Forward-looking statements
This quarterly report contains forward-looking statements that do not directly or exclusively relate to historical facts. You can typically identify forward-looking statements by the use of forward-looking words, such as "may," "will," "could," "project," "believe," "intend," "anticipate," "expect," "estimate," "continue," "potential," "plan," "forecast" and other words of similar import. Forward-looking statements include information concerning possible or assumed future results of our operations, including statements about the Recombination, projected financial information, valuation information, possible outcomes from strategic alternatives other than the Recombination, the expected amounts, timing and availability of financing, availability under credit facilities, levels of capital expenditures, sources of funds, and funding requirements, among others.
These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. Those factors include, among others, the risk factors described in Part II, Item IA. "Risk Factors," as well as the risk factors described in Item 1A. "Risk Factors" in our 2008 Form 10-K/A.
In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than as described. You should consider the areas of risk and uncertainty described above and discussed in Part II, Item IA. "Risk Factors," as well as the risk factors described in Item 1A. "Risk Factors" in our 2008 Form 10-K/A in connection with any written or oral forward-looking statements that may be made after the date of this report by us. Except as may be required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Overview of QELP
We are a publicly traded master limited partnership formed in 2007 by Quest Resource Corporation ("QRCP") to acquire, exploit and develop oil and natural gas properties. 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 and New York in the Appalachian Basin. Operating Highlights
Our significant operational highlights include:
• We reduced production costs in the current quarter by $0.13 per Mcfe from the prior year quarter.

• We sustained natural gas production levels similar to the prior year despite minimal current period capital expenditures on acquisition and development.

Financial Highlights
Our significant financial highlights include:
• We reduced total debt by $41.1 million since December 31, 2008.

• We increased cash and cash equivalents by $14.3 million since December 31, 2008.

• We repriced our derivatives during the second quarter of 2009 and received $26 million as a result.

Recent Developments
Global Financial Crisis and Impact on Capital Markets and Commodity Prices Currently, there is unprecedented uncertainty in the financial markets. This uncertainty presents additional potential risks to us and our subsidiaries and affiliates. These risks include the availability and costs associated with our borrowing capabilities and raising additional debt and equity capital.
Additionally, the current global economic outlook coupled with exceptional unconventional resource development success in the U.S. has resulted in a significant decline in natural gas prices across the United States. Gas price declines impact us in two different ways. First, the basis differential from NYMEX pricing to sales point pricing for our Cherokee Basin gas production has narrowed significantly. Our Cherokee Basin basis differential averaged $0.49 per Mmbtu in the third quarter of 2009 and was $0.23 per Mmbtu in October 2009 which is down from an average of $1.79 per Mmbtu in the third quarter of 2008 and $3.38 per Mmbtu in October 2008. The second impact has been the absolute value erosion of natural gas prices. Our operations and financial condition are significantly impacted by absolute natural gas prices. On September 30, 2009, the spot market price for natural gas at Henry Hub was $3.30 per Mmbtu, a 53.7% decrease from September 30, 2008.
For oil, worldwide demand has decreased by over 5% from 2007 levels creating an oversupply environment similar to natural gas. The recent recovery of oil prices into the $70 per barrel range has had a small positive impact on revenues during the second half of 2009. Our management believes that managing price volatility will continue to be a challenge. The spot market price for oil at Cushing, Oklahoma at September 30, 2009 was $70.46 per barrel, a 30.0% decrease from the price at September 30, 2008. 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, liquidity and capital resources. 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
We suspended distributions on our subordinated units starting with the third quarter of 2008 and on all units starting with the fourth quarter of 2008. Distributions on all of our units continue to be suspended. We do not expect to have any available cash to pay distributions in 2009 and we are unable to estimate at this time when such distributions may, if ever, be resumed. The terms of our credit agreements restrict our ability to pay distributions, among other things. Even if the restrictions on the payment of distributions under our credit agreements are removed, we may continue to not pay distributions in order to conserve cash for the repayment of indebtedness or other business purposes.
Even if we do not pay distributions, our unitholders may be liable for taxes on their share of our taxable income.
Settlement Agreements
As discussed in our 2008 Form 10-K/A, we and QRCP filed lawsuits, related to certain unauthorized transfers, repayments and re-transfers of funds (the "Transfers") to entities controlled by Jerry D. Cash, our former chief executive office, seeking, among other things, to recover the funds that were transferred. On May 19, 2009, we, QRCP, and Quest Midstream Partners, L.P. ("Quest Midstream") 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 our board of directors and the board of directors of QRCP, 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 we received Mr. Cash's interest in STP Newco, Inc ("STP") which consisted of 100% of the common stock of the company. While QRCP estimated 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 comprised substantially all of Mr. Cash's net worth and the majority of the value of the controlled-entity. We and QRCP 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 us, 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 QRCP received prior to the settlement, the estimated fair value of the net assets to be assumed was expected to provide us reimbursement for all of the costs of the internal investigation and the costs of the litigation against Mr. Cash that have been paid by us; 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 and QRCP, believe that the actual estimated fair value of net assets of STP that we received is less than previously expected. We and QRCP 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 and QRCP also are in the process of determining what further actions can be taken with regards to this matter and intend to pursue all remedies available under the law.
Based on the information available at this time, we have valued the known assets and liabilities. As additional information becomes available other assets and/or liabilities may be identified and recorded. The fair value of the assets and liabilities we received is as follows (in thousands):

