The following discussion and analysis of the financial condition and results of operations of PVR Partners, L.P. and its subsidiaries (the "Partnership," "we," "us" or "our") should be read in conjunction with our Consolidated Financial Statements and Notes thereto included in Item 8. All dollar amounts presented in the tables that follow are in thousands unless otherwise indicated.

Overview of Business

We are a publicly traded Delaware limited partnership that is principally engaged in the gathering and processing of natural gas and the management of coal and natural resource properties in the United States. We currently conduct operations in three business segments which are as follows:

• Eastern Midstream - Our Eastern Midstream segment is engaged in providing natural gas gathering, and other related services in Pennsylvania and West Virginia. In addition, we own membership interests in a joint venture that transports fresh water to natural gas producers.

• Midcontinent Midstream - Our Midcontinent Midstream segment is engaged in providing natural gas processing, gathering services, and other related services. In addition, we own membership interests in a joint venture that gathers and transports natural gas. These processing and gathering systems are located primarily in Oklahoma and Texas.

• Coal and Natural Resource Management - Our Coal and Natural Resource Management segment primarily involves the management and leasing of coal properties and the subsequent collection of royalties. We also earn revenues from other land management activities, such as selling standing timber, leasing coal-related infrastructure facilities and collecting oil and gas royalties.

Our operating income (loss) was $(4.6) million in 2012, compared to $153.6 million in 2011 and $121.6 million in 2010. In 2012, our Eastern Midstream segment contributed $25.4 million to our operating income, our Midcontinent Midstream segment reduced operating income by $(101.9) million, and our Coal and Natural Resource Management segment contributed $71.9 million to operating income.

Eastern Midstream Segment Overview

As of December 31, 2012, we owned and operated natural gas midstream assets located in Pennsylvania and West Virginia including approximately 134 miles of natural gas gathering pipelines, 83 miles of natural gas trunkline pipelines, and 42 miles of fresh water pipelines. Our Eastern Midstream segment earns revenues primarily from fees charged to producers for natural gas gathering, compression and other related services. During 2010, we began construction of gathering systems in Wyoming and Lycoming Counties in Pennsylvania. In June 2010, we commenced operations on the Wyoming County system, which consists of 72 miles of gathering pipelines. In February 2011, we commenced operations on the first phase of the Lycoming County system. In April 2011, we also began construction on the second phase of the Lycoming County system, a portion of which became operational in the fourth quarter of 2011. In April of 2012, we began construction on the third phase of the Lycoming County system, which became operational by the end of the year. The Lycoming County system consists of 53 miles of 30- inch trunkline. In May of 2012, we completed the acquisition of Chief Gathering LLC, adding 120 miles of gathering pipelines, 350 MMcfd of capacity and over 300,000 dedicated acres in the Marcellus Shale to the Eastern Midstream segment. In the fourth quarter of 2012, we commenced operation of Wyoming Pipeline, which consists of 30 miles of 24-inch diameter natural gas trunkline. Construction and development to provide gathering, compression and related services in Lycoming and Wyoming Counties are ongoing.

In 2012, average gathered volumes on our Eastern Midstream systems were approximately 389 MMcfd, while our average trunkline volumes were approximately 197 MMcfd. These average flow rates have increased from 2011 average gathered volumes of 74 MMcfd and average trunkline volumes of 40 MMcfd. A significant volume of gas flows through both gathering and trunkline systems. The annual increase in volumes is attributed to both the Chief Acquisition and completion of internal growth projects. Gathered and trunkline volumes for the quarter ended March 31, 2012 were 210 MMcfd and 92 MMcfd, respectively. Compared with gathered and trunkline volumes of 562 MMcfd and 405 MMcfd, respectively, for the quarter ended December 31, 2012.

In September 2011, we entered into a joint venture to construct and operate a pipeline system to supply fresh water to natural gas producers drilling in the Marcellus Shale in Pennsylvania. The 12-inch diameter steel pipeline will largely parallel the trunkline of our existing gathering system in Lycoming County. Phases I and II of the water pipeline were placed into service in early 2012. Phase III is nearing completion and will be in service during the first quarter of 2013. A new three MMgpd pump station was commissioned in December 2012. The new pump station included a high capacity water intake on the West Branch of the Susquehanna River. As of December 31, 2012, our cumulative contributions to the joint venture were $41.0 million.

