Document for QRE OPERATING LLC vs. PARSONS, ROGER D (IN HIS CAPACITY AS TRUSTEE OF THE LL & E ROYALTY TR

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                                353 NORTH CLARK STREET CHICAGO ILLINOIS 60654-3456 JENNERSBLOCKue

gery APR 1 2014

Anton R. Valukas
April 14, 2014 Tel 312 923-2903

Fax 312 840-7303

avalukas@jenner.com

VIA CERTIFIED MAIL - RETURN RECEIPT REQUESTED

Gregory S. Roden

Quantum Resources Management, LLC —
General Counsel

QR Energy, LP — Senior Vice President, Legal
5 Houston Center

1401 McKinney Street

Suite 2400

Houston, Texas 77010

Re: LL&E Royalty Trust
Dear Mr. Roden:

My law firm represents the LL&E Royalty Trust (the “Trust”), which owns interests in
certain oil and gas properties that currently are operated and managed by QR Energy, LP
(“QRE”) and previously were operated and managed by Quantum Resources Management, LLC
(“QRM”). QRE and QRM are referred to, collectively, herein as “Quantum.” We understand
that you are the senior-most legal officer for QRE and QRM.

I write to address the Trust’s significant concerns regarding Quantum’s fraudulent, illegal
and improper conduct towards the Trust, including, but not limited to, Quantum’s failure to pay
tens of millions of dollars in royalties due to the Trust under the terms of the parties’ written
agreements. The Trust demands Quantum’s immediate attention to the serious issues described
below, as Quantum’s ongoing, illegal actions have caused, and continue to cause, the Trust
substantial harm. Absent Quantum’s prompt attention to the issues raised below, the Trust
intends to pursue all available remedies to protect its legal and business interests.

Quantum’s Failure to Make Contractually-Mandated Royalty Payments to the Trust
In December 2006, QRM purchased from ConocoPhillips and ExxonMobil their

respective working interests in the Jay Field, an oil-producing property located on the
Florida/Alabama state line. In April 2007, QRM became the operator of the Jay Field. Following

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CONFIDENTIAL BREIT_0012565Gregory S. Roden
April 14, 2014
Page 2

its purchase of ConocoPhillips’ working interest in the Jay Field, QRM, and, subsequently QRE,
succeeded to the duties and obligations of the “Assignor,” as that term is defined and used in the
Conveyance of Overriding Royalty Interests related to the “Jay Field Property,” dated June 28,
1983 (the “Conveyance”). The Trust is the “Assignee” as that term is used in the Conveyance.

Among Quantum’s obligations to the Trust under the Conveyance are those defined in
Article VIII. Article VIII(a) of the Conveyance states, in relevant part, that:

“Assignor shal! use its best efforts to pay to Assignee the amounis attributable to the
Overriding Royalty Interests (the ‘Payment Amounts’), with respect to the Net Proceeds for
each month, on the Monthly Record Date for the third (3) month following such month. In
no event shall amounts payable to Assignee hereunder be paid later than the next succeeding
Monthly Record Date following the Monthly Record Date as to which such amounts are
payable pursuant to this paragraph (a).”

Where specific conditions are satisfied, subsection (e) of Article VIII of the Conveyance
permits Quantum to place into a “Special Cost Escrow Account” certain funds that otherwise
would be distributed to the Trust as “Overriding Royalty Interests” under Article VIII(a) of the
Conveyance. Article VIII(e) places a limit on the amount of funds that Quantum may place in
the “Special Cost Escrow Account,” as follows: “[a]t such time as the amount in the Special Cost
Escrow Account for the Property exceeds 125% of the aggregate estimated future Special Costs
for the Property, no further amount shall be placed in such escrow until such time as the
Escrowed Funds in the Special Cost Escrow Account shall again be less than 125% of said
aggregate estimated future Special Costs.” Section 1.22 of the Conveyance defines “Special
Costs” as “(a) the estimated costs of plugging and abandoning the wells on the Property,
dismantling of platforms and other costs and expenses of abandoning the Property, net of
estimated salvage value of equipment on the Property, as estimated by Assignor, (b) estimated
future capital expenditures on the Property, as estimated by the Assignor, and (c) an estimate of
the lesser of $7,560,000 or 170% of the IDC Recapture Gain and 100% of the 1DC Recapture
Interest referred to in Section 1.18(a), (viii) and (ix).”

Despite the clear and unambiguous language of Article VIII(a) of the Conveyance, the
last recurring Overriding Royalty Interest payment that Quantum made to the Trust was prior to
April 2007, more than seven years ago, with a single subsequent non-recurring payment made in
September 2008. At the same time as Quantum was routinely refusing to make its contractually-
obligated royalty payments to the Trust, the unaudited balance in the Special Cost Escrow
Account specific to the Jay Field ballooned from approximately $4.5 million as of December 31,
2010 to $40 million in November 2013, the last time Quantum provided the Trust with an
account balance. Based upon information available to the Trust, the Trust estimates that the
balance in the Special Cost Escrow Account is at least $46 million at present. Quantum’s
conduct with respect to Overriding Royalty Interest payments, including the passage of many

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April 14, 2014
Page 3

years since Quantum last made a payment, demonstrates that Quantum never again intends to
make a royalty payment to the Trust under the Conveyance and instead will continue to revise
the balance of the Special Cost Escrow Account in Quantum’s unilateral — and illegal — interests.

