Exhibit 10.2
 
SECOND AMENDED AND RESTATED
 
ADMINISTRATIVE SERVICES AGREEMENT
 
AMONG
 
ENCORE ENERGY PARTNERS GP LLC,
 
ENCORE ENERGY PARTNERS LP,
 
ENCORE OPERATING, L.P.,
 
DENBURY RESOURCES INC.,
 
ENCORE ENERGY PARTNERS OPERATING LLC,
 
AND
 
VANGUARD NATURAL GAS, LLC
 

 
 

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TABLE OF CONTENTS
 
ARTICLE I
DEFINITIONS
1

 
Section 1.1
Definitions
1
Section 1.2
Construction
4

 
ARTICLE II
RETENTION OF VANGUARD; SCOPE OF SERVICES
5

 
Section 2.1
Retention of Vanguard
5
Section 2.2
Scope of Services
5
Section 2.3
Exclusion of Services
5
Section 2.4
Performance of Services by Affiliates and Third Parties
5
Section 2.5
Intellectual Property
6
Section 2.6
Appointment of Independent Accounting Firm and Independent Petroleum Engineer
6

 
ARTICLE III
BOOKS, RECORDS AND REPORTING
6

 
Section 3.1
Books and Records
6
Section 3.2
Audits
6
Section 3.3
Reports
7

 
ARTICLE IV
PAYMENT AMOUNT
7

 
Section 4.1
Payment Amount
7
Section 4.2
Payment of Payment Amount
7
Section 4.3
Disputed Charges
7
Section 4.4
Set Off
8
Section 4.5
Vanguard’s Employees
8
Section 4.6
Approval of Expenses
8
Section 4.7
Tax Reimbursement
9

 
ARTICLE V
FORCE MAJEURE
9

 
ARTICLE VI
ASSIGNMENTS AND SUBCONTRACTS
9

 
Section 6.1
Assignments
9
Section 6.2
Other Requirements
10

 
ARTICLE VII
TERMINATION
10

 
 
Section 7.1
Termination by the Partnership on behalf of the Partnership Group
10
Section 7.2
Termination by Vanguard
11
Section 7.3
Effect of Termination
11

 
 
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ARTICLE VIII
CONFIDENTIAL INFORMATION
11

 
Section 8.1
Nondisclosure
11
Section 8.2
Permitted Disclosure
11

 
ARTICLE IX
LIMITATION OF LIABILITY; INDEMNIFICATION
11

 
Section 9.1
Limitation of Vanguard’s Liability
11
Section 9.2
Partnership’s Indemnity
12
Section 9.3
Limitation of Damages
12
Section 9.4
Affiliate; Third Parties
12

 
ARTICLE X
DISPUTE RESOLUTION
12

 
 
ARTICLE XI
GENERAL PROVISIONS
13

 
Section 11.1
Notices
13
Section 11.2
Further Action
13
Section 11.3
Binding Effect
13
Section 11.4
Integration
13
Section 11.5
Creditors
14
Section 11.6
Waiver
14
Section 11.7
Counterparts
14
Section 11.8
Applicable Law
14
Section 11.9
Invalidity of Provisions
14
Section 11.10
Amendment of Restatement
14
Section 11.11
Directly or Indirectly
14

 

 
 
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SECOND AMENDED AND RESTATED
 
ADMINISTRATIVE SERVICES AGREEMENT
 
THIS SECOND AMENDED AND RESTATED ADMINISTRATIVE SERVICES AGREEMENT is entered
into on and effective as of December 31, 2010 (the “Effective Date”), among
Encore Energy Partners GP LLC, a Delaware limited liability company (the
“General Partner”), Encore Energy Partners LP, a Delaware limited partnership
(the “Partnership”), Encore Operating, L.P., a Texas limited partnership
(“Encore Operating”), Denbury Resources Inc., a Delaware corporation and the
successor by merger to Encore Acquisition Company (“DRI”), Encore Energy
Partners Operating LLC, a Delaware limited liability company (the “Operating
Company”) and Vanguard Natural Gas, LLC, a Kentucky limited liability company
(“Vanguard,” and collectively with the General Partner, the Partnership,
the  Operating Company, the “Parties” and each, a “Party”), and amends and
restates in its entirety the Amended and Restated Administrative Services
Agreement dated as of September 17, 2007 (the “First A&R Agreement”).
 