We continually seek new supplies of natural gas both to offset the natural declines in production from the wells currently connected to our systems and to increase system throughput volumes. New natural gas supplies are obtained for all of our systems by contracting for production from new wells, connecting new wells drilled on dedicated acreage and contracting for natural gas that has been released from competitors' systems. In 2012, our Eastern Midstream natural gas segment made aggregate capital expenditures of $1.5 billion, primarily related to the Chief Acquisition and our expansion of the Marcellus Systems due to growth opportunities in those areas.

Midcontinent Midstream Segment Overview

As of December 31, 2012, we owned and operated natural gas midstream assets located in Oklahoma and Texas including six natural gas processing facilities having 460 MMcfd of total capacity and approximately 4,541 miles of natural gas gathering pipelines. Our Midcontinent Midstream natural gas business earns revenues primarily from gas processing contracts with natural gas producers and from fees charged for gathering natural gas volumes and providing other related services. In addition, we are a partner in a joint venture that gathers natural gas. We also own a natural gas marketing business, which aggregates third-party volumes and sells those volumes into interstate and intrastate pipeline systems and at market hubs accessed by various interstate pipelines.

System throughput volumes at our gas processing plants and gathering systems, including gathering only volumes, were approximately 432 MMcfd in 2012, compared to 421 MMcfd in 2011.

We continually seek new supplies of natural gas both to offset the natural declines in production from the wells currently connected to our systems and to increase system throughput volumes. New natural gas supplies are obtained for all of our systems by contracting for production from new wells, connecting new wells drilled on dedicated acreage and contracting for natural gas that has been released from competitors' systems. In 2012, Midcontinent Midstream natural gas segment made aggregate capital expenditures of $132.6 million, primarily related to our expansion of the Panhandle System due to growth opportunities in those areas.

Coal and Natural Resource Segment Overview

As of December 31, 2012, we owned or controlled approximately 871 million tons of proven and probable coal reserves in Central and Northern Appalachia, the Illinois Basin and the San Juan Basin. We enter into long-term leases with experienced, third-party mine operators, providing them the right to mine our coal reserves in exchange for royalty payments. We actively work with our lessees to develop efficient methods to exploit our reserves and to maximize production from our properties. We do not operate any mines. In 2012, our lessees produced 30.2 million tons of coal from our properties and paid us coal royalties revenues of $114.1 million, for an average royalty per ton of $3.78. Approximately 75% of our coal royalties revenues in 2012 was derived from coal mined on our properties under leases containing royalty rates based on the higher of a fixed base price or a percentage of the gross sales price. The balance of our coal royalties revenues for the respective periods was derived from coal mined on our properties under leases containing fixed royalty rates that escalate annually.

Coal royalties are impacted by several factors that we generally cannot control. The number of tons mined annually is determined by an operator's mining efficiency, labor availability, geologic conditions, access to capital, ability to market coal and ability to arrange reliable transportation to the end-user. Legislation or regulations have been or may be adopted which may have a significant impact on the mining operations of our lessees or their customers' ability to use coal and which may require us, our lessees or our lessees' customers to change operations significantly or incur substantial costs. See Item 1A, "Risk Factors."

To a lesser extent, coal prices also impact coal royalties revenues. Generally, as coal prices change over an extended period of time, our average royalty per ton may change as the majority of our lessees pay royalties based on the gross sales prices of the coal mined. However, most of our lessees' coal is sold under contracts with a duration of one year or more; therefore, the underlying prices for our royalties are less susceptible to short-term volatility in coal prices and prices change primarily as our lessees' long-term contracts are renegotiated.

We also earn revenues from other land management activities, such as selling standing timber, leasing fee-based coal-related infrastructure facilities to certain lessees and end-user industrial plants, collecting oil and gas royalties and from coal transportation, or wheelage, fees.

