8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): March 21, 2011

CRESTWOOD MIDSTREAM PARTNERS LP

(Exact name of registrant as specified in charter)

Delaware
(State of Incorporation or
Organization) 001-33631
(Commission File Number) 56-2639586
(IRS Employer Identification
No.)

717 Texas Avenue, Suite 3150
Houston, TX 77002
(Address of principal executive offices) (Zip Code)

(832) 519-2200
(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

EX-23.1

EX-99.1

EX-99.2

Item 7.01 Regulation FD Disclosure

     As previously disclosed in its Current Report on Form 8-K filed with the Securities and Exchange Commission on February 22, 2011, Crestwood Midstream Partners LP (“CMLP”) entered into a Purchase and Sale Agreement (the “Transaction Agreement”) with Frontier Gas Services, LLC (“Frontier Gas”) on February 18, 2011. Pursuant to the Transaction Agreement, CMLP has agreed to purchase certain midstream assets in the Fayetteville Shale (the “Fayetteville assets”) and the Granite Wash plays (the “Granite Wash assets”) from Frontier Gas (collectively, the “Frontier Gas Acquisition”). Under the terms of the Transaction Agreement, the aggregate purchase price in connection with the Frontier Gas Acquisition will be approximately $338 million, with an additional $15 million to be paid to Frontier Gas if certain operational objectives are met within six months of the closing date. The final purchase price is payable in cash and CMLP expects to finance the purchase through a combination of equity and debt as described below.

     Frontier Gas, headquartered in Tulsa, Oklahoma, is a privately-held midstream energy services company engaged in the gathering, compression, processing, treating and marketing of natural gas and natural gas liquids.

     The Fayetteville assets consist of approximately 127 miles of high pressure and low pressure gathering pipelines in Arkansas with capacity of approximately 510 MMcfd, treating capacity of approximately 165 MMcfd and approximately 35,000 hp of compression. The Fayetteville assets interconnect with multiple interstate pipelines which serve the Fayetteville Shale and are supported by long-term, fixed-fee contracts with producers who have dedicated approximately 100,000 acres in the core of the Fayetteville Shale to Frontier Gas. These contracts have initial terms that extend through 2020 with a five year extension.

     The Granite Wash assets consist of a 28 mile pipeline system and a 36 MMcfd cryogenic processing plant in the Texas Panhandle. This area has emerged as a liquids-rich natural gas play with active drilling programs and the Granite Wash assets are supported by long-term contracts. We plan to install a second processing plant with 60 MMcfd of capacity to support growth in volumes from this region by the end of 2011.

     In connection with the consummation of the Frontier Gas Acquisition, we anticipate entering into the following additional financing transactions:

• the issuance by us of approximately 6.2 million units of new Class C limited partner interests, issued at a price of $24.50 per unit to certain institutional investors through a private placement transaction, resulting in gross proceeds of approximately $153 million; and

• the issuance of $200.0 million aggregate principal amount of indebtedness.

     Consummation of the Frontier Gas Acquisition is subject to a number of conditions, including the absence of any material adverse effect on the Fayetteville assets and the Granite assets and the receipt of certain regulatory approvals.

     In addition, on February 21, 2011, Chesapeake announced the sale of all of its interests in approximately 487,000 net acres of leasehold and producing natural gas properties in the Fayetteville Shale play located in northwest Arkansas to BHP Billiton Petroleum (“BHP”), a wholly owned subsidiary of BHP Billiton Limited (the “Chesapeake/BHP Transaction”). As a result of the Chesapeake/BHP Transaction and our consummation of the Frontier Gas Acquisition, BHP will become one of our customers. The consummation of the Chesapeake/BHP Transaction is subject to a number of conditions and based on publicly-available information, it is expected to close in the first half of 2011.

     Our business strategy is to capitalize on our competitive strengths to increase our revenue, profitability and cash flow by:

     Pursuing midstream acquisitions. We are a growth oriented master limited partnership. We believe that our experience and market position will allow us to realize significant ongoing consolidation opportunities by selectively acquiring additional low-risk assets at attractive prices. Our acquisition strategy, which includes diversifying and extending our geographic, customer and business profile and providing visible organic growth opportunities for us, is illustrated by our Frontier Gas Acquisition.

     Increasing utilization of existing assets and prudently expanding our pipeline capacity to meet our customers’ gathering, processing and treating needs. Quicksilver has publicly announced a drilling program in the Fort Worth Basin for 2011 that we expect to result in increased volumes through our assets. While it may be necessary for us to incur capital expenditures to accommodate these additional volumes in certain areas, we expect that our budgeted capital expenditures of $37 million for 2011, which includes both growth capital and maintenance capital, will be adequate to meet these needs. We believe that the location of our existing assets and relationships with active producers position us well to capture the growing need for midstream services.

     Attracting new customers and volumes to our facilities. We believe that favorable drilling economics within the Barnett Shale, Fayetteville Shale and Granite Wash will continue to encourage significant capital investment by producers. As such, we aim to attract increased gathering, processing and treating volumes by marketing our midstream services, expanding our gathering systems and providing superior customer service to these natural gas producers. We believe that commercially recoverable natural gas reserves, coupled with active multi-year drilling programs, provide us with visible opportunities to provide midstream services to producers.

     Minimizing commodity price exposure and maintaining a disciplined financial policy. After giving effect to our Frontier Gas Acquisition, approximately 95% of our cash flow will be derived from fee-based service contracts, providing for minimal commodity price exposure and predictable and stable operating performance. It is our intent to pursue similar service agreements in the future. We have significantly grown our throughput volumes, while also maintaining a disciplined financial policy. We believe in operating with a reasonable amount of leverage as we have to date, and we expect to continue this strategy by balancing the amount of leverage with our growth objectives, the availability of cash flow and equity.

     Maintaining financing flexibility. Our organic and external growth strategy is fostered by our ability to access various sources of capital. We have a supportive relationship with a diverse group of domestic and international banks, which have committed, on a pro forma basis after giving effect to the Transactions, an aggregate $500.0 million under our revolving credit facility that matures on October 1, 2015. We believe that the capacity under our revolving credit facility, combined with stable cash flow from operations will enable us to complete substantially all of our near-term growth projects. In addition, we believe that our ability to access the debt and equity capital markets provides us with an additional source of capital as we seek to fund acquisitions while executing a disciplined financing policy that targets a long-term debt-to-Adjusted EBITDA ratio of less than 4.0 to 1.0.