RECITALS
 
A.           The Partnership is the owner, directly or indirectly, of interests
in the Business (as hereinafter defined);
 
B.           The Partnership Group (as hereinafter defined) requires certain
services to operate the Business and to fulfill other general and administrative
functions relating to the Business;
 
C.           Encore Operating has historically provided such services to the
Partnership Group, but the Partnership Group, DRI and Encore Operating desire to
amend and restated the First A&R Agreement to provide that Vanguard will provide
such services, and Vanguard is willing to undertake such engagement, subject to
the terms and conditions of this Agreement;
 
D.           The Partnership Group, Encore Operating and DRI, as parties to the
First A&R Agreement, and in accordance with Section 11.10 of the First A&R
Agreement, wish to amend and restate the First A&R Agreement to reflect the
substitution of Vanguard for Encore Operating and DRI and the elimination as of
the Effective Date of all of the rights and obligations of DRI and Encore
Operating under this Agreement.
 
NOW, THEREFORE, the General Partner, the Partnership, DRI, Encore Operating, the
Operating Company and Vanguard agree as follows:
 
ARTICLE I
 
DEFINITIONS
 
Section 1.1 Definitions.  The following definitions shall be for all purposes,
unless otherwise clearly indicated to the contrary, applied to the terms used in
this Agreement.
 
“Administrative Fee” is defined in Section 4.1.
 
“Affiliate” means, with respect to any Person, any other Person that directly or
indirectly through one or more intermediaries controls, is controlled by or is
under common control with, the Person in question.  As used herein, the term
“control” means the possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of a Person, whether through
ownership of voting securities, by contract or otherwise.
 
 
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“Agreement” means this Second Amended and Restated Administrative Services
Agreement, as it may be amended, supplemented or restated from time to time.
 
“Bankrupt” with respect to any Person means such Person shall generally be
unable to pay its debts as such debts become due, or shall so admit in writing
or shall make a general assignment for the benefit of creditors; or any
proceeding shall be instituted by or against such Person seeking to adjudicate
it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of it or its debts
under any law relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment of a
receiver, trustee, or other similar official for it or for any substantial part
of its property and, in the case of any such proceeding instituted against it
(but not instituted by it), shall remain undismissed or unstayed for a period of
30 days; or such Person shall take any action to authorize any of the actions
set forth above.
 
“BOE” means one barrel of oil equivalent, calculated by converting natural gas
to oil equivalent barrels at a ratio of six thousand cubic feet of natural gas
to one stock tank barrel, or 42 U.S. gallons liquid volume, of oil.
 
“Business” means the business of the Partnership Group.
 
“Confidential Information” means non-public information about the disclosing
Party’s or any of its Affiliates’ business or activities that is proprietary and
confidential, which shall include, without limitation, all business, financial,
technical and other information, including software (source and object code) and
programming code, of a Party or its Affiliates marked or designated
“confidential” or “proprietary” or by its nature or the circumstances
surrounding its disclosure it should reasonably be regarded as
confidential.  Confidential Information includes not only written or other
tangible information, but also information transferred orally, visually,
electronically or by any other means.  Confidential Information does not include
information that (i) is in or enters the public domain without breach of this
Agreement, or (ii) the receiving Party lawfully receives from a third party
without restriction on disclosure and to the receiving Party’s knowledge without
breach of a nondisclosure obligation.
 
“COPAS” means the Council of Petroleum Accountants Societies.
 
“Damages” is defined in Section 9.1.
 
“Default Rate” means an interest rate (which shall in no event be higher than
the rate permitted by applicable law) equal to the prime interest rate of the
Operating Company’s principal lender.
 
“DRI” is defined in the introductory paragraph.
 
“Encore Operating” is defined in the introductory paragraph.
 
 
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 “Effective Date” is defined in the introductory paragraph.
 
 “Environmental Law” means current local, county, state, federal, and/or foreign
law (including common law), statute, code, ordinance, rule, order, judgment,
decree, regulation or other legal obligation relating to the protection of
health, safety or the environment or natural resources, including, without
limitation, the Comprehensive Environmental Response Compensation and Liability
Act (42 U.S.C. section 9601 et seq.), as amended, the Resource Conservation and
Recovery Act (42 U.S.C. section 6901 et seq.), as amended, the Federal Water
Pollution Control Act (33 U.S.C. section 1251 et seq.), as amended, the Clean
Air Act (42 U.S.C. section 7401 et seq.), as amended, the Toxic Substances
Control Act (15 U.S.C. section 2601 et seq.), as amended, the Occupational
Safety and Health Act (29 U.S.C. section 651 et seq.), as amended, the Safe
Drinking Water Act (42 U.S.C. section 300(f) et seq.), as amended, analogous
state, tribal or local laws, and any similar, implementing or successor law, and
any amendment, rule, regulation, or directive issued thereunder, including any
determination by, or interpretation of any of the foregoing by any Governmental
Authority that has the force of law.
 