                          Oil & gas properties   $ 1,076
                          Current liabilities       (326 )
                          Long-term debt            (719 )

                          Net assets received    $    31

Recombination
On July 2, 2009, we entered into an Agreement and Plan of Merger (the "Merger Agreement") with QRCP, Quest Midstream, and other parties thereto pursuant to which, following a series of mergers and an entity conversion, QRCP, QELP and the successor to Quest Midstream will become wholly-owned subsidiaries of PostRock Energy Corporation ("PostRock"), a new, publicly-traded corporation (the "Recombination"). On October 2, 2009, the Merger Agreement was amended to, among other things, reflect certain technical changes as a result of an internal restructuring. On October 6, 2009, PostRock filed with the SEC a registration statement on Form S-4, which included a joint proxy statement/prospectus, relating to the Recombination.
While we are working toward the completion of the Recombination before the end of 2009; it remains subject to the satisfaction of a number of conditions, including, among others, the arrangement of one or more satisfactory credit facilities for PostRock and its subsidiaries, the approval of the transaction by our unitholders, the unitholders of Quest Midstream and the stockholders of QRCP, 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 PostRock would be owned approximately 44% by current Quest Midstream common unitholders, approximately 33% by our current common unitholders (other than QRCP), and approximately 23% by current QRCP stockholders.
Additionally, in connection with the Merger Agreement, on July 2, 2009, we entered into a Support Agreement with QRCP, Quest Midstream and certain Quest Midstream unitholders (the "Support Agreement"), which was amended on October 2, 2009 to, among other things, add an additional Quest Midstream common unitholder as a party. Pursuant to the Support Agreement, as amended, QRCP has, subject to certain conditions, agreed to vote the common and subordinated units of us and Quest Midstream that it owns in favor of the Recombination and the holders of approximately 73% of the common units of Quest Midstream have, subject to certain conditions, agreed to vote their common units in favor of the Recombination.

Results of Operations
   The following discussion of financial condition and results of operations
should be read in conjunction with the condensed consolidated financial
statements and the related notes, which are included elsewhere in this report.
Three Months Ended September 30, 2009 Compared to the Three Months Ended
September 30, 2008
   Overview. Operating data for the periods indicated are as follows (in
thousands):

                                                      Three Months Ended
                                                         September 30,                          Increase/
                                                    2009              2008                     (Decrease)
Oil and gas sales                                $ 18,151          $  49,454          $  (31,303 )          (63.3 )%
Oil and gas production costs                     $  8,458          $   9,821          $   (1,363 )          (13.9 )%
Transportation expense                           $ 10,879          $   8,583          $    2,296             26.8 %
Depreciation, depletion and amortization         $  9,076          $  13,196          $   (4,120 )          (31.2 )%
General and administrative expenses              $  5,570          $     734          $    4,836            658.9 %
Gain from derivative financial instruments       $  8,752          $ 145,132          $ (136,380 )          (94.0 )%
Interest expense, net                            $  3,370          $   4,354          $     (984 )          (22.6 )%

Production. Oil and gas production data for the periods indicated are as follows:

                                               Three Months Ended
                                                 September 30,                Increase/
                                               2009          2008            (Decrease)
 Production Data:
 Natural gas production (Mmcf)                  5,317        5,694         (377 )      (6.6 )%
 Oil production (Mbbl)                             20           19            1         5.3 %
 Total production (Mmcfe)                       5,437        5,808         (371 )      (6.4 )%
 Average daily production (Mmcfe/d)              59.1         63.1         (4.0 )      (6.3 )%
 Average Sales Price per Unit:
 Natural gas (Mcf)                           $   3.18     $   8.30     $  (5.12 )     (61.7 )%
 Oil (Bbl)                                   $  64.21     $ 116.89     $ (52.68 )     (45.1 )%
 Natural gas equivalent (Mcfe)               $   3.34     $   8.51     $  (5.17 )     (60.8 )%
 Average Unit Costs per Mcfe:
 Production costs                            $   1.56     $   1.69     $  (0.13 )      (7.7 )%
 Transportation expense                      $   2.00     $   1.48     $   0.52        35.1 %
 Depreciation, depletion and amortization    $   1.67     $   2.27     $  (0.60 )     (26.4 )%

