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

QRCP owns the right to develop more than 122,000 net acres within the recognized fairway of the emerging Marcellus Shale play in the Appalachian Basin and more than 7,000 net acres outside the fairway. QRCP plans to drive reserve and production growth through the development of this large acreage position. The development of this acreage will require significant amounts of additional capital resources.

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.

QRCP currently has one rig drilling the two horizontal wells in Wetzel County that will be moved to Lewis County upon completion of these wells. A contractor has begun preparing the drilling location in Lycoming County for a rig that is expected to be on location by the middle of October. A rig is expected to arrive on location in Ritchie County to drill the two vertical wells within the next 10 days.

QRCP must drill these wells to satisfy obligations under various leases with deadlines prior to the end of the year. If QRCP did not drill some or all of these wells, it could potentially lose leases covering up to approximately 15,000 net acres in the Appalachian Basin.

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.

Tags: Quest Resource Corporation