Key Highlights

Operationally, the Partnership had a very strong quarter with total production above the high end of the 2009 guidance range despite the sale of the Lazy JL Field in Texas, effective July 1, 2009, and significant decreases in year-over-year capital spending.

The Partnership's successful debt reduction efforts continued during the third quarter through consistent operating cash flows and the sale of the Lazy JL Field for $23 million. As of September 30, 2009, outstanding debt totaled $585 million.

As of October 31, 2009, outstanding debt was approximately $576 million, representing $160 million in debt reduction in the first ten months of 2009.

The Partnership announced the successful completion of its semi-annual borrowing base redetermination in early October, which resulted in the reaffirmation of its borrowing base at $732 million and no modification to any other terms of the Credit Agreement.

Rising commodity prices allowed the Partnership to further strengthen its commodity price protection portfolio with the addition of new 2010, 2011, 2013, and 2014 hedges at attractive prices. The new hedges cover approximately 1,000,000 Bbls and 8,760,000 MMBtu of expected production during those years.

Management Commentary on Results

Hal Washburn, Chairman and Co-CEO, said, "We are pleased with the results we achieved this quarter and year-to-date, both operationally and financially. Our operations team continues to do a very good job improving the productivity of our asset base and managing costs in a volatile commodity price environment. We are particularly pleased with the ongoing improvements in our Eastern Division where the benefits of organizational changes made in the first quarter continue to have a positive impact on production even as we have reduced staffing levels in Michigan, Indiana and Kentucky below the levels in place when we acquired these properties in late 2007. Total production is trending above the high end of our guidance range and our annualized lease operating expenses and G&A costs are well within our guidance ranges for the year."

Washburn added, "In addition to our operational success, our financial flexibility continues to improve. We paid down an additional $55 million in debt during the quarter and have reduced borrowings by $160 million since year end 2008. As we move into 2010, our improved liquidity position will allow us the flexibility to accelerate capital spending to at least maintenance capital levels and eventually re-establish distributions when leverage has been reduced to acceptable levels."

Third Quarter 2009 Operating and Financial Results Compared to Second Quarter 2009

Total production decreased by less than 0.5% to 1,628 MBoe in the third quarter from 1,636 MBoe (pro forma for the sale of the Lazy JL Field) in the second quarter and is trending above the high end of our guidance range year-to-date.

Oil and NGL production was 743 MBoe compared to 744 MBoe (pro forma for the sale of the Lazy JL Field).

Natural gas production was 5,308 MMcf compared to 5,349 MMcf.

Lease operating expenses per Boe, which include district expenses and processing fees and exclude production/property taxes and transportation costs, increased 4% to $17.53 per Boe in the third quarter from $16.88 per Boe in the second quarter. Year-to-date operating costs remain well within our guidance range of $16.25 - $18.50 per Boe.

General and administrative expenses, excluding unit-based compensation, were $5.8 million, or $3.59 per Boe, in the third quarter compared to $5.3 million, or $3.18 per Boe, in the second quarter. Year-to-date general and administrative expenses, excluding unit-based compensation, are trending toward the lower end of our guidance range.

Adjusted EBITDA, a non-GAAP measure, decreased 5% to $48.4 million in the third quarter from $50.8 million in the second quarter.

Oil and natural gas sales revenues, including realized gains and losses on commodity derivative instruments (but excluding realized gains from hedge monetizations), increased 1% to $87.0 million in the third quarter from $86.4 million in the second quarter.

Realized gains from commodity derivative instruments were $24.3 million in the third quarter as compared to $51.5 million in the second quarter. Realized gains in the second quarter included $25.0 million from the monetization of selected 2011 and 2012 hedge contracts.

NYMEX WTI crude oil averaged approximately $68.14 per barrel and NYMEX natural gas prices averaged approximately $3.44 per Mcf in the third quarter as compared to $59.61 per barrel and $3.81 per Mcf, respectively, in the second quarter.

As a result of our extensive hedging portfolio, realized crude oil and natural gas prices increased and averaged $67.40 per Boe and $7.30 per Mcf, respectively, in the third quarter as compared to $65.47 per Boe and $7.09 per Mcf, respectively, in the second quarter.

Net loss was $5.4 million, or $0.10 per diluted limited partner unit, in the third quarter as compared to a net loss of $108.5 million, or $2.06 per diluted limited partner unit, in the second quarter.

Oil and gas capital expenditures totaled $7.2 million in the third quarter as compared to $3.3 million in the second quarter.

