Unless the context requires otherwise, references to "we", "our," "us," "Hiland Holdings" or "the Partnership" are intended to mean the consolidated business and operations of Hiland Holdings GP, LP. References to "Hiland Partners" are intended to mean the consolidated business and operations of Hiland Partners, LP and its subsidiaries.

General Trends and Outlook

We expect Hiland Partners' business to continue to be affected by the key trends described below. These expectations are based on assumptions made by us and information currently available to us. To the extent our underlying assumptions about or interpretations of available information prove to be incorrect, our expectations may vary materially from actual results. Please see "Forward-Looking Statements."

U.S. Natural Gas Supply and Outlook. Natural gas prices have declined significantly since the peak New York Mercantile Exchange ("NYMEX") Henry Hub last day settle price of $13.11/MMBtu in July 2008 to the NYMEX Henry Hub last day settle price of $3.73 in October 2009, a 72% decline. NYMEX Henry Hub last day settle prices averaged $3.92 for the first ten months of 2009 compared to an average of $9.51 for the same periods in 2008, a decrease of $5.59, or 59%. According to data published by Baker Hughes Incorporated ("Baker Hughes"), U.S. natural gas drilling rig counts have declined by approximately 53% to 728 as of October 30, 2009, compared to 1,552 natural gas drilling rigs as of October 31, 2008, and have declined approximately 55% compared to the peak natural gas drilling rig count of 1,606 in September 2008. Natural gas storage levels have recently approached 3.7 Tcf ("trillion cubic feet"), which surpassed the November 2007 record working gas storage of 3.5 Tcf. We believe that current natural gas prices will continue to result in reduced natural gas-related drilling in our service territories until the economic environment in the United States improves and increases the demand for natural gas.

U.S. Crude Oil Supply and Outlook. A weaker economic environment and the resulting drop in demand for crude oil products in 2009 compared to 2008 continues to impact the price for crude oil. West Texas Intermediate (WTI) crude oil pricing has declined from a peak of $134.62/bbl in July 2008 to a low of $33.87/Bbl in January 2009, a 75% decline, increasing to $71.55/Bbl in October 2009, a 47% decline from July 2008. West Texas Intermediate (WTI) crude oil prices averaged $54.52 for the first ten months of 2009 compared to an average of $113.25 for the same periods in 2008, a decrease of $58.73, or 52%. According to data published by Baker Hughes, U.S. crude oil drilling rig counts have declined by approximately 19% to 330 as of October 30, 2009, compared to 408 crude oil drilling rigs as of October 24, 2008, and have declined approximately 25% compared to the peak crude oil drilling rig count of 442 in November 2008. Baker Hughes also published that U.S. crude oil drilling rig counts have steadily increased from a low of 179 as of June 5, 2009 to 330 as of October 30, 2009, an increase of 84% from June 5, 2009. Crude oil prices have steadily increased from $33.87/Bbl in January 2009 to $71.55/Bbl in October 2009. In addition, the forward curve for WTI crude oil pricing has recently improved.

U.S. NGL Supply and Outlook. A weaker economic environment and the resulting drop in demand for NGL products in 2009 compared to 2008 has impacted the price for NGLs. Conway NGL prices have dropped dramatically since the peak Conway NGL basket pricing of $1.97/gallon in June 2008 to a low of $0.61/gallon in December 2008, a 69% decline, increasing to $1.12/gallon in October 2009, a 43% decline from June 2008. Conway NGL basket pricing has historically correlated to WTI crude oil pricing. In addition, the forward curve for Conway NGL basket pricing and WTI crude oil pricing has recently improved.