Key Developments

Eastern Midstream Segment

On May 17, 2012, we purchased the membership interests of Chief Gathering ("Chief Gathering") from Chief E&D Holdings LP, for a purchase price of approximately $1.0 billion ("Chief Acquisition"), payable in a combination of $849.3 million in cash and fair value of $191.3 million in a new class of limited partner interests in us ("Special Units"). The Special Units are substantially similar to our common units except that we will neither pay nor accrue distributions on the Special Units for six consecutive quarters following their issuance. The Special Units automatically convert to common units, on a one-for one basis, on the first business day after the record date for distributions with respect to the quarter ending September 30, 2013. The Special Units are subject to early conversion by us or a holder of Special Units in connection with certain events. See Note 6 "PVR Unit Offerings" in the Notes to the Consolidated Financial Statements for a description of the conversion rights and distribution rights applicable to the Special Units.

Chief Gathering owned and operated six natural gas gathering systems serving over 300,000 dedicated acres in the Marcellus Shale, located in the north central Pennsylvania counties of Lycoming, Bradford, Susquehanna, Sullivan, Wyoming and Greene and in Preston County, West Virginia. This transaction resulted in a major expansion of our pipeline systems in our Eastern Midstream segment.

We financed the cash portion of the purchase price for the Chief Acquisition through a combination of equity and debt. In May 2012, we received (i) $400 million in cash related to the sale of Class B Units to Riverstone V PVR Holdings, L.P. and Riverstone Global Energy and Power Fund V (FT), L.P., representing a new class of limited partner interests in us, and (ii) $180 million in cash related to the sale of common units to institutional investors in a private placement. We used the proceeds from the sale of the Class B Units and the common units to fund a portion of the cash purchase price for the Chief Acquisition. The remainder of the purchase price was funded by a portion of the $600 million of senior notes issued in a private placement in May 2012. See Note
6 "PVR Unit Offerings" in the Notes to the Consolidated Financial Statements for a description of the conversion rights and distribution rights applicable to the Class B Units.

In the fourth quarter of 2012, we completed construction and commenced commercial operation of a 30-mile long, 24 inch diameter natural gas trunkline serving Marcellus Shale producers in Pennsylvania. The pipeline has a capacity of 750 million cubic feet per day and extends from northern Wyoming County southward to a new connection in Luzerne County with Transco's interstate pipeline system. We have long term fee-based agreements with five producers for transportation service on the pipeline.

Midcontinent Midstream Segment

During 2012, we completed construction of and placed into service the Antelope Hills processing facility. Phase I expansion of the facility was completed in March bringing inlet capacity to 80 MMcfd. Phase II expansion of the same facility was completed in June bringing the total inlet capacity of the Antelope Hills plant to 140 MMcfd. This addition to the Panhandle System enables us to meet our current and expected future processing requirements in this area. We are also improving the connectivity between our Antelope Hills, Beaver and Sweetwater plants to enable us to better utilize our Panhandle processing capabilities and better serve the growing needs of the area producers, including those in the Granite Wash.

During the first quarter of 2012, we recognized a $124.8 million impairment charge related to our tangible and intangible natural gas gathering assets located in the southern portion of the Fort Worth Basin of north Texas (the "North Texas Gathering System"). This impairment was triggered by continuing market declines of natural gas prices and lack of drilling in the area. The North Texas Gathering System represented a de minimis amount of our consolidated total revenues.

On July 3, 2012, we completed the sale of our Crossroads natural gas gathering system and processing plant (the "Crossroads Sale") for net proceeds of $62.3 million. The Crossroads system, located in the southeastern portion of Harrison County in east Texas, includes approximately eight miles of gas gathering pipeline, an 80 MMcfd cryogenic processing plant, approximately 20 miles of NGL pipeline, and a 50% ownership in an approximately 11-mile gas pipeline. A gain on sale of assets of $31.3 million was recognized.

During the fourth quarter of 2012, we recognized an $8.7million impairment charge related to our 25% membership interest in the Thunder Creek joint venture located in Wyoming's Powder River basin. The intangible assets related to this joint venture were written down to zero. This impairment was triggered by continuing market declines of natural gas prices, lack of coalbed methane drilling in the area and other market factors. Our share of the joint venture earnings, net of intangible amortization and exclusive of the impairment charge, for the year ended December 31, 2012 were $1.1 million, $2.5 million in 2011 and $6.0 million in 2010. Our share of the distributions from the joint venture for the same years was $1.9 million in 2012, $8.2 million in 2011 and $7.0 million in 2010.