     We believe that we are well-positioned to successfully execute our primary business objective and business strategies due to the following competitive strengths:

     Our assets are strategically located in highly desirable and proven producing areas. The Barnett Shale in the Fort Worth Basin remains one of the most important natural gas producing areas in the United States. We believe that our established position in this area, together with anticipated growth in production from Quicksilver and other producers, gives us an opportunity to expand our gathering system footprint and increase our throughput volumes and plant utilization, ultimately increasing cash flows. After giving effect to our Frontier Gas Acquisition, we will have additional operations in the Texas Panhandle and Arkansas where producers are targeting the Granite Wash and Fayetteville Shale geological formations, respectively.

     Substantial shale gas in-place and low development and operating costs have encouraged upstream companies to devote increased resources to the areas in which we operate, resulting in increased demand for midstream services.

     The basins in which we operate are actively targeted by technologically advanced producers, such as Chesapeake Energy Corporation (“Chesapeake”)/ BP p.l.c. (“BP”), XTO Energy, Inc., a subsidiary of Exxon Mobil Corporation (“ExxonMobil”) and Quicksilver. Low cost structures enable producers to achieve attractive returns on investment throughout various gas price environments. Many of the areas in which we operate have strong liquids rich production, which currently receives favorable pricing. In addition, existing intrastate and interstate pipelines interconnect with our strategically located gathering and processing assets to provide natural gas to growing and diverse demand markets, including the Northeast, Midwest and Southeastern United States. All these factors support continued producer interest and activity in the basins in which we operate.

     Our assets generate predictable and stable cash flows. Our fixed-fee contract structure and long-term gas gathering agreements largely eliminate our exposure to direct commodity price risk and provide us with long-term cash flow stability. After giving effect to our Frontier Gas Acquisition, approximately 95% of our cash flow will be derived from fixed-fee based contracts. The initial term of a substantial number of our contracts extends through 2020. In addition, current and planned production from acreage dedications from Quicksilver and after giving effect to our Frontier Gas Acquisition, from Chesapeake, BP and ExxonMobil, should provide stable throughput volumes as well as expansion opportunities.

     We own and operate high quality, integrated assets. Substantially all of our assets have been constructed since 2006, which enables us to provide efficient and reliable service to our producers. Our relatively new asset base in relation to our competitors benefits from both low operating costs and minimal maintenance capital requirements. The integrated nature of our operations by which we provide gathering, compression, treating and processing services, positions us well to serve our customers. Our system infrastructure and capacities have been designed to accommodate long-term basin development plans.

     We have a diversified portfolio of low risk organic growth projects. We are currently developing low risk expansion opportunities in all of our operating areas. These opportunities are supported by the needs of both Quicksilver and existing third party shippers for midstream services.

     We have an experienced, knowledgeable management team with a proven record of performance.

     Our senior management team has a total of 109 years of experience in the oil and gas industry with a proven record of enhancing value through the acquisition, integration, development and operation of midstream companies and publicly-traded entities. We believe that this team provides us with a strong foundation for developing additional natural gas gathering and processing assets and pursuing strategic acquisition opportunities.

     We have strong sponsor support. First Reserve Management, LP (“First Reserve”), a private equity firm with substantial investments in the energy industry, owns a significant equity interest in Crestwood, and as a result,

has significant control over our operations. First Reserve has shown a strong commitment to our success to date, and we believe that they will continue to support our ongoing development. We believe that First Reserve is one of the most respected and seasoned private equity investors focusing on the energy sector.

     New pipeline safety legislation requiring more stringent spill reporting and disclosure obligations has been introduced in the U.S. Congress and was passed by the U.S. House of Representatives in 2010, but was not voted on in the U.S. Senate. Similar legislation is likely to be considered in the current session of Congress, either independently or in conjunction with the reauthorization of the Pipeline Safety Act. The DOT has also recently proposed legislation providing for more stringent oversight of pipelines and increased penalties for violations of safety rules, which is in addition to the Pipeline and Hazardous Materials Safety Administration’s announced intention to strengthen its rules. Such legislative and regulatory changes could have a material effect on our operations through more stringent and comprehensive safety regulations and higher penalties for the violation of those regulations.

     The information in this Item 7.01 and the accompanying Exhibits 99.1 and 99.2, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, and such information is not incorporated by reference into any registration statements or other documents filed under the Securities Act or the Exchange Act, regardless of the general incorporation language contained in such filing, except as shall be expressly set forth by specific reference to this filing. Upon completion of the Frontier Gas Acquisition, CMLP intends to file a current report under Item 2.01(Completion of Acquisition or Disposition of Assets) of Form 8-K to include the final unaudited pro forma condensed consolidated financial statements of CMLP as of and for the year ended December 31, 2010.

Item 9.01 Financial Statements and Exhibits

(a)	Financial statements of businesses to be acquired.
	Audited financial statements of Frontier Gas Services, LLC as of December 31, 2010 and 2009, and for the years ended December 31, 2010, 2009 and 2008 are attached hereto as Exhibit 99.1.
(b)	Pro forma financial information.
	The preliminary unaudited pro forma condensed consolidated financial statements of Crestwood Midstream Partners LP as of and for the year ended December 31, 2010 are attached hereto as Exhibit 99.2.

(d) Exhibits

Exhibit No.	Description
23.1	Consent of Grant Thornton LLP
99.1	Audited financial statements of Frontier Gas Services, LLC as of December 31, 2010 and 2009, and for the years ended December 31, 2010, 2009 and 2008.
99.2	The preliminary unaudited pro forma condensed consolidated financial statements of the Crestwood Midstream Partners LP as of and for the year ended December 31, 2010.