“First A&R Agreement” is defined in the introductory paragraph.
 
“Force Majeure” means any cause beyond the reasonable control of a Party,
including the following causes (unless they are within such Party’s reasonable
control): acts of God, strikes, lockouts, acts of the public enemy, wars or
warlike action (whether actual or impending), arrests and other restraints of
government (civil or military), blockades, embargoes, insurrections, riots,
epidemics, landslides, lightning, earthquakes, fires, sabotage, tornadoes, named
tropical storms and hurricanes, floods, civil disturbances, terrorism,
mechanical breakdown of machinery or equipment, explosions, confiscation or
seizure by any government or other public authority and any order of any court
of competent jurisdiction, regulatory agency or governmental body having
jurisdiction.
 
“G&A Services” means those general and administrative services necessary or
useful for the conduct of the business of the Partnership Group, including, but
not limited to, accounting, corporate development, finance, land, marketing,
legal and engineering.
 
“General Partner” is defined in the introductory paragraph.
 
“Governmental Approval” means any material consent, authorization, certificate,
permit, right-of-way grant or approval of any Governmental Authority that is
necessary for the construction, ownership and operation of the Business in
accordance with applicable Laws.
 
“Governmental Authority” means any court or tribunal in any jurisdiction or any
federal, state, tribal, municipal or local government or other governmental
body, agency, authority, department, commission, board, bureau, instrumentality,
arbitrator or arbitral body or any quasi-governmental or private body lawfully
exercising any regulatory or taxing authority.
 
“Laws” means any applicable statute, Environmental Law, common law, rule,
regulation, judgment, order, ordinance, writ, injunction or decree issued or
promulgated by any Governmental Authority.
 
“Operating Company” is defined in the introductory paragraph.
 
 
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“Parties” is defined in the introductory paragraph.
 
“Partnership” is defined in the introductory paragraph.
 
“Partnership Agreement” means the Second Amended and Restated Agreement of
Limited Partnership of the Partnership, as may be amended or restated from time
to time.
 
“Partnership Group” means the General Partner, the Partnership, the Operating
Company and all of their respective Subsidiaries.
 
“Partnership Group Party” is defined in Section 9.1.
 
“Payment Amount” is defined in Section 4.1.
 
“Person” means an individual or a corporation, limited liability company,
partnership, joint venture, trust, unincorporated organization, association,
government agency or political subdivision thereof or other entity.
 
“Services” is defined in Section 2.2.
 
“Subsidiary” means, with respect to any Person, (a) a corporation of which more
than 50% of the voting power of shares entitled (without regard to the
occurrence of any contingency) to vote in the election of directors or other
governing body of such corporation is owned, directly or indirectly, at the date
of determination, by such Person, by one or more Subsidiaries of such Person or
a combination thereof, (b) a partnership (whether general or limited) in which
such Person or a Subsidiary of such Person is, at the date of determination, a
general or limited partner of such partnership, but only if more than 50% of the
partnership interests of such partnership (considering all of the partnership
interests of the partnership as a single class) is owned, directly or
indirectly, at the date of determination, by such Person, by one or more
Subsidiaries of such Person, or a combination thereof, or (c) any other Person
(other than a corporation or a partnership) in which such Person, one or more
Subsidiaries of such Person, or a combination thereof, directly or indirectly,
at the date of determination, has (i) at least a majority ownership interest or
(ii) the power to elect or direct the election of a majority of the directors or
other governing body of such Person.
 
“Vanguard” is defined in the introductory paragraph.
 
“Vanguard Group” means Vanguard and its Affiliates (other than any member of the
Partnership Group).
 
Other terms defined herein have the meanings so given them.
 
Section 1.2 Construction.
 