Coal and Natural Resource Management Segment

On January 25, 2011, we acquired certain mineral rights and associated oil and gas royalty interests in Kentucky and Tennessee for approximately $95.7 million. The mineral rights included approximately 67.7 million tons of coal reserves. The coal is primarily steam coal and expands our geographic scope in the Central Appalachia coal region.

2012 Commodity Prices

The average commodity prices for natural gas, NGLs, condensate and crude oil decreased in 2012 from levels experienced in 2011. Revenues, profitability and the future rate of growth of our Midcontinent Midstream segment is highly dependent on market demand and prevailing NGL and natural gas prices. NGL and natural gas prices have been subject to significant volatility in recent years in response to changes in the supply and demand for NGL products and natural gas. This volatility is somewhat mitigated by the growing fee-based business in the Eastern Midstream segment. We continually monitor commodity prices and when it appears opportunistic, we may choose to use derivative financial instruments to hedge NGLs sold and natural gas purchased. As of December 31, 2012, we had no open derivative positions hedging commodity prices. In January 2013, we entered into a crude oil swap to hedge condensate volumes. The term of the swap covers February 2013 through December 2013, the notional amount is 500 barrels per day at a swap price of $94.80 per barrel.

Coal royalties, which accounted for 84% of the Coal and Natural Resource Management segment revenues for year ended December 31, 2012, were lower compared to 2011. The decrease was attributed to reduced demand for coal from our lessees' customers due to the mild winter and lower natural gas prices.

PVR Equity Issuance

In November 2012, we issued 7.5 million common units representing limited partner interests in PVR in a registered public offering. Total net proceeds of approximately $165.7 million were used to repay a portion of the Revolver.

Results of Operations

Consolidated Review

The following table presents summary consolidated operating results for the
periods presented:



                                                          Year Ended December 31,
                                                 2012                2011               2010
Revenues                                     $  1,007,754        $  1,159,975        $  864,136
Expenses                                       (1,012,351 )        (1,006,404 )        (742,551 )

Operating income (loss)                            (4,597 )           153,571           121,585
Other income (expense)                            (66,025 )           (57,228 )         (57,398 )

Net income (loss)                                 (70,622 )            96,343            64,187
Net loss (income) attributable to
noncontrolling interests, pre-merger                   -                  664           (27,043 )

Net income (loss) attributable to PVR
Partners, L.P.                               $    (70,622 )      $     97,007        $   37,144

Eastern Midstream Segment

Year Ended December 31, 2012 Compared With Year Ended December 31, 2011

The following table sets forth a summary of certain financial and other data for
our Eastern Midstream segment and the percentage change for the periods
presented:




                                        Year Ended December 31,                                    % Change
                                                                            Favorable              Favorable
                                         2012              2011           (Unfavorable)          (Unfavorable)
Financial Highlights
Revenues
Gathering fees                       $     46,975        $   8,716       $        38,259                    439 %
Trunkline fees                             47,002           17,454                29,548                    169 %
Other                                       5,373               -                  5,373                    N/A

Total revenues                             99,350           26,170                73,180                    280 %


Expenses
Operating                                   7,332            1,499                (5,833 )                 (389 %)
General and administrative                  9,854            1,238                (8,616 )                 (696 %)
Acquisition related costs                  14,049               -                (14,049 )                  N/A
Depreciation and amortization              42,713            4,243               (38,470 )                 (907 %)

Total operating expenses                   73,948            6,980               (66,968 )                 (959 %)


Operating income                     $     25,402        $  19,190       $         6,212                     32 %


Operating Statistics
Gathered volumes (MMcfd)                      389               74                   315                    426 %
Trunkline volumes (MMcfd)                     197               40                   157                    393 %

Revenues

Gathering and trunkline fees have increased due to the significant increase in volumes. The volume growth and related revenue growth reflects the expansion of business on our existing Lycoming and Wyoming systems, as well as the acquisition of Chief Gathering LLC. In February 2011, we commenced operations on the first phase of the Lycoming County system. In April 2011, we also began construction on the second phase of the Lycoming County system, a portion of which became operational in the fourth quarter of 2011. In April of 2012, we began construction on the third phase of the Lycoming County system, which became operational by the end of the year. The Lycoming County system consists of 53 miles of 30- inch trunkline. In May of 2012, we completed the acquisition of Chief Gathering LLC, adding 120 miles of gathering pipelines, 350 MMcfd of capacity and over 300,000 dedicated acres in the Marcellus Shale to the Eastern Midstream segment. In the fourth quarter of 2012, we commenced operation of Wyoming Pipeline, which consists of 30 miles of 24-inch diameter natural gas trunkline.

