Quest Energy Partners and Quest Resource Corporation announced that the Partnership's lenders have completed a semi-annual review of the borrowing base pursuant to the terms of the Partnership's first lien, revolving credit agreement. Based on this review, the borrowing base of the first lien, revolving credit agreement was reduced to $160 million, down from the prior level of $190 million. As of July 3, 2009, borrowings outstanding under the Partnership's first lien, revolving credit agreement were $174 million while cash balances were approximately $28 million. QELP intends to use existing cash balances to eliminate the $14 million borrowing base deficiency.
In anticipation of a reduction in the borrowing base, QELP amended or exited certain of its above market natural gas price derivative contracts in June 2009 for periods beginning in the second quarter of 2010 through the fourth quarter of 2012 and, in return, received approximately $26 million. The strike prices on the derivative contracts that QELP did not exit were set to market prices at the time. At the same time, QELP entered into new natural gas price derivative contracts to increase the total amount of its future proved developed natural gas production hedged to approximately 85% through 2013. On June 30, 2009, QELP made a principal payment of $15 million on its first lien, revolving credit agreement with the proceeds from this monetization. A detailed summary of the Partnership's natural gas and oil price derivative contracts has been posted to the "Investors" section of the Partnership's website, www.qelp.net.
David C. Lawler, President and Chief Executive Officer of QELP said, "Since August 2008, we have made operational efficiency and debt reduction two of our Partnership's primary objectives. I am pleased to report that we have made significant progress on both fronts, including entering into a definitive agreement to merge Quest Energy Partners with the other two Quest entities and significantly reducing debt with a combination of cash generated by our operations, monetizing a portion of our natural gas price derivative contracts, and by suspending our quarterly distribution payments. The Partnership's next hurdle is the maturation of our second lien term loan on September 30, 2009. We continue to diligently pursue various options to restructure or refinance this term loan."
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