Unless the context requires otherwise: (a) any pronoun used in this Agreement
shall include the corresponding masculine, feminine or neuter forms, and the
singular form of nouns, pronouns and verbs shall include the plural and vice
versa; (b) references to Articles and Sections refer to Articles and Sections of
this Agreement; (c) references to Exhibits refer to the Exhibits attached to
this Agreement, each of which is made a part hereof for all purposes; (d) the
terms “include”, “includes”, “including” and words of like import shall be
deemed to be followed by the words “without limitation”; (e) the terms “hereof,”
“herein” and “hereunder” refer to this Agreement as a whole and not to any
particular provision of this Agreement; and (f) references to money refer to
legal currency of the United States of America.  The table of contents and
headings contained in this Agreement are for reference purposes only, and shall
not affect in any way the meaning or interpretation of this Agreement.
 
 
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ARTICLE II
 
RETENTION OF VANGUARD; SCOPE OF SERVICES
 
Section 2.1 Retention of Vanguard; Substitution for DRI and Encore
Operating.  The Partnership hereby engages Vanguard, in substitution for DRI and
Encore Operating, to perform the Services as directed by the General Partner,
and to provide all personnel and any facilities, goods and equipment not
otherwise provided by the Partnership Group necessary to perform the
Services.  Vanguard hereby accepts such engagement and agrees to perform the
Services requested by the General Partner and to provide any personnel,
facilities, goods and equipment not otherwise provided by the Partnership Group,
and to provide all employees as may be reasonable and necessary to perform the
Services.  From and after the Effective Date, as a result of the substitution of
Vanguard for DRI and Encore Operating, DRI and Encore Operating shall have no
further rights or obligations under this Agreement, provided that the rights and
obligations of DRI and Encore Operating, and with respect to Article IX other
Persons as provided therein, arising under the First A&R Agreement and which
relate to the period prior to the Effective Date, will survive such substitution
and may be enforced by or against DRI, Encore Operating and such other Persons
after the Effective Date.
 
Section 2.2 Scope of Services.  The “Services” shall consist of such services
the General Partner determines may be reasonable and necessary to operate the
Business, including, without limitation, any G&A Services and those services
described on Schedule I hereto.  Vanguard hereby covenants and agrees that the
Services will be performed in accordance with (i) applicable material
Governmental Approvals and Laws and (ii) industry standards.
 
Section 2.3 Exclusion of Services.  The General Partner may temporarily or
permanently exclude any particular service from the scope of the Services upon
90 days’ notice to Vanguard.
 
Section 2.4 Performance of Services by Affiliates and Third Parties.  The
Parties hereby agree that in discharging its obligations hereunder, Vanguard may
engage any of its Affiliates or any qualified third party to perform the
Services (or any part of the Services) on its behalf and that the performance of
the Services (or any part of the Services) by any such Affiliate or third party
shall be treated as if Vanguard performed such Services itself.  Notwithstanding
the foregoing, nothing contained herein shall relieve Vanguard of its
obligations hereunder.
 
 
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Section 2.5 Intellectual Property.
 
(a) Any (i) inventions, whether patentable or not, developed or invented, or
(ii) copyrightable material (and the intangible rights of copyright therein)
developed, by Vanguard, its Affiliates or its or their employees in connection
with the performance of the Services shall be the property of Vanguard;
provided, however, that the Partnership Group shall be granted an irrevocable,
royalty-free, non-exclusive and non-transferable right and license to use such
inventions or material; and further provided, however, that the Partnership
Group shall only be granted such a right and license to the extent such grant
does not conflict with, or result in a breach, default, or violation of a right
or license to use such inventions or material granted to Vanguard by any Person
other than an Affiliate of Vanguard.  Notwithstanding the foregoing, Vanguard
will use all commercially reasonable efforts to grant such right and license to
the Partnership Group.
 
(b) The General Partner, the Partnership and the Operating Company hereby grant
to Vanguard and its Affiliates an irrevocable, royalty-free, non-exclusive and
non-transferable right and license to use, during the term of this Agreement,
any intellectual property provided by the Partnership Group to Vanguard and its
Affiliates, but only to the extent such use is necessary for the performance of
the Services.  Vanguard agrees that it and its Affiliates will utilize such
intellectual property solely in connection with the performance of the Services.
 
Section 2.6 Appointment of Independent Accounting Firm and Independent Petroleum
Engineer.  Notwithstanding anything to the contrary in this Agreement, the
Parties hereby acknowledge and agree that the General Partner shall have the
exclusive authority to appoint an independent registered public accounting firm
to audit the financial statements of the Partnership and an independent
petroleum engineer to provide reports to the Partnership relating to estimates
of proved reserves for Securities and Exchange Commission and other reporting
purposes.
 