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	CRESTWOOD MIDSTREAM PARTNERS LP
	By:	CRESTWOOD GAS SERVICES GP LLC,
	its General Partner
Dated: March 21, 2011
	By:	/s/ William G. Manias
		William G. Manias
		Senior Vice President and Chief Financial Officer

EXHIBIT INDEX

Exhibit No.	Description
23.1	Consent of Grant Thornton LLP
99.1	Audited financial statements of Frontier Gas Services, LLC as of December 31, 2010 and 2009, and for the years ended December 31, 2010, 2009 and 2008.
99.2	The preliminary unaudited pro forma condensed consolidated financial statements of the Crestwood Midstream Partners LP as of and for the year ended December 31, 2010.

EX-23.1

Exhibit 23.1

Consent of Independent Certified Public Accountants

We have issued our report dated February 22, 2011, with respect to the financial statements of Frontier Gas Services, LLC included in the Current Report of Crestwood Midstream Partners LP on Form 8-K dated March 21, 2011. We hereby consent to the incorporation by reference of said report in the Registration Statements of Crestwood Midstream Partners LP on Forms S-8 (File No. 333-145326, effective August 10, 2007 and File No. 333-162928, effective November 5, 2009).

/s/ GRANT THORNTON LLP 

Tulsa, Oklahoma 

March 21, 2011 

EX-99.1

Exhibit 99.1

Financial Statements and Report of Independent
Certified Public Accountants

Frontier Gas Services, LLC

December 31, 2010, 2009 and 2008

Report of Independent Certified Public Accountants

Members
Frontier Gas Services, LLC

We have audited the accompanying balance sheets of Frontier Gas Services, LLC as of December 31, 2010 and 2009, and the related statements of operations, members’ equity, and cash flows for each of the three years in the period ended December 31, 2010. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America established by the American Institute of Certified Public Accountants. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Frontier Gas Services, LLC as of December 31, 2010 and 2009, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.

/s/ GRANT THORNTON LLP

Tulsa, Oklahoma
February 22, 2011

Frontier Gas Services, LLC

Balance Sheets

December 31, 2010 and 2009

		2010			2009
ASSETS
CURRENT ASSETS:
Cash	$	2,083,517		$	5,547,661
Accounts receivable		11,327,900			4,071,970
Prepaid assets		898,978			137,627
Total current assets		14,310,395			9,757,258
PROPERTY AND EQUIPMENT		150,730,186			29,915,124
Less- accumulated depreciation		(9,107,746	)		(1,863,689	)
Property and equipment, net		141,622,440			28,051,435
DEFERRED LOAN COSTS, net		644,762			-
INTANGIBLE ASSETS, net		21,925,582			12,119,454
OTHER LONG-TERM ASSETS		364,583			-
Total assets	$	178,867,762		$	49,928,147
LIABILITIES AND MEMBERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	6,849,050		$	2,303,036
Amounts due to related parties		59,398			173,083
Other liabilities, current		632,826			57,656
Current portion of capital leases		2,468,399			-
Total current liabilities		10,009,673			2,533,775
LONG-TERM DEBT		6,000,000			-
CAPITAL LEASES		6,376,699			-
COMMITMENTS AND CONTINGENCIES (Note H)
MEMBERS’ EQUITY, per accompanying statement		156,481,390			47,394,372
Total liabilities and members’ equity	$	178,867,762		$	49,928,147

The accompanying notes are an integral part of these financial statements.

Frontier Gas Services, LLC

Statements of Operations

For the years ended December 31, 2010, 2009 and 2008

		2010			2009			2008
REVENUES:
Gas sales	$	21,225,303		$	12,411,461		$	4,573,258
Natural gas liquids sales		18,155,382			13,197,309			-
Gathering		21,360,415			3,209,574			1,621,340
Compression and other		5,011,229			1,273,490			199,728
Condensate sales		519,614			194,755			-
Total revenues		66,271,943			30,286,589			6,394,326
EXPENSES:
Gas purchases		34,350,512			23,041,098			4,525,515
Operating		10,122,996			2,839,569			798,367
General and administrative		3,738,524			2,812,280			1,847,093
Depreciation and amortization		8,627,930			1,944,922			489,560
Total expenses		56,839,962			30,637,869			7,660,535
OPERATING INCOME (LOSS)		9,431,981			(351,280	)		(1,266,209	)
OTHER INCOME (EXPENSE):
Gain on business combination		11,190,000			-			-
Interest income		84,606			21,478			78,145
Interest expense		(119,569	)		-			(34,779	)
Total other income		11,155,037			21,478			43,366
NET INCOME (LOSS)	$	20,587,018		$	(329,802	)	$	(1,222,843	)

The accompanying notes are an integral part of these financial statements.

Frontier Gas Services, LLC

Statements of Members’ Equity

For the years ended December 31, 2010, 2009 and 2008

	Members’
		Equity
BALANCE, January 1, 2008	$	(414,426	)
CONTRIBUTIONS		19,826,187
NET LOSS		(1,222,843	)
BALANCE, December 31, 2008		18,188,918
CONTRIBUTIONS		29,535,256
NET LOSS		(329,802	)
BALANCE, December 31, 2009		47,394,372
CONTRIBUTIONS		88,500,000
NET INCOME		20,587,018
BALANCE, December 31, 2010	$	156,481,390

     The accompanying notes are an integral part of these financial statements.

Frontier Gas Services, LLC

Statements of Cash Flows

For the years ended December 31, 2010, 2009 and 2008

		2010			2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	20,587,018		$	(329,802	)	$	(1,222,843	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		8,627,930			1,944,922			489,560
Noncash general and administrative expenses		-			535,256			1,826,187
Amortization of loan costs		42,486			-			-
Gain on business combination		(11,190,000	)		-			-
Change in operating assets and liabilities:
Accounts receivable		(7,255,930	)		(3,399,663	)		(615,712	)
Prepaid assets		(1,125,934	)		(126,128	)		(6,064	)
Accounts payable		4,495,999			1,960,363			255,521
Other current liabilities		470,240			3,473			(108,616	)
Amounts due to related parties		(113,685	)		2,451			(43,667	)
Net cash provided by operating activities		14,538,124			590,872			574,366
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment		(59,944,434	)		(3,501,163	)		(8,866,385	)
Cash paid for acquisition		(49,402,187	)		(25,000,000	)		-
Net cash used in investing activities		(109,346,621	)		(28,501,163	)		(8,866,385	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions		88,500,000			29,000,000			18,000,000
Borrowings on long-term debt		6,000,000			-			-
Payments of loan costs		(687,248	)		-			-
Payments on capital leases		(2,468,399	)		-			-
Payment on FES line of credit		-			-			(8,500,000	)
Borrowings on FES line of credit		-			-			3,000,000
Net cash provided by financing activities		91,344,353			29,000,000			12,500,000
NET (DECREASE) INCREASE IN CASH		(3,464,144	)		1,089,709			4,207,981
CASH, beginning of year		5,547,661			4,457,952			249,971
CASH, end of year	$	2,083,517		$	5,547,661		$	4,457,952
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest, net of interest capitalized of $0, $0 and $45,510	$	70,139		$	-		$	227,142
NONCASH INVESTING AND FINANCING ACTIVITES:
Purchase of fixed assets on capital lease	$	11,313,497		$	-		$	-
Accrued purchases of property and equipment	$	154,945		$	-		$	-

