Quest Resource (QRCP) and Quest Energy Partners, L.P. (QELP) Issue Update to Operations and Distributions

October 10, 2008 2:14 PM EDT

Quest Resource Corporation (NASDAQ: QRCP) and Quest Energy Partners, L.P. (NASDAQ: QELP)provided the following update on operations, liquidity, and planned distributions:

In the fourth quarter of 2008, QRCP plans to spend approximately $11 million on Appalachian Basin capital projects including the drilling of one vertical test well in Lycoming County, Pennsylvania, two horizontal wells in Wetzel County, West Virginia, one horizontal well in Lewis County, West Virginia, and two vertical wells in Ritchie County, West Virginia.

On an unconsolidated basis, QRCP currently has an outstanding term loan of $33.5 million and total available cash of approximately $1.0 million.

In addition to the capital expenditures discussed above, QRCP and its affiliates are currently experiencing significant unexpected costs associated with the investigation of the questionable transfers of funds from the Quest entities by Mr. Jerry Cash, QRCP's former chief executive officer. Management believes that QRCP will need to raise significant additional capital in the near term in order to fund these capital expenditures and to pay these expenses. QRCP is currently negotiating with its lender for, among other things, an additional revolving credit facility and a waiver of any potential defaults that may have occurred as a result of Mr. Cash's questionable transfers.

QRCP has engaged Tudor, Pickering, Holt & Co. Securities, Inc. to assist QRCP in exploring strategic alternatives, including a number of options to, among other things, secure adequate funding for its planned drilling and development activities in the Marcellus Shale region, including the sale of equity securities, the incurrence of additional debt, joint ventures, farm-outs and selected asset sales. David Lawler, President of each of the Quest entities, said, "We remain optimistic about the potential associated with our large acreage position prospective for the Marcellus Shale. We are also reassigning some of our people to this area from the Cherokee Basin, which will enhance our operations in the area."

There is no assurance that QRCP will be successful in raising additional capital, obtaining additional debt financing or obtaining any required waivers. If QRCP is unsuccessful in its negotiations with its lenders or raising additional capital, QRCP would experience liquidity issues that would adversely impact its future plans and results of operations.

In addition, both QRCP and QELP and certain of their officers and directors have been named as defendants in several class action securities lawsuits and QRCP and certain of its officers and directors have been named in lawsuits asserting derivative claims for breach of fiduciary duty related to the questionable transfers of funds to Mr. Cash. QRCP and QELP have retained counsel to represent them in such litigation and intend to defend themselves vigorously against such claims.

Due to lower than expected natural gas prices in the Cherokee Basin and significant unexpected costs associated with the ongoing internal investigation, management currently plans to recommend to QELP's Board of Directors a cash distribution for the third quarter of 2008 of $0.43 per unit for all common units outstanding (unchanged from the prior quarter). The potential distribution is subject to QELP's negotiations with its lenders or ability to raise additional capital and to approval by the Board of Directors of QELP's general partner.

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