Overview

Our Management's Discussion and Analysis (MD&A) should be read in conjunction with our consolidated financial statements and the accompanying footnotes. Our MD&A includes forward-looking statements that are subject to risks and uncertainties (described further in Part I, Item 1A. Risk Factors) that may result in actual results differing from the statements we make.

Listed below is a general outline of our MD&A:

• Business and Performance Metrics

• Current Year Highlights

• Results of Operations

• Liquidity and Capital Resources

• Off Balance Sheet Arrangements and Contractual Obligations

• Critical Accounting Estimates

Business and Performance Metrics

We are a growth-oriented midstream master limited partnership which owns and operates predominately fee-based gathering, processing, treating and compression assets servicing natural gas producers in the Barnett Shale in north Texas, the Fayetteville Shale in northwestern Arkansas, the Granite Wash in the Texas Panhandle, the Marcellus Shale in northern West Virginia, the Avalon Shale/Bone Spring in southeastern New Mexico, and the Haynesville/Bossier Shale in western Louisiana. We provide midstream services to various producers that focus on developing unconventional resources across the United States. Our largest producer is Quicksilver Resources Inc. (Quicksilver). For the years ended December 31, 2012, 2011, and 2010, Quicksilver's production volumes accounted for 48%, 59% and 86% of our total revenues. We also gather certain natural gas volumes that Quicksilver purchases from Eni SpA, which comprised 5%, 5% and 7% of our total revenues for the years ended December 31, 2012, 2011 and 2010.

We conduct all of our operations in the midstream sector in eight operating segments, four of which are reportable. Our operating segments reflect how we manage our operations and are generally reflective of the geographic areas in which we operate. Our reportable segments consist of Barnett, Fayetteville, Granite Wash and Marcellus. Our operating segments are engaged in gathering, processing, treating, compression, transportation and sales of natural gas and delivery of NGLs in the United States.

The results of our operations are significantly influenced by the volumes of natural gas gathered and processed through our systems. We gather, process, treat, compress, transport and sell natural gas pursuant to fixed-fee and percent-of-proceeds contracts. Under our fixed-fee contracts, we do not take title to the natural gas or associated NGLs. For the year ended December 31, 2012, approximately 98% of our gross margin, which we define as total revenue less product purchases, is derived from fixed-fee service contracts, which minimizes our commodity price exposure and provides us with less volatile operating performance and cash flows. Under our percent-of-proceeds contracts, we take title to the residue gas, NGLs and condensate and remit a portion of the sale proceeds to the producer based on prevailing commodity prices. For the year ended December 31, 2012, revenues from percent-of-proceeds contracts accounted for approximately 2% of our gross margin.

Although we do not have significant direct commodity price exposure, lower natural gas prices could have a potential negative impact on the pace of drilling in dry gas areas - such as areas in the Barnett Shale (gathered by the Alliance and Lake Arlington Systems), the Fayetteville Systems and the Sabine System (part of the Haynesville/Bossier Shale). We operate five systems located in basins that include NGL rich gas shale plays:

(i) the Cowtown System; (ii) the Granite Wash System; (iii) the Las Animas Systems; and (iv) two systems acquired by Crestwood Marcellus Midstream LLC (CMM, our unconsolidated affiliate), in the Marcellus segment. For the year ended December 31, 2012, our consolidated systems (i.e., excluding CMM) located in NGL rich gas basins contributed approximately 56% of our total revenues and 32% of our total gathering volumes. For the year ended December 31, 2012, our consolidated and unconsolidated systems that we operate located in NGL rich gas basins (i.e., including 100% of CMM's results), when combined, would have contributed approximately 61% of our total consolidated and unconsolidated revenues and 51% of total consolidated and unconsolidated gathering volumes. A prolonged decrease in the commodity price environment could result in our customers reducing their production volumes which would result in a decrease in our revenues.

Our management uses a variety of financial and operational measures to analyze our performance. We view these measures as important factors affecting our profitability and unitholder value and therefore we review them monthly for consistency and to identify trends in our operations. These performance measures are outlined below.

Volumes - We must continually obtain new supplies of natural gas to maintain or increase throughput volumes on our gathering and processing systems. We routinely monitor producer activity in the areas we serve to identify new supply opportunities. Our ability to achieve these objectives is impacted by:

• the level of successful drilling and production activity in areas where our systems are located;

• our ability to compete with other midstream companies for production volumes; and

• our pursuit of new acquisition opportunities.