A number of the areas in which Hiland Partners operates are experiencing a significant decline in drilling activity as a result of the recent decline in natural gas and crude oil prices. Along Hiland Partners' systems, excluding its North Dakota Bakken gathering system, which commenced operations in April 2009, Hiland Partners connected 26 wells during the first nine months of 2009 as compared to 83 wells connected during the same period in 2008, a 69% decrease. At the North Dakota Bakken gathering system, Hiland Partners connected 41 wells during the nine months ended September 30, 2009. As of October 23, 2009, there are two rigs drilling along Hiland Partners' dedicated acreage company wide. While we anticipate continued exploration and production activities in the areas in which Hiland Partners operates, albeit at depressed levels,

fluctuations in energy prices can greatly affect production rates and investments by third parties in the development of natural gas and crude oil reserves. Drilling activity generally decreases as natural gas and crude oil prices decrease. Hiland Partners has no control over the level of drilling activity in the areas of its operations.

Disruption to functioning of capital markets

Multiple events during 2008 and 2009 involving numerous financial institutions have effectively restricted current liquidity within the capital markets throughout the United States and around the world. Despite efforts by treasury and banking regulators in the United States, Europe and other nations around the world to provide liquidity to the financial sector, capital markets currently remain constrained, particularly for non-investment grade midstream companies like Hiland. We expect that ours and Hiland Partners' ability to raise debt and equity at prices that are similar to offerings in recent years to be limited over the next three to six months and possibly longer should capital markets remain constrained.

Overview of Hiland Holdings

We are a Delaware limited partnership formed in May 2006 to own Hiland Partners GP, LLC, the general partner of Hiland Partners, and certain other common and subordinated units in Hiland Partners. We reflect our ownership interest in Hiland Partners on a consolidated basis, which means that our financial results are combined with Hiland Partners' financial results. The noncontrolling partners' interest in income (loss) of Hiland Partners is reflected as an equity amount of consolidated net income (loss) attributable to the noncontrolling partners' interest on our consolidated statements of operations and the ownership interests of the noncontrolling partners' interest in Hiland Partners is presented within the equity section of our consolidated balance sheets. Hiland Partners GP, LLC's results of operations principally reflect the results of operations of Hiland Partners and are adjusted for noncontrolling partners' interests in Hiland Partners' net income (loss).

Our cash generating assets consist of our direct or indirect ownership interests in Hiland Partners. Hiland Partners is principally engaged in purchasing, gathering, compressing, dehydrating, treating, processing and marketing of natural gas, fractionating and marketing of NGLs and providing air compression and water injection services for oil and gas secondary recovery operations. Our aggregate ownership interests in Hiland Partners consist of the following:

• 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.

Hiland Partners is required by its partnership agreement to distribute all of its cash on hand at the end of each quarter, after establishing reserves to provide for the proper conduct of its business or to provide funds for future distributions. If commodity and inlet natural gas volumes do not improve above the current forward prices and expected inlet natural gas volumes for the fourth quarter of 2009, Hiland Partners could be in violation of the maximum consolidated funded debt to EBITDA covenant ratio as early as December 31, 2009, unless this ratio is amended, Hiland Partners receives an infusion of equity capital, Hiland Partners' debt is restructured or Hiland Partners is able to monetize "in-the-money" hedge positions. Management is continuing discussions with certain lenders under the credit facility as to ways to address a potential covenant violation. While no potential solution has been agreed to, Hiland Partners expects that any solution will require the assessment of fees and increased rates, the infusion of additional equity capital or the incurrence of subordinated indebtedness by Hiland Partners and the suspension of distributions for a certain period of time. There can be no assurance that any such agreement will be reached with the lenders, , that any required equity or debt financing will be available to Hiland Partners, or that Hiland Partners will have sufficient "in-the-money" hedges to monetize to address the maximum consolidated funded debt to EBITDA covenant ratio.

Cash Distributions. Hiland Partners has suspended quarterly cash distributions on its common and subordinated units beginning with the first quarter distribution of 2009 due to the impact of lower commodity prices and reduced drilling activity on Hiland Partners' current and projected throughput volumes, midstream segment margins and cash flows combined with future required levels of capital expenditures and the outstanding indebtedness under Hiland Partners' senior secured revolving credit facility. Under the terms of the Hiland Partners partnership agreement, the Hiland Partners common units carry an arrearage of $1.35 per unit, representing the minimum quarterly distribution to the Hiland Partners common units for the first three quarters of 2009 that must be paid before Hiland Partners can make distributions to the Hiland Partners subordinated units. We own 3,060,000 of the Hiland Partners subordinated units which will not receive a cash distribution until the distribution arrearage to the Hiland Partners common units is paid. The following table presents Hiland Partners' distributions paid to us on November 14, 2008 for the three and nine months ended September 30, 2008.