The accompanying notes are an integral part of these financial statements.

Frontier Gas Services, LLC

Notes to financial statements

December 31, 2010, 2009 and 2008

A - BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. General

Frontier Gas Services, LLC (“Gas” or the “Company”), a Delaware limited liability company is engaged in the acquisition, enhancement, operations and divesting of gathering, processing, transportation and other midstream assets, including product marketing. The Company is headquartered in Tulsa, Oklahoma.

Frontier Gas Services is a subsidiary of Frontier Midstream, LLC (“Midstream”). Midstream was formed in 2006 as a wholly owned subsidiary of Frontier Energy Services, LLC (“FES”). On February 25, 2008, a majority interest in Midstream was acquired by Energy Spectrum Partners V LP (“ESP”), an equity investment group located in Dallas, Texas with a capital contribution of $18,000,000. Gas was formed on July 17, 2009. In August 2009, Midstream contributed its Indian Creek System to Gas in conjunction with a $5,000,000 cash contribution from TPF II Gas Services, LLC (“TPF”). Midstream’s other gathering systems, Wilson Creek and Rose Bud, were later contributed to Gas in November 2009. The contribution of the gathering systems from Midstream to Gas was accounted for as a combination of entities under common control, which is similar to the pooling of interest method of accounting for business combinations. Accordingly, these financial statements give retrospective effect to these transactions; and therefore, the Company’s results from January 1, 2008 through the dates contributed include all operations and transactions of the contributed gathering systems.

The Company currently has six gathering systems. The Rose Bud System was constructed and brought online in 2007. The Wilson Creek System was constructed and brought online in 2008. Both are located in the Fayetteville Shale Play in Arkansas. The Indian Creek System was acquired in January 2009 from Indian Creek Gas Processing, L.P. and Central Plains Pipeline Company, L.L.C. and is located in Roberts County, Texas. In 2010, the Company purchased two systems (Note C) and constructed the Woolly Hollow System. The Twin Groves, Prairie Creek and Woolly Hollow systems are located in the Fayetteville Shale Play in Arkansas.

2. Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, if any, at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Although management believes the estimates are appropriate, actual results could differ from those estimates.

1

Frontier Gas Services, LLC

Notes to financial statements - continued

December 31, 2010, 2009 and 2008

3. Concentration and Credit Risks

The Company places its cash with high-quality institutions. At times, such balances may be in excess of the Federal Deposit Insurance Corporation insurance limit. The Company derives its revenue from customers in the natural gas industry. This industry concentration has the potential to impact the Company’s overall exposure to credit risk, either positively or negatively, in that its customers could be affected by similar changes in economic, industry or other conditions. However, the Company believes that the credit risk posed by this industry concentration is offset by the creditworthiness of its customer base. The Company’s portfolio of accounts receivable is comprised primarily of mid-size to large domestic corporate entities. At December 31, 2010 and 2009, four and three customers accounted for approximately 100% of total accounts receivable, respectively. Approximately 95%, 81%, and 95% of the Company’s net sales were provided by four, two and three customers in 2010, 2009 and 2008, respectively.

4. Accounts Receivable

Accounts receivable are recorded at amounts billed to customers. Credit is extended based on an evaluation of a customer’s financial condition and generally, collateral is not required. Amounts outstanding longer than the contractual terms are considered past due. An allowance for doubtful accounts, if necessary, is based on management’s assessment of the realizability of customer accounts. Management’s assessment is based on the overall creditworthiness of the Company’s customers and specific disputes, if any. Management believes that no allowance for doubtful accounts was necessary at December 31, 2010 and 2009.

5. Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation except when obtained through business combination (Note C). The Company charges repairs and maintenance expense against income when incurred and capitalizes renewals and betterments that extend the useful life or expand the capacity of the existing assets. Depreciation on property and equipment is calculated using the straight-line method over the estimated useful lives (ranging from 4 to 20 years) of the respective assets. Additionally, the Company capitalizes interest directly related to the construction of assets.

The cost of property and equipment sold or otherwise disposed of, and the related accumulated depreciation is removed from the accounts, and any gain or loss is reflected in current operations.

The Company reviews long-lived assets for impairment upon the occurrence of events or changes in circumstances that indicate that the carrying amount of such assets may not be recoverable. If such a review should indicate that the carrying amount of long-lived assets is not recoverable, the carrying amount of such assets is reduced to fair value. No impairment of long-lived assets was required during the periods presented.

6. Intangible Assets

Intangible assets consist of gas contracts. The gas contracts were acquired by the Company during acquisitions - See Note C. These contracts are amortized over the contract lives using the straight-line method.

2

Frontier Gas Services, LLC

Notes to financial statements - continued

December 31, 2010, 2009 and 2008

7. Revenue Recognition

The Company’s natural gas sales and purchase arrangements are accounted for on a gross basis in the statement of operations as sales and purchases, respectively. These transactions are contractual arrangements that establish the terms of the purchase of natural gas at a specified location and the sale at a different location at the specified date. Both sale and purchase transactions require physical delivery of the natural gas and the risk and reward of ownership are evidenced by title transfer, assumption of environmental risk, transportation scheduling, credit risk and counterparty nonperformance risk.