Oil and Gas Sales. Oil and gas sales decreased $31.3 million, or 63.3%, to $18.2 million for the three months ended September 30, 2009, from $49.5 million for the three months ended September 30, 2008. This decrease was the result of a decrease in average realized prices and a small decrease in volumes. The decrease in the average realized price accounted for $30.1 million of the decrease. Our average product prices, which exclude hedge settlements, on an equivalent basis (Mcfe) decreased to $3.34 per Mcfe for the three months ended September 30, 2009 from $8.51 per Mcfe for the three months ended September 30, 2008. A decline in volumes of 371 Mmcfe for the quarter further reduced oil and gas sales by $1.2 million for the three months ended September 30, 2009, compared to the three months ended September 30, 2008.
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 increased $0.9 million, or 5.1%, to $19.3 million for the three months ended September 30, 2009, from $18.4 million for the three months ended September 30, 2008.
Oil and gas production costs decreased $1.4 million, or 13.9%, to $8.4 million for the three months ended September 30, 2009, from $9.8 million for the three months ended September 30, 2008. This decrease was primarily due to cost-cutting measures that began in the third quarter of 2008 continuing into the current year, including a reduction in field headcount by approximately half while simultaneously reducing overtime hours for the three months ended September 30, 2009 compared to the three months ended

September 30, 2008. In addition, well service improvement measures resulted in fewer wells going offline, reduced loss of production due to offline wells, and fewer well repairs in the current period. Production costs including gross production taxes and ad valorem taxes were $1.56 per Mcfe for the three months ended September 30, 2009 as compared to $1.69 per Mcfe for the three months ended September 30, 2008. The decrease in per unit cost was due to the cost-cutting and well service improvement measures discussed above.
Transportation expense increased $2.3 million, or 26.8%, to $10.9 million for the three months ended September 30, 2009, from $8.6 million for the three months ended September 30, 2008. The increase was primarily due to an increase in the contracted transportation rate. Transportation expense was $2.00 per Mcfe for the three months ended September 30, 2009 as compared to $1.48 per Mcfe for the three months ended September 30, 2008.
Depreciation, Depletion and Amortization. We are subject to variances in our depletion rates from period to period due to changes in our proved 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 $4.1 million, or 31.2% , for the three months ended September 30, 2009 to $9.1 million from $13.2 million in 2008. On a per unit basis, we had a decrease of $0.60 per Mcfe to $1.67 per Mcfe for the three months ended September 30, 2009 from $2.27 per Mcfe for the three months ended September 30, 2008. This decrease was primarily due to the impairment of our oil and gas properties in the fourth quarter of 2008 and the first quarter of 2009, which decreased our rate per unit, as well as the resulting decrease in the depletable pool.
General and Administrative Expenses. General and administrative expenses increased $4.8 million, or 658.9%, to $5.6 million for the three months ended September 30, 2009, from $0.7 million for the three months ended September 30, 2008. The increase is primarily due to increased accounting and audit fees related to our reaudits and restatements as well as increased legal, professional and investment banker fees related to our Recombination activities.
Gain from Derivative Financial Instruments. Gain from derivative financial instruments decreased $136.4 million to $8.8 million for the three months ended September 30, 2009, from $145.1 million for the three months ended September 30, 2008. We recorded a $19.6 million realized gain and $10.9 million unrealized loss on our derivative contracts for the three months ended September 30, 2009 compared to a $7.5 million realized loss and $152.7 million unrealized gain for the three months ended September 30, 2008. Unrealized gains and losses are attributable to changes in oil and natural gas prices and volumes hedged from one period end to another.
Interest Expense, net. Interest expense, net, decreased $1.0 million, or 22.6% , to $3.4 million for the three months ended September 30, 2009, from $4.4 million for the three months ended September 30, 2008. The decrease in interest expense for the three months ended September 30, 2009 compared to the three months ended September 30, 2008, is due both to lower average outstanding debt levels and to lower interest rates.
Nine Months Ended September 30, 2009 Compared to the Nine Months Ended September 30, 2008
Overview. Operating data for the periods indicated are as follows (in thousands):

                                                      Nine Months Ended
                                                        September 30,                         Increase/
                                                   2009              2008                     (Decrease)
Oil and gas sales                               $ 56,260          $ 136,908          $ (80,648 )          (58.9 )%
Oil and gas production costs                    $ 23,216          $  34,104          $ (10,888 )          (31.9 )%
Transportation expense                          $ 31,272          $  25,921          $   5,351             20.6 %
Depreciation, depletion and amortization        $ 24,766          $  34,750          $  (9,984 )          (28.7 )%
General and administrative expenses             $ 13,249          $   5,501          $   7,748            140.8 %
Impairment of oil and gas properties            $ 95,169          $       -          $  95,169                *
Gain (loss) from derivative financial
instruments                                     $ 31,078          $  (4,482 )        $  35,560            793.4 %
Interest expense, net                           $ 11,274          $   8,747          $   2,527             28.9 %