                                                              Three Months        Nine Months
                                                                 Ended               Ended
                                                             September 30,       September 30,
Hiland Partner's Distributions                                    2008                2008

Common units                                                 $        2,003      $        4,115
Subordinated units                                                    2,639               9,258
Ownership interest in Hiland Partners' general partner                  208                 584
General partners' incentive distribution rights                       2,107               5,388

                                                             $        6,957      $       19,345

Because we own Hiland Partners GP, LLC, the distributions to us include the distributions made to Hiland Partners GP, LLC.

Overview of Hiland Partners

Hiland Partners is engaged in purchasing, gathering, compressing, dehydrating, treating, processing and marketing of natural gas, fractionating and marketing of NGLs, and providing air compression and water injection services for oil and gas secondary recovery operations. Hiland Partners' operations are primarily located in the Mid-Continent and Rocky Mountain regions of the United States.

Hiland Partners manages its business and analyzes and reports its results of operations on a segment basis. Hiland Partners' operations are divided into two business segments:

• 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.

Hiland Partners' midstream assets currently consist of 15 natural gas gathering systems with approximately 2,160 miles of gas gathering pipelines, six natural gas processing plants, seven natural gas treating facilities and three NGL fractionation facilities. Hiland Partners' compression assets consist of two air compression facilities and a water injection plant.

Hiland Partners' results of operations are determined primarily by five interrelated variables: (1) the volume of natural gas gathered through its pipelines; (2) the volume of natural gas processed; (3) the volume of NGLs fractionated; (4) the levels and relationship of natural gas and NGL prices; and
(5) Hiland Partners' current contract portfolio. Because Hiland Partners' profitability is a function of the difference between the

revenues it receives from its operations, including revenues from the products it sells, and the costs associated with conducting its operations, including the costs of products it purchases, increases or decreases in Hiland Partners' revenues alone are not necessarily indicative of increases or decreases in its profitability. To a large extent, Hiland Partners' contract portfolio, the pricing environment for natural gas and NGLs and the price of NGLs relative to natural gas prices will dictate increases or decreases in its profitability. Hiland Partners' profitability is also dependent upon prices and market demand for natural gas and NGLs, which fluctuate with changes in market and economic conditions and other factors.

Recent Events

Merger Agreements. On November 3, 2009, the Partnership amended its merger agreement with affiliates of Harold Hamm, pursuant to which Mr. Hamm's affiliates had agreed to acquire all of the outstanding common units of the Partnership (other than certain restricted common units owned by officers and employees) not owned by Mr. Hamm, his affiliates or the Hamm family trusts. The amendment increased the consideration payable to common unitholders of the Partnership from $2.40 to $3.20 per common unit and extended the end date under the merger agreement to December 11, 2009. On the same day, Hiland Partners amended its merger agreement with affiliates of Harold Hamm, pursuant to which Mr. Hamm's affiliates had agreed to acquire all of the outstanding common units of Hiland Partners (other than certain restricted common units owned by officers and employees) not owned by the Partnership. The amendment increased the consideration payable to common unitholders of Hiland Partners from $7.75 to $10.00 per common unit and extended the end date under the merger agreement to December 11, 2009.

Each of the Hiland companies had previously amended the respective merger agreement between that Hiland company and affiliates of Harold Hamm on October 26, 2009 to extend the end date under the merger agreement from November 1 to November 6. Those amendments were to provide the boards of directors and conflicts committees of each of the Hiland companies additional time to consider the proposals made by Harold Hamm in letters delivered to the conflicts committees on October 26, 2009, to increase the consideration payable to common unitholders of the Partnership and Hiland Partners under the respective merger agreements.

