775351--3/10/2008--QUEST_RESOURCE

related topics

{gas, price, oil}

{acquisition, growth, future}

{loss, insurance, financial}

{stock, price, share}

{cost, regulation, environmental}

{operation, natural, condition}

{stock, price, operating}

{capital, credit, financial}

{debt, indebtedness, cash}

{competitive, industry, competition}

{financial, litigation, operation}

{provision, law, control}

{investment, property, distribution}

{personnel, key, retain}

{customer, product, revenue}

{loan, real, estate}

Future price declines may result in a write-down of our asset carrying values. Unless we replace the reserves that we produce, our existing reserves and production will decline, which would adversely affect our revenues, profitability and cash flows. We may not be able to replace our reserves or generate cash flows if we are unable to raise capital. If we borrow money to expand our business, we will face the risks of leverage. Our credit agreements contain operating and financial restrictions that may restrict our business and financing activities. We are exposed to trade credit risk in the ordinary course of our business activities. There is a significant delay between the time we drill and complete a CBM well and when the well reaches peak production. As a result, there will be a significant lag time between when we expend capital expenditures and when we will begin to recognize significant cash flow from those expenditures. Our estimated proved reserves are based on many assumptions that may prove to be inaccurate. Any material inaccuracies in these reserve estimates or underlying assumptions will materially affect the quantities and present value of our reserves. Drilling for and producing gas are costly and high-risk activities with many uncertainties that could adversely affect our financial condition or results of operations. Our hedging activities could result in financial losses or reduce our income. Because of our lack of asset and geographic diversification, adverse developments in our operating area would adversely affect our results of operations. We may be unable to compete effectively with larger companies, which may adversely affect our results of operations. We may have difficulty managing growth in our business. Our business involves many hazards and operational risks, some of which may not be fully covered by insurance. If a significant accident or event occurs that is not fully insured, our operations and financial results could be adversely affected. Our operations expose us to significant costs and liabilities with respect to environmental and operational safety matters applicable to gas and oil exploitation and production operations. We are subject to complex federal, state, local and other laws and regulations that could adversely affect the cost, manner or feasibility of conducting our operations. We may face unanticipated water disposal costs. Shortages of crews could delay our operations, adversely affect our ability to increase our reserves and production and adversely affect our results of operations. We depend on two customers for sales of our gas. To the extent these customers reduce the volumes of gas they purchase from us and are not replaced by new customers, our revenues and net income could decline. Certain of our undeveloped leasehold acreage is subject to leases that may expire in the near future. Our identified drilling location inventories will be developed over several years, making them susceptible to uncertainties that could materially alter the occurrence or timing of their drilling, resulting in temporarily lower cash from operations, which may impact our results of operations. We may incur losses as a result of title deficiencies in the properties in which we invest. Pipeline integrity programs and repairs may impose significant costs and liabilities. Growing our business by constructing new pipelines and new processing and treating facilities or making modifications to our existing facilities subjects us to construction risks and risks that adequate natural gas supplies will not be available upon completion of the facilities. Our regulated natural gas pipeline s transportation rates are subject to review and possible adjustment by federal regulators. Our interstate natural gas pipeline has recorded certain assets that may not be recoverable from our customers. Reduction in firm reservation agreements and the demand for interruptible services could cause significant reductions in our revenues and operating results. Decreases in the availability of natural gas supplies could have a significant negative impact on our revenues and results of operations. Operational limitations of the pipeline system could cause a significant decrease in our revenues and operating results. Decreases in demand for natural gas may reduce our revenues and operating results. Competitive pressures could reduce our revenues and operating results. The revenues of our interstate pipeline business are generated under contracts that must be renegotiated periodically. Fluctuations in energy commodity prices could adversely affect our pipeline businesses. Quest Energy and Quest Midstream may not have sufficient cash flow from operations to pay the minimum quarterly distribution, or MQD, to us on our subordinated units following the establishment of cash reserves and payment of fees and expenses and payment of the MQD on their common units. We depend on a limited number of key management personnel, who would be difficult to replace. If we do not make acquisitions on economically acceptable terms, our future growth and profitability will be limited. Any acquisitions we complete are subject to substantial risks that could reduce our profitability. Risks Related to the Pinnacle Merger To develop our current reserves and the reserves acquired from Pinnacle, we will require significant additional capital. The value of the consideration received by Pinnacle stockholders will vary with the value of our common stock. The integration of Pinnacle following the Merger will present significant challenges that may reduce the anticipated potential benefits of the merger. We and Pinnacle will incur significant transaction and merger-related integration costs in connection with the Merger. While the Merger is pending, we will be subject to business uncertainties and contractual restrictions that could adversely affect their businesses. Failure to complete the Merger could negatively impact our stock price and future business and financial results because of, among other things, the disruption that would occur as a result of uncertainties relating to a failure to complete the Merger. The Merger Agreement limits our ability to pursue an alternative acquisition proposal and requires us to pay a termination fee of up to $3.0 million if we do. The price of Quest s common stock may experience volatility following the consummation of the Merger. Risks Relating to Our Common Stock Our stock price may be volatile. It is unlikely that we will be able to pay dividends on our common stock. The percentage ownership evidenced by the common stock is subject to dilution. Our common stock is an unsecured equity interest. Provisions in Nevada law could delay or prevent a change in control, even if that change would be beneficial to our stockholders.

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775351--3/10/2008--QUEST_RESOURCE_CORP