Service revenues generated include fee-based arrangements for natural gas gathering or compressing, treating or processing of those volumes of natural gas that flow through the gathering systems. The service revenues are recognized in the period when the service is provided.

8. Income Taxes

The Company is structured as a limited liability company. Therefore, no provision for income taxes has been recorded in the Company’s financial statements. The Company’s earnings and losses for federal and state income tax purposes are included in the tax returns for the individual members.

The Company evaluates uncertain tax positions for recognition and measurement in the financial statements. To recognize a tax position, the Company determines whether it is more likely than not that the tax positions will be sustained upon examination, including resolution of any related appeals or litigation, based on the technical merits of the position. A tax position that meets the more likely than not threshold is measured to determine the amount of benefit to be recognized in the financial statements. The amount of tax benefit recognized with respect to any tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon settlement. The Company had no uncertain tax positions that required recognition in the financial statements at December 31, 2010 and 2009. Any interest or penalties would be recognized as a component of income tax expense.

9. Equity Compensation

The Company accounts for equity-based compensation to employees at fair value. The cost of employee services received in exchange for equity instruments is measured based on the grant-date fair value of those instruments. That cost is recognized as compensation expense over the requisite service period (often the vesting period). Awards subject to performance criteria vest when it is probable that the performance criteria will be met. Generally, no compensation cost is recognized for equity instruments that do not vest.

3

Frontier Gas Services, LLC

Notes to financial statements - continued

December 31, 2010, 2009 and 2008

B -	PROPERTY AND EQUIPMENT
	Property and equipment consist of the following at December 31:

		2010		2009
Property and equipment
Construction in progress	$	16,332,900	$	3,034,053
Pipeline systems		133,628,738		26,666,512
Trucks		411,410		108,504
Furniture and fixtures		357,138		106,055
		150,730,186		29,915,124
Accumulated depreciation		9,107,746		1,863,689
	$	141,622,440	$	28,051,435

	For the years ended December 31, 2010, 2009 and 2008, the Company recorded depreciation expense of $7,244,057, $1,307,056 and $489,560, respectively. Interest in the amount of $0, $0 and $45,510 was capitalized to pipeline systems for the years ended December 31, 2010, 2009 and 2008, respectively.
	At December 31, 2010, the construction in progress represents costs incurred in the ongoing construction of the Company’s gathering systems. Accordingly, no depreciation expense was recorded for these costs.
	During 2010, the Company leased certain compressors which are accounted for as capital leases. The total capitalized cost of the leases is $11,313,497 with accumulated depreciation of $2,468,399.
C -	ACQUISITIONS
	On January 1, 2010, the Company entered into an asset sale agreement with Arkansas Midstream Gas Services, Corp., to acquire 100% of the natural gas gathering systems located in Conway and Faulkner counties in Arkansas for $49.4 million. The Company assumed no liabilities in the transaction. As part of the transaction, the Company executed a 10 year contractual arrangement, with a renewal option, for which they receive monthly gathering fees. The acquisition was funded through capital contributions and was accounted for using the purchase method of accounting. Accordingly, the assets acquired were recorded at their fair values. The tangible assets were valued utilizing the cost approach and the intangible asset was valued using the income approach. The assumptions used to estimate the fair values reflect the best estimate of how the Company believes market participants would benefit from the use of the assets being valued. The Company did utilize an expert in valuation techniques to assist in the formulation of the fair value estimates. The resulting valuation resulted in the Company recognizing a gain of approximately $11.2 million for the excess of the fair value of assets acquired compared to the consideration paid.
	There were several factors that the Company believes contributed to the $11.2 million gain recognized in the acquisition including: seller’s business strategy and capital requirements, limited potential buyers in the region, and the historical business relationship created between the seller and the Company. The operating results of the business acquired have been included in the Company’s results of operations from the date of acquisition.

4

Frontier Gas Services, LLC

Notes to financial statements - continued

December 31, 2010, 2009 and 2008

The value of the Twin Groves and Prairie Creek acquisition has been allocated to the assets acquired at the date of the acquisition as summarized in the table below:

Property and equipment	$	49,402,187
Gas contracts		11,190,000
Total fair value	$	60,592,187
Gain recognized on business combination	$	11,190,000

On January 9, 2009, the Company purchased certain assets of Indian Creek natural gas processing plant and related gathering system, and the Central Plains gas liquids pipeline, which are located in Roberts County, Texas, for $25,000,000. The acquisition was primarily funded through capital contributions from ESP, which totaled $24,000,000. The acquisition was accounted for using the purchase method of accounting, and the operating results of the business acquired have been included in the Company’s results of operations from the date of acquisition.

The cost of the Indian Creek acquisition has been allocated to the assets acquired at the date of the acquisition as summarized in the table below:

Property and equipment	$	12,242,680
Gas contracts		12,757,320
Total fair value	$	25,000,000

D -	INTANGIBLE ASSETS
	Intangible assets consist of gas contracts. The following table summarizes the Company’s investment in and net carrying value of its recorded intangible assets:

		December 31,
		2010		2009
Intangible assets, gross	$	23,947,320	$	12,757,320
Accumulated amortization		2,021,738		637,866
Intangible assets, net of amortization	$	21,925,582	$	12,119,454
Amortization expense recorded for the year ended	$	1,383,872	$	637,866

Future amortization expense for intangible assets is currently expected to be: $1.4 million in each of the years 2011 - 2015; and $14.9 million cumulatively in 2016 and beyond. The intangible assets have useful lives of 15 to 20 years.