Term Promissory Note. On November 3, 2009, we entered into a $1.5 million term promissory note agreement with Harold Hamm, Chairman of our general partner and, together with affiliates of Mr. Hamm, majority owner of the Partnership. The note agreement matures on December 31, 2009, at which time all outstanding amounts thereunder become due and payable. The note agreement is secured by all of our ownership interests in Hiland Partners and its general partner, other than the 2% general partner interest and the incentive distribution rights, but is subordinate in security to the first amended and restated senior secured credit agreement. Indebtedness under the note agreement bears interest at the prime rate plus 1% per annum, but in no event less than 5% per annum.

Hedging Transactions. On October 1, 2009, Hiland Partners entered into a financial swap agreement related to forecasted natural gas sales in 2010 whereby Hiland Partners receives a fixed price and pays a floating price based on NYMEX Henry Hub pricing for the relevant contract period as the underlying natural gas is sold. This swap agreement with BP Energy Company replaces a previous swap agreement Hiland Partners entered into with Bank of Oklahoma, N.A. on May 27, 2008. The terms of the new swap agreement are identical to the May 27, 2008 swap agreement.

SEC Filings. The Partnership and Hiland Partners intend to file with the SEC a supplement to the definitive joint proxy statement on Schedule 14A, which, upon clearance by the SEC, the Hiland companies intend to mail to all holders of record of the Hiland companies as of September 9, 2009, the record date for the special meetings.

Concurrently with the filing of the supplement to the joint proxy statement,
(i) the Partnership, our general partner, Hiland Partners and its general partner, HH GP Holding, LLC, an affiliate of Harold Hamm, HLND MergerCo, LLC, a wholly-owned subsidiary of HH GP Holding, LLC, Harold Hamm, Chairman of the Hiland Companies, Joseph L. Griffin, Chief Executive Officer and President of the Hiland Companies, and Matthew S. Harrison, Chief Financial Officer, Vice President - Finance and Secretary of the Hiland

Companies will file Amendment No. 7 to their Transaction Statement on Schedule 13E-3 with the SEC and (ii) the Partnership, our general partner, HH GP Holding, LLC, HPGP MergerCo, LLC, Continental Gas Holdings, Inc. (an affiliate of Mr. Hamm) and Messrs. Hamm, Griffin and Harrison will file Amendment No. 7 to their Transaction Statement on Schedule 13E-3 with the SEC.

The definitive joint proxy statement on Schedule 14A was filed with the SEC on September 11, 2009 and first mailed to unitholders on or around September 16, 2009.

Distributions. We and Hiland Partners have suspended quarterly cash distributions on common and subordinated units beginning with the first quarter distribution of 2009 due to the impact of lower commodity prices and reduced drilling activity on Hiland Partners current and projected throughput volumes, midstream segment margins and cash flows combined with future required levels of capital expenditures and the outstanding indebtedness under ours and Hiland Partners' senior secured revolving credit facilities. Under the terms of Hiland Partners' partnership agreement, Hiland Partners' common units will carry an arrearage of $1.35 per unit, representing the minimum quarterly distribution to its common units for the first three quarters of 2009 that must be paid before Hiland Partners' can make distributions to the subordinated units.

Credit Facility. Pursuant to the terms of our existing credit agreement, we elected to reduce the commitment level on the credit facility from $10.0 million to $3.0 million on August 7, 2009. Concurrently with the reduction of the commitment level to $3.0 million, the existing lenders under the credit facility assigned their interests in the facility to a new lender and we entered into a first amended and restated senior secured credit agreement with The Security National Bank of Enid. The credit facility is secured by all of our ownership interests in Hiland Partners and its general partner, other than the 2% general partner interest and the incentive distribution rights. The credit facility will mature on December 31, 2009, at which time the $3.0 million outstanding amount thereunder becomes due and payable.

Historical Results of Operations

Our historical results of operations for the periods presented may not be comparable, either from period to period or going forward primarily due to significantly decreased natural gas and NGL sales prices, volumes at the North Dakota Bakken gathering system, which commenced operations in April 2009, and increased volumes and operating expenses at the Woodford Shale and Badlands gathering systems.