Operations and Maintenance Expenses - We consider operations and maintenance expenses in evaluating the performance of our operations. These expenses are comprised primarily of labor, parts and materials, insurance, taxes other than income taxes, repair and maintenance costs, utilities and contract services. Our ability to manage operations and maintenance expenses has a significant impact on our profitability and ability to pay distributions.

EBITDA and Adjusted EBITDA - We believe that EBITDA and Adjusted EBITDA are widely accepted financial indicators of a company's operational performance and its ability to incur and service debt, fund capital expenditures and make distributions. EBITDA and Adjusted EBITDA are not measures calculated in accordance with accounting principles generally accepted in the United States of America (GAAP), as they do not include deductions for items such as depreciation, amortization and accretion, interest and income taxes, which are necessary to maintain our business. In addition, Adjusted EBITDA considers the impact of certain significant items, such as third party costs incurred related to potential and completed acquisitions and other transactions identified in a specific reporting period. Additionally, Adjusted EBITDA considers the adjusted earnings impact of our unconsolidated affiliate by adjusting our equity earnings from our unconsolidated affiliate for our proportionate share of its depreciation, amortization and accretion, interest and other significant items for a specific reporting period. EBITDA and Adjusted EBITDA should not be considered an alternative to net income, operating cash flow or any other measure of financial performance presented in accordance with GAAP. EBITDA and Adjusted EBITDA calculations may vary among entities, so our computation may not be comparable to measures used by other companies.

See our reconciliation of Net Income to EBITDA and Adjusted EBITDA in Results of Operations below.

Current Year Highlights

Below is a discussion of events that highlight our core business and financing activities.

Operational and Industry Highlights

Shale gas production in the United States has grown rapidly in recent years as the natural gas industry has improved drilling and extraction methods while increasing exploration efforts. The United States has a wide distribution of shale formations containing vast resources of natural gas, NGLs and oil. Led by the rapid development of the Barnett Shale in Texas, shale gas activity has expanded into other areas such as the Marcellus, Fayetteville and Haynesville/Bossier shale plays.

Growth through Diversification - Our operating results reflect our ability to diversify our shale play portfolio and increase volumes not only through our base business located in the Barnett Shale, but also through strategic acquisitions in a number of attractive shale plays in the United States. We believe that or experience and market position will allow us to realize significant ongoing growth opportunities by developing new greenfield projects in NGL and oil plays in areas with limited or constrained infrastructure which offer attractive returns on investment and seeking bolt-on acquisitions that provide operating synergies and allow for the development of our business in rich gas infrastructure plays, similar to our acquisition from Devon Energy Corporation (Devon). Our acquisition strategy includes diversifying and extending our geographic, customer and business profile and developing organic growth opportunities along the midstream value chain. The recent acquisition of our additional interest in CMM along with CMM's acquisition of EMAC in December 2012 will substantially increase our exposure to the rich gas area of the Marcellus Shale region and will be an integral component of our growth-oriented business model.

Our consolidated systems gathered 595 MMcf/d for the year ended December 31, 2012 which is an increase of 4% from 2011 and 73% from 2010. Additionally, our processed volumes were 173 MMcf/d in 2012, an increase of 20% from 2011 and 35% from 2010. The increase in volumes resulted in a 4% increase in our overall revenues from 2011 and 88% from 2010. From March 2012 to December 31, 2012, CMM, our unconsolidated affiliate, gathered 302 MMcf/d.

Distribution Growth - For the year ended December 31, 2012, we either declared or paid distributions of $2.02 per limited partner unit, which represents an 8% increase over the distributions related to 2011 and a 22% increase over the distributions related to 2010.

Acquisitions

Devon Acquisition

On August 24, 2012, we completed the acquisition of certain gathering and processing assets in the NGL rich gas region of the Barnett Shale from Devon for approximately $87 million (the Devon Acquisition). The assets acquired consist of a 74 mile low pressure natural gas gathering system, a 100 MMcf/d cryogenic processing facility and 23,100 hp of compression equipment, and are located in Johnson County, Texas near our Cowtown gathering system. Additionally, we entered into a 20 year, fixed-fee gathering, processing and compression agreement with Devon, under which we will gather and process Devon's natural gas production from a 20,500 acre dedication. Natural gas production gathered and processed under the agreement was approximately 96 MMcf/d as of December 31, 2012.