5

Frontier Gas Services, LLC

Notes to financial statements - continued

December 31, 2010, 2009 and 2008

E -	LONG-TERM DEBT
	On October 7, 2010, the Company entered into a revolving credit agreement and note agreement with a bank. The initial line of credit is $50.0 million and has a maturity date of October 7, 2014. Interest is paid quarterly at either the “Daily Adjusting LIBOR Rate” or the “Prime-based Rate” plus an applicable margin as defined in the agreement (5.0% at December 31, 2010). The Company had $6.0 million outstanding on the revolving credit agreement at December 31, 2010.
	Substantially all of the Company’s fixed assets serve as collateral under the agreement. The Company is subject to certain financial and nonfinancial covenants including, but not limited to, maintenance of an interest coverage ratio and debt to consolidated EBITDA ratio. The Company was in compliance with its debt covenants at December 31, 2010.
	The Company had a $10,000,000 line of credit agreement with FES that was terminated in March 2008 upon receipt of the capital contribution from ESP. Under the agreement, amounts borrowed were charged interest at a rate plus .5% for the first $5,000,000 borrowed and at the Bank of Oklahoma financial corporation prime rate less .5% for the second $5,000,000. Prior to termination of the agreement, the base rate charged was 7.75%.
F -	CAPITAL LEASES
	As discussed in Note B, the Company entered into several new leases for compressors during the year which are accounted for as capital leases. The total liability outstanding at December 31, 2010 related to these leases was $8.8 million.
	Future minimum lease payments of capital leases:

2011	$	2,859,840
2012		2,859,840
2013		2,859,840
2014		1,161,810
Total payments		9,741,330
Imputed interest		(896,232	)
Present value of future payments	$	8,845,098

G -	FINANCIAL INSTRUMENTS
	The approximate fair values of all the financial instruments, including cash, accounts receivable and accounts payables approximate their carrying values, due to their short-term nature. Additionally, the estimated fair value of borrowings under the revolving credit facility approximates its carrying value due to the debt agreements being so recent in nature.

6

Frontier Gas Services, LLC

Notes to financial statements - continued

December 31, 2010, 2009 and 2008

H - COMMITMENTS AND CONTINGENCIES

1. Leases

In addition to the capital leases discussed above, the Company entered into operating leases during 2010 and 2009 for operating equipment, specifically compressors.

Future minimum lease payments for all non-cancelable operating leases at December 31, 2010 are $3,591,700 in 2011; $1,694,160 in 2012 and $141,024 in 2013.

For the years ended December 31, 2010, 2009 and 2008, rent expense was $5.5 million, $1.0 million, and $138,662, respectively.

At December 31, 2010, the Company had a commitment to purchase a cryogenic unit for $6,029,295. Milestone payments under the commitment are due upon completion of certain steps in the production process for the cryogenic unit. Production of the unit is expected to be completed by August 2011. As of December 31, 2010, the Company had made payments under the commitment of $602,930. Cancellation fees apply if the Company cancels the commitment prior to completion.

2. Litigation

From time to time, the Company may be a party to various legal and/or regulatory proceedings incidental to its business. Certain claims, suits and complaints arising in the ordinary course of business have been filed or are pending against the Company from time to time. The Company cannot predict with certainty the outcome or effect of the pending matters. However, in the opinion of management, such pending matters would not have a significant effect on the financial position or results of operations of the Company.

I -	RELATED PARTY TRANSACTIONS
	As provided by the limited liability company agreement, Midstream and Gas have management agreements with FES whereby FES agreed to provide management, general and administrative services to the Company. To the extent the Company has cash to reimburse FES, FES is reimbursed by the Company for all direct general and administrative expenses, including office equipment and other necessary office expenses. Expenses that are not reimbursed are deemed to be capital contributions by FES. During the years ended December 31, 2010, 2009 and 2008, the Company incurred $0, $535,256 and $1,826,187 of unreimbursed expenses under this agreement, respectively. This amount is included in general and administrative expenses in the statement of operations. At December 31, 2010 and 2009, $59,398 and $173,083 was payable to FES and there were no receivables from FES, respectively.
	The Company also had sales of gas to Tenaska Marketing Ventures, an affiliate of TPF of $18.0 million and $11.6 million for the years ended December 31, 2010 and 2009, respectively. Receivables from TPF at December 31, 2010 and 2009 were $1.6 million and $1.5 million, respectively.

7

Frontier Gas Services, LLC

Notes to financial statements - continued

December 31, 2010, 2009 and 2008

J -	SUBSEQUENT EVENTS
	On February 18, 2011, the Company entered into an agreement with Crestwood Midstream Partners LP to sell all of its pipeline systems and related assets for $338.0 million and an additional $15.0 million to be paid to the Company if certain operational objectives are met within six-months of the closing date.
	Management has evaluated subsequent events through February 22, 2011, the date the financial statements were available to be issued. No additional subsequent events were identified requiring recognition or disclosure in the accompanying financial statements.

8

EX-99.2

Exhibit 99.2

UNAUDITED CRESTWOOD MIDSTREAM PARTNERS LP PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

     References to we, us or our, refer to Crestwood Midstream Partners LP and its subsidiaries (“CMLP”). On February 18, 2011, Crestwood Midstream Partners LP and Frontier Gas Services, LLC (“Frontier Gas”) entered into a Purchase and Sale Agreement (the “Transaction Agreement”). Pursuant to the Transaction Agreement, CMLP has agreed to purchase certain midstream assets in the Fayetteville Shale (the “Fayetteville assets”) and the Granite Wash plays (the “Granite Wash assets”) from Frontier Gas (collectively, the “Frontier Gas Acquisition” or the “Frontier Assets”). Under the terms of the Transaction Agreement, the aggregate purchase price in connection with the Frontier Gas Acquisition will be approximately $338 million, with an additional $15 million to be paid to Frontier Gas if certain operational objectives are met within six months of the closing date. The final purchase price is payable in cash and CMLP expects to finance the purchase through a combination of equity and debt as described below.

     Frontier Gas, headquartered in Tulsa, Oklahoma, is a privately-held midstream energy services company engaged in the gathering, compression, processing, treating and marketing of natural gas and natural gas liquids.

     The Fayetteville assets consist of approximately 127 miles of high pressure and low pressure gathering pipelines in Arkansas with capacity of approximately 510 MMcfd, treating capacity of approximately 165 MMcfd and approximately 35,000 hp of compression. The Fayetteville assets interconnect with multiple interstate pipelines which serve the Fayetteville Shale and are supported by long-term, fixed-fee contracts with producers who have dedicated approximately 100,000 acres in the core of the Fayetteville Shale to Frontier Gas. These contracts have initial terms that extend through 2020 with a five year extension.

     The Granite Wash assets consist of a 28 mile pipeline system and a 36 MMcfd cryogenic processing plant in the Texas Panhandle. This area has emerged as a liquids-rich natural gas play with active drilling programs and the Granite Wash assets are supported by long-term contracts. We plan to install a second processing plant with 60 MMcfd of capacity to support growth in volumes from this region by the end of 2011.