It is the Trust’s position that Quantum’s actions, including, but not limited to: (a) refusing
to make the Overriding Royalty Interest payments to the Trust, pursuant to Article VIII(a) of the
Conveyance, for over seven years; (b) increasing the amount of the Special Cost Escrow
Account by approximately $40 million in the last three years, while at the same time refusing to
make any royalty payments to the Trust and (c) holding the Special Cost Escrow Account funds
in an internal Quantum account, rather than with an independent escrow agent, while refusing to
make royalty payments, breach the terms of the Conveyance and otherwise violate the Trust’s
legal rights. To the extent Quantum purports to rely upon Article VIII(e) and/or Section 1.22 of
the Conveyance to support Quantum’s funding of the Special Cost Escrow Account based upon
alleged, indefinite Jay Field capital expenditure costs that may arise in the future, that
interpretation conflicts with the terms of the Conveyance and the Trust’s rights. Moreover,
Quantum’s apparent interpretation of the Conveyance’s terms, and Quantum’s corresponding
conduct towards the Trust, has the practical effect of injuring the Trust’s right to receive the
fruits of the Conveyance that the Trust previously bargained for. In addition to claims for breach
of contract and breach of the duty of good faith and fair dealing, the Trust views Quantum’s
conduct as giving rise to, at a minimum, a claim for breach of fiduciary duty, a claim for
conversion and the right to demand an accounting of Quantum’s books and records.

For at least the reasons stated above, the Trust demands Quantum immediately: (1) pay
the Trust its portion of the Special Cost Escrow Account, specifically, 50% of the total current
balance; (2) begin making monthly Overriding Royalty Interest payments to the Trust on a
monthly basis, as required by Article VII(a) of the Conveyance; and (3) transfer the entirety of
the balance in the Special Cost Escrow Account from the internal Quantum account and into an
account controlled by an independent escrow agent.

Quantum’s Failure to Cooperate in Audit Process

Under Article XVII(b) of the Conveyance, “Assignor shall provide the nationally
recognized firm of independent public accountants selected by Assignee, which firm shall not be
unacceptable to Assignor in the exercise of reasonable business judgment (the ‘Independent
Accountants’), with access, at the office of Assignor during normal business hours, to Assignor’s
books and records, which books and records shall be true and correct in all material aspects and
sufficient to enable the Independent Accountants to verify the correctness of the amounts paid
and payable to Assignee as the owner of the Overriding Royalty Interests.”

As Quantum is aware, in September 2013, the Trust hired BRI Consulting Group
(“BRI”), of Houston, to conduct a joint interest audit on behalf of the Trust. While Quantum has

CONFIDENTIAL BREIT_0012567Gregory S. Roden
April 14, 2014
Page 4

provided certain information requested by BRI, the Trust understands that, despite the language
of Article XVII(b) of the Conveyance, Quantum has refused to provide BRI other information
that BRI repeatedly has requested in connection with its audit work. The Trust requests that
Quantum provide to BRI any and all information or data previously requested by BRI in
connection with its ongoing audit.

Quantum’s Pattern of Conduct Demonstrates that Quantum Never Intended to Perform Its
Obligations Under the Conveyance

In addition to Quantum’s numerous breaches of the Conveyance and breaches of its
fiduciary duties to the Trust, the evidence demonstrates that Quantum never intended to satisfy
its obligations to the Trust under the Conveyance. Rather, from virtually the moment Quantum
purchased the Jay Field working interests in December 2006, Quantum has engaged in a pattern
of conduct aimed at treating the Trust assets as a virtual piggy bank into which Quantum
believed it was free to dip and make off with revenues rightfully belonging to the Trust.

As noted above, Quantum purchased the working interests in the Jay Field in December
2006 and became the operator of the Jay Field in April 2007. Almost immediately, Quantum
announced a decision to shut down the Jay Field for operational improvement and/or repairs.
Also immediately upon purchasing the Jay Field working interests, Quantum ceased making its
contractually-obligated Overriding Royalty Interest payments to the Trust and, as noted above,
has failed to make any recurring royalty interest payment to the Trust since before April 2007.
During that same period of time, Quantum unilaterally increased the balance in the Special Cost
Escrow Account to more than $40 million. Quantum’s refusal to pay Overriding Royalty Interest
payments to the Trust has continued since the December 28, 2012 transaction by which QRE
purchased the Jay Field interests.

In December 2009, The Bank of New York Mellon Trust Company, N.A. (“BNY”), the
former trustee of the Trust, began efforts to sell the Trust assets via a public auction. We
understand that prospective bidders other than QRM were discouraged or prevented from
participating in the auction and bidding on the assets. We believe that this may have been a result
of coordinated efforts between QRM and the prior trustee and represents further evidence of
Quantum’s plan to exert complete, unilateral control over the Trust assets to the detriment of the
Trust.

The actions described above, first by QRM and, later, collectively by QRM and QRE, as
well as potentially as-yet-undiscovered Quantum conduct, reveal that Quantum never intended to
perform its obligations under the Conveyance or permit the Trust to fully realize the revenues
and other benefits to which it was legally entitled. Such facts give rise to a claim of fraud against
Quantum.

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April 14, 2014
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The Trust’s Reservation of Rights

The Trust plans to closely review the results of BRI’s joint interest audit when BRI
completes its work. The Trust thus expressly reserves, and does not waive, any of its rights under
the Conveyance, or applicable law, to raise with Quantum any other issues related to the Trust’s
rights or Quantum’s duties and obligations to the Trust, whether raised in the BRI audit findings
or otherwise.

It is the Trust’s hope that it and Quantum can engage in meaningful, productive
discussions regarding the issues raised above. Please let me know if Quantum is interested in
doing so. If not, the Trust is fully prepared to pursue any and all of its legal rights arising out of
Quantum’s fraudulent, illegal conduct. Given the significance of the issues described above, the
Trust requests Quantum respond to this letter, in writing, within thirty (30) days.

Very yaoly .

Anton R. Valukas

CONFIDENTIAL BREIT_0012569