, from $8.7 million during the three months ended June 30, 2008. The increase was due to an increase in the contracted transportation fee and increased volumes. Transportation expense was $2.18 per Mcfe for the three months ended June 30, 2009 as compared to $1.67 per Mcfe for the three months ended June 30, 2008. Transportation expense per Mcfe is greater than our contracted rate due to third-party volumes being transported at our contracted rates for which we do not get reimbursed the full contracted rate.
Depreciation, Depletion and Amortization. We are subject to variances in our depletion rates from period to period due to changes in our oil and gas reserve quantities, production levels, product prices and changes in the depletable cost basis of our oil and gas properties. Our depreciation, depletion and amortization decreased approximately $7.2 million, or 58.8%, in the 2009 period . . .