Due to the NGL rich gas quality of the natural gas production in this region of the Barnett Shale, Devon maintained an active drilling and development plan for the Johnson County area in 2012 and expects to continue to further develop the dedicated properties in 2013.

CMM Investment

On March 26, 2012, we invested approximately $131 million in cash in exchange for a 35% interest in CMM, which is held by our wholly-owned subsidiary. Crestwood Holdings LLC and its affiliates (Crestwood Holdings)

invested $244 million for the remaining 65% interest. CMM was formed to acquire certain of Antero Resources Appalachian Corporation's (Antero) Marcellus Shale gathering system assets located in Harrison and Doddridge Counties, West Virginia. CMM's purchase price to acquire the assets was approximately $380 million.

In January 2013, we acquired Crestwood Holdings' 65% membership interest in CMM for approximately $129 million in cash, the issuance of 6,190,469 Class D units, representing limited partner interests in us to Crestwood Holdings, and the issuance of 133,060 general partner units to our General Partner. As a result of our acquisition of the additional membership interest, CMM became our wholly-owned consolidated subsidiary.

Antero may earn additional payments of up to $40 million based upon average annual production levels achieved during 2012, 2013 and 2014. During 2012, Antero did not meet the annual production level to earn additional payments.

Additionally, CMM entered into a 20 year, fixed-fee, Gas Gathering and Compression Agreement (GGA) with Antero, which provided for an area of dedication at the time of acquisition of approximately 127,000 gross acres, or 104,000 net acres, largely located in the rich gas corridor of the southwestern core of the Marcellus Shale play. As part of the GGA, Antero committed to delivery of minimum annual volumes to CMM for a seven year period from January 1, 2012 to January 1, 2019, ranging from an average of 300 MMcf/d in 2012 to an average of 450 MMcf/d in 2018. During the period ended December 31, 2012, Antero delivered less than the minimum annual throughput volumes and at December 31, 2012, we recorded a receivable and deferred revenue of approximately $2.6 million due to Antero's ability under the GGA to earn the amount associated with the volume deficiency during 2013.

The assets acquired by CMM consist of a 33 mile low pressure gathering system which gathered approximately 210 MMcf/d from 59 existing horizontal Marcellus Shale wells. The gathering pipelines deliver Antero's Marcellus Shale production to various regional pipeline systems including Columbia, Dominion, Equitrans and Mark West Energy Partners' Sherwood Gas Processing Plant.

On December 28, 2012, CMM acquired all of the membership interests in E. Marcellus Asset Company, LLC (EMAC) for approximately $95 million, which was financed through CMM's $200 million credit facility. EMAC's assets consist of four compression and dehydration stations located on CMM's gathering systems in Harrison County, West Virginia. These assets provide compression and dehydration services to Antero under a compression services agreement through 2018. Antero has the option to renew the agreement for an additional five years upon expiration of the original agreement.

Financing Activities

Equity Offerings

During 2012, we completed public offerings of 8,100,000 common units, representing limited partner interests, providing net proceeds of approximately $218 million. The net proceeds from these offerings were used to fund the amounts paid for the Devon Acquisition and to reduce indebtedness under our Credit Facility. Our General Partner also made additional capital contributions during 2012 of approximately $6 million to maintain its 2% general partner interest. For additional information regarding our equity offerings, see Item 8. Financial Statements and Supplementary Data, Note 15. Partners' Capital.

Senior Notes

On November 14, 2012, we issued an additional $150 million aggregate principal amount of 7.75% Senior Notes in a private placement offering. These notes were issued as additional notes under the indenture dated April 1, 2011 among us, Crestwood Midstream Finance Corporation, the guarantors named therein, and The Bank of New York Mellon Trust Company, N.A., as trustee, pursuant to which we previously issued our $200 million aggregate principal amount of 7.75% Senior Notes in April 2011. The net proceeds from the offering were used to reduce our indebtedness under our Credit Facility.