ARTICLE III
 
BOOKS, RECORDS AND REPORTING
 
Section 3.1 Books and Records.  Vanguard shall maintain accurate books and
records regarding the performance of the Services and its calculation of the
Payment Amount, and shall maintain such books and records for the period
required by applicable accounting practices or Law.
 
Section 3.2 Audits.  The Partnership shall have the right, upon reasonable
notice, and at all reasonable times during usual business hours, to audit,
examine and make copies of the books and records referred to in Section
3.1.  Such right may be exercised through any agent or employee of the
Partnership Group designated in writing by it or by an independent public
accountant, engineer, attorney or other agent so designated.  The Partnership
shall bear all costs and expenses incurred in any inspection, examination or
audit.  Vanguard shall review and respond in a timely manner to any claims or
inquiries made by the Partnership regarding matters revealed by any such
inspection, examination or audit.
 
 
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Section 3.3 Reports.  Vanguard shall prepare and deliver to the Partnership any
reports provided for in this Agreement and such other reports as the Partnership
may reasonably request from time to time regarding the performance of the
Services.
 
ARTICLE IV
 
PAYMENT AMOUNT
 
Section 4.1 Payment Amount.
 
(a) The Partnership shall on a quarterly basis (i) pay Vanguard a fixed fee of
$2.06 per BOE of the Partnership Group’s total net oil and gas production for
the then completed quarter (the “Administrative Fee”) and (ii) reimburse
Vanguard for all third-party expenses that Vanguard incurs on behalf of the
Partnership Group (collectively with the Administrative Fee, the “Payment
Amount”).  In addition to the Payment Amount, Vanguard shall be entitled to
retain any COPAS overhead charges associated with drilling and operating wells
that would otherwise be paid by third parties to the operator of a well.  For
the avoidance of doubt, the Partnership will pay all expenses that are directly
chargeable to wells under their respective joint operating agreements.
 
(b) The Administrative Fee shall increase in the following circumstances:
 
(i) Beginning on the first day of April in each year beginning with April 1,
2011 the Administrative Fee shall increase by an amount equal to the product of
the then-current Administrative Fee multiplied by COPAS Wage Index Adjustment
for the current year.
 
(ii) If the Partnership or any other member of the Partnership Group acquires
additional assets, then Vanguard may propose a revised Administrative Fee that
covers the provision of Services for such additional assets.  If the General
Partner, on behalf of the Partnership Group and with the concurrence of the
conflicts committee of the board of directors of the General Partner, agrees to
such revised Administrative Fee, Vanguard shall provide Services for the
additional assets pursuant to the terms set forth herein.
 
(iii) If the Partnership and Vanguard otherwise agree to increase the
Administrative Fee; provided, however, that any such increase shall be approved
by the board of directors of the General Partner with the concurrence of the
conflicts committee of such board.
 
Section 4.2 Payment of Payment Amount.  Vanguard shall invoice the Partnership
within 25 days after the close of each quarter for the estimated Payment Amount,
plus or minus any adjustment necessary to correct prior estimated billings to
actual billings.  Subject to Section 4.3, all invoices shall be due and payable,
in immediately available funds, within thirty days after receipt of each
invoice.  Upon the request of the Partnership, Vanguard shall furnish a
reasonable detail of the Services provided and charges assessed during any
quarter.
 