* Not meaningful

Production. Oil and gas production data for the periods indicated are as follows:

                                                Nine Months Ended
                                                  September 30,               Increase/
                                                2009         2008            (Decrease)
  Production Data:
  Natural gas production (Mmcf)                16,107       15,755          352         2.2 %
  Oil production (Mbbl)                            60           47           13        27.7 %
  Total production (Mmcfe)                     16,467       16,037          430         2.7 %
  Average daily production (Mmcfe/d)             60.3         58.5          1.8         3.1 %
  Average Sales Price per Unit:
  Natural gas (Mcf)                          $   3.30     $   8.36     $  (5.06 )     (60.5 )%
  Oil (Bbl)                                  $  52.27     $ 110.40     $ (58.13 )     (52.7 )%
  Natural gas equivalent (Mcfe)              $   3.42     $   8.54     $  (5.12 )     (60.0 )%
  Average Unit Costs per Mcfe:
  Production costs                           $   1.41     $   2.13     $  (0.72 )     (33.8 )%
  Transportation expense                     $   1.90     $   1.62     $   0.28        17.3 %
  Depreciation, depletion and amortization   $   1.50     $   2.17     $  (0.67 )     (30.9 )%

Oil and Gas Sales. Oil and gas sales decreased $80.6 million, or 58.9%, to $56.3 million for the nine months ended September 30, 2009, from $136.9 million for the nine months ended September 30, 2008. This decrease was the result of a decrease in average realized prices, partially offset by higher volumes. The decrease in the average realized price accounted for $82.1 million of the decrease. Our average product prices, which exclude hedge settlements, on an equivalent basis (Mcfe) decreased to $3.42 per Mcfe for the nine months ended September 30, 2009 from $8.54 per Mcfe for the nine months ended September 30, 2008. This decrease was offset by slightly higher volumes of 430 Mmcfe, resulting in increased oil and gas sales of $1.5 million for the nine months ended September 30, 2009, compared to the nine months ended September 30, 2008. The increased volumes 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 $5.5 million, or 9.2%, to $54.5 million for the nine months ended September 30, 2009, from $60.0 million for the nine months ended September 30, 2008.
Oil and gas production costs decreased $10.9 million, or 31.9% to $23.2 million for the nine months ended September 30, 2009, from $34.1 million for the nine months ended September 30, 2008. This decrease was primarily due to cost-cutting and well service improvement measures such as a reduction in field headcount by approximately one-third while overtime hours were simultaneously reduced for the nine months ended September 30, 2009 compared to the nine months ended September 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. In addition, well service improvement measures resulted in fewer wells going offline, reduced loss of production due to offline wells, and fewer well repairs in the current period compared to the prior period. Production costs including gross production taxes and ad valorem taxes were $1.41 per Mcfe for the nine months ended September 30, 2009 as compared to $2.13 per Mcfe for the nine months ended September 30, 2008. The decrease in per unit cost was due to the cost-cutting and well service improvement measures discussed above, as well as higher volumes over which to spread fixed costs.
Transportation expense increased $5.4 million, or 20.6%, to $31.3 million for the nine months ended September 30, 2009, from $25.9 million for the nine months ended September 30, 2008. The increase was due to an increase in the contracted transportation rate and increased volumes. Transportation expense was $1.90 per Mcfe for the nine months ended September 30, 2009 as compared to $1.62 per Mcfe for the nine months ended September 30, 2008.
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 $10.0 million, or 28.7%, for the nine months ended September 30, 2009 to $24.8 million from $34.8 million for the nine months ended September 30, 2008. On a per unit basis, we had a decrease of $0.67 per Mcfe to $1.50 per Mcfe for the nine months ended September 30, 2009 from $2.17 per Mcfe for the nine months ended September 30, 2008. This decrease was primarily due to the impairments of our oil and gas properties in the fourth quarter of 2008 and the first quarter of 2009, offset by decreases in proved reserves due to the effect of lower prices.
General and Administrative Expenses. General and administrative expenses increased $7.7 million, or 140.8%, to $13.2 million for the nine months ended September 30, 2009, from $5.5 million for the nine months ended September 30, 2008. The increase is primarily due increased legal, audit and other professional fees in connection with the restatement and reaudits of our financial statements as well as increased legal, professional and investment banker fees related to our Recombination activities.

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