     In connection with the consummation of the Frontier Gas Acquisition, we anticipate entering into the following additional financing transactions:

• the issuance of approximately 6.2 million units of new Class C limited partner interests, issued at a price of $24.50 per unit to certain institutional investors through a private placement transaction, resulting in gross proceeds of approximately $153 million; and

• the incurrence of $200 million aggregate principal amount of indebtedness.

     For purposes of the unaudited pro forma condensed consolidated financial statements, these additional financing transactions are part of the “Frontier Gas Acquisition.”

     Consummation of the Frontier Gas Acquisition is subject to a number of conditions, including the absence of any material adverse effect on Frontier Gas and the receipt of certain regulatory approvals.

     Upon closing of the Frontier Gas Acquisition, the assets, liabilities and operations of the Frontier Assets, except for certain working capital, other liabilities and members’ equity, will be acquired by CMLP. The acquisition will be accounted for using the purchase method of accounting. The final purchase price allocation is pending the finalization of appraisal valuations of certain tangible and intangible assets acquired, which may result in an adjustment to the preliminary purchase price allocation.

     The unaudited pro forma condensed consolidated financial statements present the impact on our financial position and results of operations of our acquisition of the Frontier Assets. The unaudited pro forma condensed consolidated financial statements as of and for the year ended December 31, 2010 have been prepared based on

certain pro forma adjustments to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2010 and are qualified in their entirety by reference to such historical consolidated financial statements and related notes contained therein. The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the accompanying notes.

     The unaudited pro forma condensed consolidated balance sheet as of December 31, 2010 has been prepared as if the Frontier Gas Acquisition occurred on that date. The unaudited pro forma condensed consolidated statement of income for the year ended December 31, 2010 has been prepared as if the Frontier Gas Acquisition occurred on January 1, 2010.

     The pro forma adjustments are based upon currently available information and certain estimates and assumptions. Therefore, actual adjustments will differ from the pro forma adjustments, and the differences may be material. Management believes, however, that the assumptions provide a reasonable basis for presenting the significant effects of the Frontier Gas Acquisition as contemplated, and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma condensed consolidated financial statements.

     The unaudited pro forma condensed consolidated financial statements may not be indicative of the results that actually would have occurred if we had owned the Frontier Assets during the periods presented.

CRESTWOOD MIDSTREAM PARTNERS LP
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2010

(In thousands, except for unit amounts)

									Crestwood
	Crestwood								Midstream
	Midstream		Frontier Gas		Pro Forma				Partners LP
	Partners LP		Services LLC		Adjustments				Pro Forma
ASSETS
Current assets
Cash and cash equivalents	$	2	$	2,083	$	(2,083	)	(a)	$	2
						346,500		(b)(c)
						(338,000	)	(d)
						(8,500	)	(f)
Accounts receivable		1,679		11,328		(11,328	)	(a)		1,679
Accounts receivable - related party		23,003		—		—				23,003
Prepaid expenses and other		1,052		899		(899	)	(a)		1,802
						750		(d)(e)
Total current assets		25,736		14,310		(13,560	)			26,486
Property, plant and equipment, net		531,371		141,622		(141,622	)	(a)		715,342
						183,971		(d)		—
Intangible assets, net		—		21,926		(21,926	)	(a)		121,200
						121,200		(d)
Goodwill		—		—		52,160		(d)		52,160
Other assets		13,520		1,009		(1,009	)	(a)		19,485
						365		(d)(e)
						5,600		(c)
Total assets	$	570,627	$	178,867	$	185,179			$	934,673
LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities
Current portion of capital leases	$	—	$	2,468	$	(2,468	)	(a)	$	2,566
						2,566		(d)(e)
Accounts payable - related party		4,267		59		(59	)	(a)		4,267
Accrued additions to property, plant and equipment		11,309		—		—				11,309
Accounts payable and other Total current liabilities		2,917		7,482		(7,482	)	(a)		2,917
		18,493		10,009		(7,443	)			21,059
Long-term debt		283,504		6,000		(6,000	)	(a)		483,504
						200,000		(c)
Capital leases		—		6,377		(6,377	)	(a)		6,630
						6,630		(d)(e)
Asset retirement obligations		9,877		—		—				9,877
Commitments and contingent liabilities		—		—		11,250		(d)		11,250
Partners’ capital
Partners’ capital		—		156,481		(156,481	)	(a)		—
Common unitholders		258,069		—		(6,994	)	(f)		251,075
Class C unitholders		—		—		152,100		(b)		150,700
						(1,400	)	(f)
General partner		684		—		(105	)	(f)		579
Total partners’ capital		258,753		156,481		(12,881	)			402,353
	$	570,627	$	178,867	$	185,179			$	934,673

The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.

CRESTWOOD MIDSTREAM PARTNERS LP
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2010

(In thousands, except for per unit amounts)

										Crestwood
	Crestwood									Midstream
	Midstream			Frontier Gas		Pro Forma				Partners LP
	Partners LP			Services LLC		Adjustments				Pro Forma
Revenue
Gas sales	$	—		$	21,225	$	—			$	21,225
Natural gas liquids sales		—			18,155		—				18,155
Condensate sales		—			520		—				520
Gathering revenue - Quicksilver		77,645			—		—				77,645
Gathering revenue		5,749			26,372		—				32,121
Processing revenue - Quicksilver		27,590			—		—				27,590
Processing revenue		2,606			—		—				2,606
Total revenue		113,590			66,272		—				179,862
Expenses
Gas purchases		—			34,351		—				34,351
Operations and maintenance		28,392			10,123		—				38,515
General and administrative		14,967			3,738		—				18,705
Depreciation, amortization and accretion		22,359			8,628		8,623		(g)		39,610
Total expenses		65,718			56,840		8,623				131,181
Operating income		47,872			9,432		(8,623	)			48,681
Gain on business combination		—			11,190		—				11,190
Other income		—			85		(85	)	(a)		—
Interest expense		13,550			120		16,580		(a)(h)		30,250
Income before income taxes		34,322			20,587		(25,288	)			29,621
Income tax provision (benefit)		(550	)		—		—				(550	)
Net income (loss)	$	34,872		$	20,587	$	(25,288	)		$	30,171
General partner interest in net income	$	2,526								$	2,365
Limited partners’ interest in net income		32,346									23,168
Class C partners’ interest in net income	$	—								$	4,638
Net income per limited partner unit - basic	$	1.11								$	0.80
Net income per limited partner unit - diluted	$	1.03								$	0.74
Weighted-average limited partner units outstanding:
Basic		29,070									29,070
Diluted		31,316									37,559

The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.

Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements

Basis of Presentation

     The unaudited pro forma condensed consolidated financial statements present the impact on our financial position and results of operations as a result of our consummation of the Frontier Gas Acquisition. The unaudited pro forma condensed consolidated financial statements as of and for the year ended December 31, 2010 have been prepared based on certain pro forma adjustments to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2010 and are qualified in their entirety by reference to such historical consolidated financial statements and related notes contained therein. The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the accompanying notes.

     The unaudited pro forma condensed consolidated balance sheet as of December 31, 2010 has been prepared as if the Frontier Gas Acquisition occurred on that date. The adjustments to the unaudited pro forma condensed consolidated balance sheet give effect to events that are directly attributable to the transaction, are factually supportable, and include those items that have a continuing impact and also those that are nonrecurring. The unaudited pro forma condensed consolidated statement of income for the year ended December 31, 2010 has been prepared as if the Frontier Gas Acquisition occurred on January 1, 2010. The adjustments to the pro forma condensed consolidated statement of income include those that are directly attributable to the transaction, are factually supportable, and expected to have a continuing impact.

     The pro forma adjustments are based upon currently available information and certain estimates and assumptions. Therefore, actual adjustments will differ from the pro forma adjustments, and the differences may be material. Management believes, however, that the assumptions provide a reasonable basis for presenting the significant effects of the Frontier Gas Acquisition as contemplated, and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma condensed consolidated financial statements.

     The unaudited pro forma condensed consolidated financial statements may not be indicative of the results that actually would have occurred if we had owned the Frontier Assets during the periods presented.

The unaudited pro forma condensed consolidated financial statements reflect the Frontier Gas Acquisition and the expected funding of the acquisition as follows:

• the issuance of approximately 6.2 million units of new Class C limited partner interests for net proceeds of $152.1 million to finance the Frontier Gas Acquisition;

• the incurrence of indebtedness resulting in estimated net proceeds of $194.4 million to finance the Frontier Gas Acquisition;

• the acquisition of substantially all the Frontier Assets;

• the retention by Frontier Gas of working capital, other liabilities and members’ equity, with the exception of certain prepaid items and capital leases; and

• the consideration paid to Frontier Gas at the closing of the Frontier Gas Acquisition consisting of $338 million in cash.

Pro Forma Adjustments and Assumptions

(a) Reflects adjustments to eliminate Frontier Gas activity, cash and cash equivalents and operating assets and liabilities.

(b) Reflects proceeds from the issuance of approximately 6.2 million Class C limited partner units for $152.1 million to finance a portion of the Frontier Gas Acquisition.

(c) Reflects proceeds of borrowings and related financing costs from the incurrence of indebtedness of $194.4 million (assuming no OID) to finance a portion of the Frontier Gas Acquisition.

(d) Reflects the Frontier Gas Acquisition for $349.3 million, less $11.3 million to be paid to Frontier Gas assuming certain operational objectives are met within six months of the closing date. Under the terms of the Transaction Agreement, CMLP has agreed to pay to Frontier Gas up to an additional $15 million if certain operational objectives

are met within six months of the closing date. The $11.3 million payment was determined based on the estimated fair value of the contingent liability associated with Frontier Gas achieving the operational objectives.

The Frontier Gas Acquisition will be accounted for using the purchase method of accounting. The final purchase price allocation is pending the finalization of appraisal valuations of certain tangible and intangible assets acquired, which may result in an adjustment to the preliminary purchase price allocation.

The preliminary purchase price allocation is as follows ($ in thousands):

Purchase price:
Cash	$	338,000
Contingent consideration		11,250
Total purchase price	$	349,250
Preliminary purchase price allocation:
Prepaid expenses and other	$	750
Property, plant and equipment		183,971
Intangible assets		121,200
Goodwill		52,160
Other assets		365
Total assets		358,446
Current portion of capital leases		2,566
Capital leases		6,630
Total liabilities		9,196
Purchase price	$	349,250

(e)	Reflects the fair value of prepaid items and capital leases to be assumed by CMLP.
(f)	Reflects transaction costs associated with the Frontier Gas Acquisition.
(g)	Reflects the adjustment to recognize incremental depreciation and amortization expense resulting from the purchase of the Frontier Assets.
(h)	Reflects the increase in interest expense associated with the incremental debt incurred to finance a portion of the Frontier Gas Acquisition. The effect of a 0.125% variance in interest rates on pro forma interest expense would have been approximately $0.25 million annually.

Pro Forma Net Income Per Limited Partner Unit

Our net income or loss is allocated to the general partner and the limited partners, in accordance with their respective ownership percentages, after allocating Available Cash (as defined in the partnership agreement) generated during the period in accordance with our partnership agreement.

Securities that meet the definition of a participating security are required to be considered for inclusion in the computation of basic earnings per unit using the two-class method. Under the two-class method, earnings per unit is calculated as if all of the earnings for the period were distributed under the terms of the partnership agreement, regardless of whether the general partner has discretion over the amount of distributions to be made in any particular period, whether those earnings would actually be distributed during a particular period from an economic or

practical perspective, or whether the general partner has other legal or contractual limitations on its ability to pay distributions that would prevent it from distributing all of the earnings for a particular period.

These required disclosures do not impact our overall net income or loss or other financial results; however, in periods in which aggregate net income exceeds our Available Cash, it will have the impact of reducing net income per limited partner unit.

Basic and diluted net income or loss per limited partner unit is calculated by dividing limited partners’ interest in net income or loss, by the weighted-average number of outstanding limited partner units during the period, assuming approximately 6.2 million units of new Class C limited partner interests will be issued upon closing of the Frontier Gas Acquisition.