Impact of Derivative Instruments

The Partnership uses commodity and interest rate derivative instruments to mitigate the risks associated with commodity price volatility and changing interest rates and to help maintain cash flows for operating activities, acquisitions, capital expenditures, and distributions. The Partnership does not enter into derivative instruments for speculative trading purposes. Non-cash gains or losses do not affect Adjusted EBITDA, cash flow from operations or the Partnership's ability to pay cash distributions.

Realized gains from commodity derivative instruments were $24.3 million during the third quarter of 2009. Realized losses from interest rate derivative instruments were $3.4 million. Non-cash unrealized losses from commodity derivative instruments were $11.6 million and non-cash unrealized losses from interest rate derivative instruments were $0.4 million for the period.

In June 2009, the Partnership terminated selected crude oil and natural gas derivative instruments covering a portion of its expected production in 2011 and 2012 and replaced them with new derivative instruments for the same 2011 and 2012 volumes. Net realized proceeds of approximately $25.0 million were immediately used to reduce outstanding borrowings under the Partnership's credit facility. Realized gains from commodity derivative instruments of $51.5 million during the second quarter of 2009 included the impact of the hedge monetization.

Production, Income Statement and Realized Price Information

The following table presents production, selected income statement and realized price information for the three months ended September 30, 2009 and 2008 and the three months ended June 30, 2009:

                                                                         Three-Months Ended                                                                     
                                                                         September 30,   June 30,         September 30,                                         
 Thousands of dollars, except as indicated                               2009            2009             2008                                                  
 Oil, natural gas and NGL sales (a)                                      $  62,674       $  59,872        $  130,249                                            
 Realized gains (losses) on commodity derivative instruments (b)            24,356          51,468           (24,123  )                                         
 Unrealized gains (losses) on commodity derivative instruments (b)          (11,637  )      (148,727  )      431,564                                            
 Other revenues, net                                                        261             393              806                                                
 Total revenues                                                          $  75,654       $  (36,994   )   $  538,496                                            
 Lease operating expenses and processing fees                            $  29,052       $  28,442        $  35,611                                             
 Production and property taxes                                              4,422           4,188            7,814                                              
 Total lease operating expenses                                          $  33,474       $  32,630        $  43,425                                             
 Transportation expenses                                                    799             851              351                                                
 Purchases                                                                  18              21               118                                                
 Change in inventory                                                        (403     )      (1,498    )      (1,979   )                                         
 Total operating costs                                                   $  33,888       $  32,004        $  41,915                                             
 Lease operating expenses pre taxes per Boe (c)                          $  17.53        $  16.88         $  20.77                                              
 Production and property taxes per Boe                                      2.72            2.53             4.63                                               
 Total lease operating expenses per Boe                                     20.25           19.41            25.40                                              
 General and administrative expenses excluding unit-based compensation   $  5,844        $  5,255         $  5,992                                              
 Net income (loss)                                                       $  (5,396   )   $  (108,525  )   $  454,505                                            
 Net income (loss) per diluted limited partnership unit                  $  (0.10    )   $  (2.06     )   $  8.40                                               
 Total production (MBoe)                                                    1,628           1,654            1,689                                              
 Oil and NGL (MBoe)                                                         743             762              762                                                
 Natural gas (MMcf)                                                         5,308           5,349            5,564                                              
 Average daily production (Boe/d)                                           17,697          18,172           18,359                                             
 Sales volumes (MBoe)                                                       1,605           1,635            1,657                                              
 Average realized sales price (per Boe) (d) (e) (f)                      $  54.37        $  52.97         $  64.17                                              
 Oil and NGL (per Boe) (d) (e) (f)                                          67.40           65.47            81.82                                              
 Natural gas (per Mcf) (d) (e)                                              7.30            7.09             8.38                                               
                                                                                                                                                                
 (a) Q3 2009, Q2 2009 and Q3 2008 include $258, $258 and $273, respectively, of amortization of an intangible asset related to crude oil sales contracts.       
 (b) Q2 2009 includes the effects of the early terminations of hedge contracts monetized in June 2009 for $24,955.                                              
 (c) Includes lease operating expenses and processing fees. Excludes amortization of intangible asset related to the Quicksilver Acquisition.                   
 (d) Includes realized gains (losses) on commodity derivative instruments.                                                                                      
 (e) Q2 2009 excludes the effects of the early terminations of hedge contracts monetized in June 2009 ($6,030 of oil hedges and $18,925 of natural gas hedges). 
 (f) Excludes amortization of intangible asset related to crude oil sales contracts.