Section 4.3 Disputed Charges.  THE PARTNERSHIP MAY, WITHIN 120 DAYS AFTER
RECEIPT OF A CHARGE FROM VANGUARD, TAKE WRITTEN EXCEPTION TO SUCH CHARGE, ON THE
GROUND THAT THE SAME WAS NOT A CORRECT CALCULATION OF THE ADMINISTRATIVE FEE
AND/OR A REASONABLE COST INCURRED BY VANGUARD OR ITS AFFILIATES IN CONNECTION
WITH THE SERVICES.  THE PARTNERSHIP SHALL NEVERTHELESS PAY VANGUARD IN FULL WHEN
DUE THE FULL PAYMENT AMOUNT OWED TO VANGUARD.  SUCH PAYMENT SHALL NOT BE DEEMED
A WAIVER OF THE RIGHT OF THE PARTNERSHIP TO RECOUP ANY CONTESTED PORTION OF ANY
AMOUNT SO PAID.  HOWEVER, IF THE AMOUNT AS TO WHICH SUCH WRITTEN EXCEPTION IS
TAKEN, OR ANY PART THEREOF, IS ULTIMATELY DETERMINED NOT TO BE A CORRECT
CALCULATION OF THE ADMINISTRATIVE FEE AND/OR A REASONABLE COST INCURRED BY
VANGUARD OR ITS AFFILIATES IN CONNECTION WITH ITS PROVIDING THE SERVICES
HEREUNDER, SUCH AMOUNT OR PORTION THEREOF (AS THE CASE MAY BE) SHALL BE REFUNDED
BY VANGUARD TO THE PARTNERSHIP TOGETHER WITH INTEREST THEREON AT THE DEFAULT
RATE DURING THE PERIOD FROM THE DATE OF PAYMENT BY THE PARTNERSHIP TO THE DATE
OF REFUND BY VANGUARD.
 
 
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Section 4.4 Set Off.  In the event that Vanguard owes the Partnership a sum
certain in an uncontested amount under any other agreement, then any such
amounts may be aggregated and the Partnership and Vanguard may discharge their
obligations by netting those amounts against any amounts owed by the Partnership
to Vanguard under this Agreement.  If the Partnership or Vanguard owes the other
party a greater aggregate amount, that Party may pay to the other Party the
difference between the amounts owed.
 
Section 4.5 Vanguard’s Employees.  The obligations under Sections 4.1 and 4.2,
to the extent they relate to Services provided by employees of Vanguard or its
Affiliates, shall be limited to payment to Vanguard for expenses in connection
with its or its Affiliates’ employees engaged in the provision of Services
hereunder, and the Partnership shall not be obligated to pay to Vanguard or its
Affiliates’ employees directly any compensation, salaries, wages, bonuses,
benefits, social security taxes, workers’ compensation insurance, retirement and
insurance benefits, training and other such expenses; provided, however, that
the Partnership may, at its option, compensate such employees under one or more
equity-based incentive compensation plans for the provision of Services
hereunder; and provided further, however, that if Vanguard fails to pay any
employee, with the exception of employee claims for amounts owed that Vanguard
disputes in good faith, within 30 days of the date such employee’s payment is
due:
 
(a) The Partnership may (i) pay such employee directly, (ii) employ such
employee directly, (iii) notify Vanguard and begin to pay all employees
providing service to the Partnership directly, or (iv) notify Vanguard that this
Agreement is terminated and employ all employees directly; and
 
(b) Vanguard shall reimburse the Partnership, as the case may be, the amount the
Partnership paid to Vanguard for employee services that Vanguard did not pay to
any such employee.
 
Section 4.6 Approval of Expenses.  Vanguard acknowledges that all charges for
Services assessed by Vanguard and included in the Payment Amount must be
approved by the persons authorized to approve such Payment Amount pursuant to
the Partnership’s governance and delegation-of-authority process.  Additionally,
Vanguard acknowledges that the Audit Committee of the Board of Directors of the
General Partner, or if there is no Audit Committee, the entire Board of
Directors of the General Partner, may at any time review the Payment Amounts and
the levels of Services and, as a result, may direct the Partnership to decrease
the level of Services or to dispute a prior invoice pursuant to Section 4.3.  In
addition to the information Vanguard is obligated to provide pursuant to Section
4.2, Vanguard shall provide such other information as reasonably necessary to
determine the veracity or appropriateness of any Payment Amount hereunder.
 
 
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Section 4.7 Tax Reimbursement.  The Partnership shall reimburse Vanguard for any
additional state income, franchise or similar tax paid by Vanguard resulting
from Vanguard’s inclusion of one or more members of the Partnership Group with
Vanguard in a combined state income, franchise or similar tax report.  With
respect to any such combined state income, franchise or other tax report, the
amount of the Partnership’s reimbursement to Vanguard shall be equal to the tax
that those Partnership Group members included with Vanguard on such tax report
would have paid had such Partnership Group members not been included on such
report.  Any reimbursement payment required under this provision will be due
within 45 days after Vanguard makes the tax payment giving rise to such
reimbursement.
 