Other revenue primarily represented operations from our investment in a joint venture. In September 2011, we entered into a joint venture to construct and operate a pipeline system to supply fresh water to natural gas producers drilling in the Marcellus Shale region. The initial 12 mile section of the water line became operational in March 2012 and water line expansion in conjunction with construction of Phase III of our Lycoming system. In addition, we receive a fee for managing certain projects of the joint venture and an accounting services fee. The fees recognized in revenues were after intercompany eliminations.

Expenses

Consistent with the increase in revenues, operating expenses for the segment increased primarily due to expansion projects and the Chief Acquisition.

General and administrative expenses increased due to the addition of management and operational personnel in our Williamsport, Pennsylvania office, increased equity compensation and corporate overhead. We added the Eastern Midstream segment in the second quarter of 2012 due to the Chief Acquisition and our expansion activities in Pennsylvania. As a result of the acquisition and expansion, the new segment assumed a greater portion of the corporate overhead allocation.

Acquisition costs increased due to the one-time expenses of the Chief Acquisition, which included investment banking, legal and due diligence fees and expenses.

Depreciation and amortization expenses increased primarily due to acquisitions and capital expansions.

Year Ended December 31, 2011 Compared With Year Ended December 31, 2010

The following table sets forth a summary of certain financial and other data for
our Eastern Midstream segment and the percentage change for the periods
presented:




                                         Year Ended December 31,                                     % Change
                                                                              Favorable              Favorable
                                          2011               2010           (Unfavorable)          (Unfavorable)
Financial Highlights
Revenues
Gathering fees                       $        8,716        $     507       $         8,209                   1619 %
Trunkline fees                               17,454              118                17,336                  14692 %

Total revenues                               26,170              625                25,545                   4087 %


Expenses
Operating                                     1,499              212                (1,287 )                 (607 %)
General and administrative                    1,238               -                 (1,238 )                  N/A
Depreciation and amortization                 4,243              384                (3,859 )                (1005 %)

Total operating expenses                      6,980              596                (6,384 )                (1071 %)


Operating income                     $       19,190        $      29       $        19,161                  66072 %


Operating Statistics
Gathered volumes (MMcfd)                         74               10                    64                    640 %
Trunkline volumes (MMcfd)                        40               -                     40                    N/A

Revenues

During 2010, we began construction of gathering systems in Wyoming and Lycoming Counties in Pennsylvania. We have completed initial construction of 12-inch gas gathering pipelines in Wyoming County and began gathering natural gas on the system in June 2010. In February 2011, we commenced operations on the first phase of the Lycoming County system. In April 2011, we also began construction on the second phase of the Lycoming County system, a portion of which became operational in the fourth quarter of 2012. Construction and development to provide gathering, compression and related services in Lycoming and Wyoming Counties is ongoing. The increase in revenues is due to increased reservation fees on the trunkline pipelines and volumes gathered on the expanded and completed projects in the Marcellus Shale area.

Expenses

Operating expenses increased due to our expansion projects. The related costs of these facilities included increased costs of labor, supplies and property tax.

General and administrative expenses increased due to the establishment of a management team and an office in Williamsport, Pennsylvania. Labor and related benefit costs accounted for the majority of the increase.

Depreciation and amortization expenses increased primarily due to capital expansions.

Midcontinent Midstream Segment

Year Ended December 31, 2012 Compared With Year Ended December 31, 2011

The following table sets forth a summary of certain financial and other data for
our Midcontinent Midstream segment and the percentage change for the periods
presented:



                                        Year Ended December 31,              Favorable              % Change
                                         2012               2011           (Unfavorable)          (Unfavorable)
Financial Highlights
Revenues
. . .