Results of Operations

The following table summarizes our results of operations for each of the three years ended December 31, 2012 (In thousands):

                                                          Year Ended December 31,
                                                  2012             2011             2010
Total operating revenues                        $ 213,961        $ 205,820        $ 113,590
Product purchases                                  39,005           38,787               -
Operations and maintenance expense                 40,617           36,303           25,702
General and administrative expense                 25,890           24,153           17,657
Depreciation, amortization and accretion           45,726           33,812           22,359
Gain from exchange of property, plant and
equipment                                              -             1,106               -

Operating income                                   62,723           73,871           47,872
Earnings from unconsolidated affiliate              3,847               -                -
Interest and debt expense                          33,618           27,617           13,550
Income tax expense (benefit)                        1,206            1,251             (550 )

Net income                                      $  31,746        $  45,003        $  34,872
Add:
Interest and debt expense                          33,618           27,617           13,550
Income tax expense                                  1,206            1,251             (550 )
Depreciation, amortization and accretion
expense                                            45,726           33,812           22,359

EBITDA                                          $ 112,296        $ 107,683        $  70,231
Expenses associated with significant items          3,805            3,385            6,318
Gain from exchange of property, plant and
equipment                                              -            (1,106 )             -
Earnings from unconsolidated affiliate             (3,847 )             -                -
Adjusted earnings from unconsolidated
affiliate                                           7,074               -                -

Adjusted EBITDA                                 $ 119,328        $ 109,962        $  76,549

EBITDA in the table above includes operating results from our Barnett, Fayetteville and Granite Wash segments and other operations, earnings from our unconsolidated affiliate (our Marcellus segment), general and administrative expenses, and the gain from exchange of property, plant and equipment. The following table summarizes the results of our Barnett, Fayetteville and Granite Wash segments and other operations (In thousands):

                                                                                         Year Ended December 31,
                                             Barnett                 Fayetteville              Granite Wash                 Other                      Total
                                       2012          2011          2012         2011         2012         2011         2012        2011         2012          2011
Gathering revenues                   $  98,889     $ 108,705     $ 26,986     $ 19,421     $  1,434     $    346     $ 10,202     $ 2,483     $ 137,511     $ 130,955
Processing revenues                     34,003        31,379           -            -           130          133           -           -         34,133        31,512
Product sales                              141            -           512        1,379       38,992       37,734        2,672       4,240        42,317        43,353

Total operating revenues             $ 133,033     $ 140,084     $ 27,498     $ 20,800     $ 40,556     $ 38,213     $ 12,874     $ 6,723     $ 213,961     $ 205,820
Product purchases                          125            -           523        1,302       35,695       33,245        2,662       4,240        39,005        38,787
Operations and maintenance expense      26,881        25,147        8,537        8,992        2,250        1,499        2,949         665        40,617        36,303

EBITDA(1)                            $ 106,027     $ 114,937     $ 18,438     $ 10,506     $  2,611     $  3,469     $  7,263     $ 1,818

Gathering volumes (in MMcf)            158,087       172,838       31,617       23,421        6,440        4,555       21,770       7,332       217,914       208,146
Processing volumes (in MMcf)            56,844        48,112           -            -         6,420        4,501           -           -         63,264        52,613

(1) EBITDA in this table excludes earnings from our unconsolidated affiliate which represents our Marcellus segment.

                                                                                         Year Ended December 31,
                                             Barnett                 Fayetteville              Granite Wash                 Other                      Total
                                       2011          2010          2011         2010         2011         2010         2011        2010         2011          2010
Gathering revenues                   $ 108,705     $  83,394     $ 19,421     $     -      $    346     $     -      $  2,483     $    -      $ 130,955     $  83,394
Processing revenues                     31,379        30,196           -            -           133           -            -           -         31,512        30,196
Product sales                               -             -         1,379           -        37,734           -         4,240          -         43,353            -

Total operating revenues             $ 140,084     $ 113,590     $ 20,800     $     -      $ 38,213     $     -      $  6,723     $    -      $ 205,820     $ 113,590
Product purchases                           -             -         1,302           -        33,245           -         4,240          -         38,787            -
Operations and maintenance expense      25,147        25,702        8,992           -         1,499           -           665          -         36,303        25,702

EBITDA                               $ 114,937     $  87,888     $ 10,506     $     -      $  3,469     $     -      $  1,818     $    -

Gathering volumes (in MMcf)            172,838       125,317       23,421           -         4,555           -         7,332          -        208,146       125,317
Processing volumes (in MMcf)            48,112        46,660           -            -         4,501           -            -           -         52,613        46,660