Our Results of Operations

The following table presents a reconciliation of the non-GAAP financial measure of total segment margin (which consists of the sum of midstream segment margin and compression segment margin) to operating income on a historical basis for each of the periods indicated. We view total segment margin, a non-GAAP financial measure, as an important performance measure of the core profitability of our operations because it is directly related to our volumes and commodity price changes. We review total segment margin monthly for consistency and trend analysis. We define midstream segment margin as midstream revenue less midstream purchases. Midstream revenue includes revenue from the sale of natural gas, NGLs and NGL products resulting from Hiland Partners' gathering, treating, processing and fractionation activities and fixed fees associated with the gathering of natural gas and the transportation and disposal of saltwater. Midstream purchases include the cost of natural gas, condensate and NGLs purchased by Hiland Partners from third parties, the cost of natural gas, condensate and NGLs purchased by Hiland Partners from affiliates, and the cost of crude oil purchased by Hiland Partners from third parties. We define compression segment margin as the revenue derived from Hiland Partners' compression segment. Total segment margin may not be comparable to similarly titled measures of other companies as other companies may not calculate total segment margin in the same manner.

The results of our operations discussed below principally reflect the activities of Hiland Partners. Because our consolidated financial statements include the results of Hiland Partners, our financial statements are substantially similar to the financial statements of Hiland Partners. However, the noncontrolling partners' interest in income (loss) of Hiland Partners is reflected as an equity amount of consolidated net income (loss) attributable to the noncontrolling limited partners' interest on our consolidated statements of operations and

the ownership interests of the noncontrolling partners' interest in Hiland Partners is presented within the equity section of our consolidated balance sheets. The noncontrolling partners' interest in Hiland Partners is not reflected on Hiland Partners' consolidated financial statements.

Set forth in the tables below are certain financial and operating data for the periods indicated.

                                                                           Three Months Ended
                                                                              September 30,
                                                                          2009             2008
                                                                             (In thousands)

Total Segment Margin Data:
Midstream revenues                                                     $   53,641       $  114,548
Midstream purchases                                                        30,266           81,895

Midstream segment margin                                                   23,375           32,653
Compression revenues(1)                                                     1,205            1,205

Total segment margin(2)                                                $   24,580       $   33,858

Summary of Operations Data:
Midstream revenues                                                     $   53,641       $  114,548
Compression revenues                                                        1,205            1,205

Total revenues                                                             54,846          115,753
Midstream purchases (exclusive of items shown separately below)            30,266           81,895
Operations and maintenance                                                  7,736            7,881
Depreciation, amortization and accretion                                   10,758            9,842
Property impairments                                                       20,500                -
Bad debt                                                                        -           (7,799 )
General and administrative                                                  3,217            2,597

Total operating costs and expenses                                         72,477           94,416

Operating (loss) income                                                   (17,631 )         21,337
Other income (expense), net                                                (2,900 )         (3,349 )

Net (loss) income                                                         (20,531 )         17,988
Less: Noncontrolling partners' interest in income of Hiland Partners       (8,152 )          6,800
Limited partners' interest in net (loss) income                        $  (12,379 )     $   11,188

Hiland Partners Operating Data:
Inlet natural gas (Mcf/d)                                                 257,950          261,345
Natural gas sales (MMBtu/d)                                                86,979           95,889
NGL sales (Bbls/d)                                                          7,115            6,036

                                                                       Nine Months Ended
                                                                         September 30,
                                                                     2009             2008
                                                                        (In thousands)

Total Segment Margin Data:
Midstream revenues                                                $  153,658       $  319,058
Midstream purchases                                                   88,481          238,586

Midstream segment margin                                              65,177           80,472
Compression revenues(1)                                                3,615            3,615

Total segment margin(2)                                           $   68,792       $   84,087

Summary of Operations Data:
Midstream revenues                                                $  153,658       $  319,058
Compression revenues                                                   3,615            3,615

Total revenues                                                       157,273          322,673
Midstream purchases (exclusive of items shown separately below)       88,481          238,586
Operations and maintenance                                            23,216           22,201
. . .