ARTICLE V
 
FORCE MAJEURE
 
A Party’s obligation under this Agreement shall be excused when and to the
extent its performance of that obligation is prevented due to Force Majeure;
provided, however, that a Party shall not be excused by Force Majeure from any
obligation to pay money.  The Party that is prevented from performing its
obligation by reason of Force Majeure shall promptly notify the other Parties of
that fact and shall exercise due diligence to end its inability to perform as
promptly as practicable.  Notwithstanding the foregoing, a Party is not required
to settle any strike, lockout or other labor dispute in which it may be
involved; provided, however, that, in the event of a strike, lockout or other
labor dispute affecting Vanguard, Vanguard shall use reasonable efforts to
continue to perform all obligations hereunder by utilizing its management
personnel and that of its Affiliates.
 
ARTICLE VI
 
ASSIGNMENTS AND SUBCONTRACTS
 
Section 6.1 Assignments.
 
(a) Without the prior consent of Vanguard, none of the Partnership or the other
members or the Partnership Group may sell, assign, transfer or convey any of its
rights, or delegate any of its obligations, under this Agreement to any Person.
 
(b) Without the prior consent of the Partnership, Vanguard may not sell, assign,
transfer or convey any of its rights, or delegate any of its obligations, under
this Agreement to any Person, other than the delegation of performance of
Services to an Affiliate of Vanguard or a qualified third party as permitted by
Section 2.4 and the sale, assignment, transfer or conveyance of its rights
hereunder to any such Affiliate.
 
 
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Section 6.2 Other Requirements.  Subject to the other provisions hereof:
 
(a) All materials and workmanship used or provided in performing the Services
shall be in accordance with applicable specifications and standards.
 
(b) Vanguard shall exercise reasonable diligence to obtain the most favorable
terms or warranties available from vendors, suppliers and other third parties,
and where appropriate, Vanguard shall assign such warranties to the Partnership.
 
(c) In rendering the Services, Vanguard shall not discriminate against any
employee or applicant for employment because of race, creed, color, religion,
sex, national origin, age or handicap, and shall comply with all applicable
provisions of Executive Order 11246 of September 24, 1965, and any successor
order thereto.  Subject to the above, Vanguard shall, to the extent practicable,
engage employees who reside in or whose businesses are located in the local area
or state where the Services are performed.
 
(d) Vanguard agrees to exercise reasonable diligence to ensure that, during the
term of this Agreement, it shall not employ unauthorized aliens as defined in
the Immigration Reform and Control Act of 1986, or any successor law.
 
ARTICLE VII
 
TERMINATION
 
Section 7.1 Termination by the Partnership on behalf of the Partnership Group.
 
(a) Upon the occurrence of any of the following events, the Partnership, on
behalf of the Partnership Group, may terminate this Agreement by giving written
notice of such termination to Vanguard:
 
(i) Vanguard and its Affiliates cease to maintain a direct or indirect
controlling interest in the General Partner; or
 
(ii) Vanguard’s failure to pay any employee within thirty (30) days of the date
such employee’s payment is due, subject to the limitations described in Section
4.5.
 
Any termination under this Section 7.1(a) shall become effective immediately
upon delivery of the notice first described in this Section 7.1(a), or such
later time (not to exceed the first anniversary of the delivery of such notice)
as may be specified by the Partnership.
 
(b) In addition to its rights under Section 7.1(a), the Partnership may
terminate this Agreement at any time by giving notice of such termination to
Vanguard.  Any termination under this Section 7.1(b) shall become effective 90
days after delivery of such notice, or such later time (not to exceed the first
anniversary of the delivery of such notice) as may be specified by the
Partnership.
 
(c) In the event that Vanguard becomes Bankrupt or dissolves and commences
liquidation or winding-up, this Agreement shall automatically terminate without
notice to Vanguard.
 
 
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Section 7.2 Termination by Vanguard.
 
(a) Vanguard may terminate this Agreement by giving written notice of such
termination to the Partnership in the event that Vanguard and its Affiliates
cease to maintain a direct or indirect controlling interest in the General
Partner.
 
Any termination under this Section 7.2(a) shall become effective immediately
upon delivery of the notice first described in this Section 7.2(a).
 
(b) In addition to its rights under Section 7.2(a), Vanguard may terminate this
Agreement at any time by giving notice of such termination to the
Partnership.  Any termination under this Section 7.2(b) shall become effective
90 days after delivery of such notice, or such later time (not to exceed the
first anniversary of the delivery of such notice) as may be specified by
Vanguard.
 
