Quicksilver Gas Services LP (“KGS”) is a master limited partnership engaged in the business of gathering and processing natural gas and NGLs. We own assets in the Fort Worth Basin located in North Texas which consist of a pipeline system, referred to as the Cowtown Pipeline, and two natural gas processing facilities in Hood County, Texas, referred to as the Cowtown Plant and the Corvette Plant. KGS also owns a gathering system and a gas compression facility in eastern Tarrant County, Texas, referred to as the Lake Arlington Dry System. We provide gathering and processing services to Quicksilver Resources Inc. (“Quicksilver”), the owner of our general partner, as well as other natural gas producers in this area. We provide all of these services under fee-based contracts, whereby we receive fees for performing the gathering and processing services. We do not take title to the natural gas or associated NGLs that we gather and process and thus avoid direct commodity price exposure. Our financial statements have also historically included the operations of a gathering system in Hill County, Texas (“Hill County Dry System”) that gathers production from the Fort Worth Basin and delivers it to unaffiliated pipelines for transport and sale downstream. We sold the Hill County Dry System to Quicksilver on June 5, 2007 and we were obligated to repurchase it from Quicksilver at its fair market value within two years after its completion and its commencement of commercial service. However, based upon our continuing interest in the Hill County Dry System by virtue of the repurchase obligation, we continued including its financial position and results of operations in our consolidated financial statements.
In November 2009, Quicksilver and we mutually agreed to waive both parties’ rights and obligations to transfer ownership of the Hill Country Dry System from Quicksilver to us, which we refer to as the Repurchase Obligation Waiver. The Repurchase Obligation Waiver impacts our consolidated balance sheet by causing derecognition of the assets and liabilities directly attributable to the Hill County Dry System, most significantly the property, plant and equipment and repurchase obligation. In addition, the Repurchase Obligation Waiver causes the elimination of the Hill Country Dry System’s revenues and expenses from our consolidated results of operations. The assets, liabilities, revenues and expenses directly attributable to the Hill County Dry System will be retrospectively reported as discontinued operations in our financial statements beginning with our 2009 Annual Report on Form 10-K.
Unaudited pro forma financial information
The unaudited pro forma condensed financial statements are presented for illustrative purposes only and do not purport to be indicative of the results of operations that would have actually occurred had the Repurchase Obligation Waiver been executed in earlier periods or that may be achieved in the future. However, management believes that the assumptions provide a reasonable basis for presenting the significant effect of the Repurchase Obligation Waiver. The unaudited pro forma condensed financial statements should be read in conjunction with our management’s discussion and analysis of financial condition and results of operations and consolidated financial statements and notes thereto included in our 2008 Annual Report on Form 10-K and our September 30, 2009 Quarterly Report on Form 10-Q.