EBITDA and Adjusted EBITDA - EBITDA for the year ended December 31, 2012 was approximately $112 million, an increase of approximately $5 million from 2011 and approximately $42 million from 2010. In the same manner, Adjusted EBITDA for the year ended December 31, 2012 was approximately $119 million, an increase of approximately $10 million from 2011 and approximately $42 million from 2010. Adjusted EBITDA considers expenses for evaluating certain transaction opportunities, which was approximately $3 million, $3 million and $6 million for the years ended December 31, 2012, 2011 and 2010. Adjusted EBITDA also considers the impact of other significant items, including but not limited to items such as operational costs, which were less than $1 million at December 31, 2012, gains on the exchange of property, plant and equipment, which was approximately $1 million at December 31, 2011 and includes approximately $3 million of net earnings adjustments related to adding back our proportionate share of our unconsolidated affiliate's depreciation and amortization expense, interest and debt expense and expenses related to their significant items for the year ended December 31, 2012.

Below is a discussion of the factors that impacted EBITDA by segment for the year ended December 31, 2012 compared to 2011 and the year ended December 31, 2011 compared to 2010:

Barnett:

During the year ended December 31, 2012, our Barnett segment's EBITDA was approximately $9 million lower than in 2011, primarily due to lower gathering revenues. During 2011, gathering revenues in our Barnett segment were higher compared to 2010, which increased our segment EBITDA by approximately $27 million.

Revenues and Volumes - Revenues in our Barnett segment decreased by approximately $7 million during the year ended December 31, 2012 compared to 2011, primarily due to lower dry gas gathering volumes. The decrease in gathering volumes primarily related to reduced production from existing wells and well shut-ins at our Alliance and Lake Arlington gathering systems. These decreases in volumes were partially offset by producers connecting 64 new wells during the year ended December 31, 2012.

Also, partially offsetting the decline in gathering revenues and volumes during 2012 was an increase in gathering and processing revenues due to the Devon Acquisition, which was completed on August 24, 2012. During the year ended December 31, 2012, the acquired assets generated approximately $7 million of gathering and processing revenues for our Barnett segment.

In addition to the items discussed above, our revenues were also unfavorably impacted by a compressor building fire that occurred on September 6, 2012 at our Corvette processing plant, which reduced revenues by approximately $0.5 million. Additional impacts to the Barnett segment's EBITDA for the year ended December 31, 2012, as a result of the compressor building fire are further discussed below.

During 2011, we experienced an increase in gathering volumes in our Barnett segment compared to 2010, primarily from the operations of our Alliance System. The increase in revenue of approximately $26 million primarily related to the Alliance System volumes that were the result of Quicksilver's drilling program pursuant to a joint development agreement with Eni SpA, which resulted in an increase of approximately 75 MMcf/d in gathered volumes and approximately $16 million in revenues.

Operations and Maintenance Expense - Operations and maintenance expenses in our Barnett segment increased by approximately $2 million or 7% for the year ended December 31, 2012 when compared to 2011, while remaining relatively flat from 2011 compared to 2010. The increase in operations and maintenance expenses was primarily due to (i) the Devon Acquisition; (ii) approximately $0.2 million of costs related to a condensate spill at our Corvette facility; and (iii) a compressor building fire at our Corvette processing plant. As a result of the building fire at our Corvette processing plant, we impaired assets of approximately $1.6 million, incurred repair costs of approximately $2.2 million, and recorded amounts recoverable from our insurers of approximately $3.6 million, all of which resulted in a net impact to our operations and maintenance expenses of approximately $0.2 million.

Fayetteville:

We acquired certain midstream assets in the Fayetteville Shale during 2011, which contributed 64 MMcf/d of gathering volumes and approximately $21 million in revenues in our Fayetteville segment. Our Fayetteville segment EBITDA increased approximately $8 million during the year ended December 31, 2012 compared to 2011, primarily due to higher revenues and volumes.

Revenues and Volumes - During the year ended December 31, 2012, BHP Billiton Petroleum, Plc. (BHP) connected six new wells on our Twin Groves System, contributing to an increase in revenues and volumes in our Fayetteville segment. Additionally, we recognized twelve months of revenues in 2012 versus nine months during 2011 due to the acquisition of our operations in Fayetteville on April 1, 2011.

Operations and Maintenance Expense - Operations and maintenance expenses in our Fayetteville segment during the year ended December 31, 2012 were relatively flat compared to 2011.

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