Section 7.3 Effect of Termination.  If this Agreement is terminated in
accordance with Section 7.1 or 7.2, all rights and obligations under this
Agreement shall cease except for (a) obligations that expressly survive
termination of this Agreement; (b) liabilities and obligations that have accrued
prior to such termination, including the obligation to pay any amounts that have
become due and payable prior to such termination, and (c) the obligation to pay
any portion of the Payment Amount that has accrued prior to such termination,
even if such portion has not become due and payable at that time.
 
ARTICLE VIII
 
CONFIDENTIAL INFORMATION
 
Section 8.1 Nondisclosure.  Vanguard and the Partnership Group each agree that
(i) it will not disclose to any third party or use any Confidential Information
disclosed to it by the other except as expressly permitted in this Agreement,
and (ii) it will take all reasonable measures to maintain the confidentiality of
all Confidential Information of the other Party in its possession or control,
which will in no event be less than the measures it uses to maintain the
confidentiality of its own information of similar type and importance.
 
Section 8.2 Permitted Disclosure.  Notwithstanding the foregoing, each Party may
disclose Confidential Information (i) to the extent required by a court of
competent jurisdiction or other governmental authority or otherwise as required
by law, including without limitation disclosure obligations imposed under the
federal securities laws, provided that such Party has given the other Party
prior notice of such requirement when legally permissible to permit the other
Party to take such legal action to prevent the disclosure as it deems
reasonable, appropriate or necessary, or (ii) to its consultants, legal counsel,
Affiliates, accountants, banks and other financing sources and their advisors.
 
ARTICLE IX
 
LIMITATION OF LIABILITY; INDEMNIFICATION
 
Section 9.1 Limitation of Vanguard’s Liability.  Neither Vanguard nor any of its
controlling persons, directors, officers, employees, agents and permitted
assigns (each, a “Vanguard Party”) shall have any liability to the Partnership
Group for any losses, damages (including, but not limited to, special, indirect,
punitive and/or consequential damages), claims, injury, liability, cost or
expense (“Damages”) arising out of this Agreement, whether such Damages arise on
account of the furnishing of Services hereunder, the failure to furnish Services
hereunder, or otherwise, and whether or not such Damages were caused by the
negligence of the Vanguard Party, including the Vanguard Party’s sole
negligence; provided, however, that the foregoing limitation shall not apply to
Damages caused by the Vanguard Party’s gross negligence or willful, intentional
misconduct.
 
 
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Section 9.2 Partnership’s Indemnity.  The Partnership agrees to indemnify,
defend and hold harmless each Vanguard Party from and against any and all
Damages arising out of this Agreement, whether such Damages arise on account of
the furnishing of Services hereunder, the failure to furnish Services hereunder,
or otherwise, and whether or not such Damages were caused by the negligence of
any Vanguard Party, including the Vanguard Party’s sole negligence; provided,
however, that the foregoing limitation shall not apply to Damages caused by the
Vanguard Party’s gross negligence or willful, intentional misconduct.
 
Section 9.3 Limitation of Damages.  If the Partnership Group suffers Damages
arising out of this Agreement, which Damages were caused by the gross negligence
or willful, intentional misconduct of Vanguard, Vanguard’s sole liability to the
Partnership Group shall be to properly perform the Services in question at no
additional cost to the Partnership Group and to pay the Partnership Group for
any and all direct damages suffered by the Partnership Group.  Notwithstanding
anything to the contrary contained herein or at Law and in equity, in no event
shall Vanguard be liable for punitive, special, indirect, incidental or
consequential damages (including, without limitation, damages for loss of
business profits, business interruption or any other loss) arising from or
relating to any claim made under this Agreement or regarding the provision of or
the failure to provide Services, even if Vanguard had been advised or was aware
of the possibility of such damages.
 
Section 9.4 Affiliate; Third Parties.  If Vanguard uses the personnel of its
Affiliates or third parties to provide Services, Vanguard shall be responsible
for the acts and omissions of such personnel and third parties to the extent
provided in this Agreement, and no Affiliate of Vanguard or third party shall
have any liability to the Partnership Group on account of any Damages suffered
by the Partnership Group arising out of this Agreement, whether or not such
Damages were caused by their negligence and/or gross negligence, including their
sole negligence and/or sole gross negligence, or their willful, intentional
misconduct.
 
ARTICLE X
 
DISPUTE RESOLUTION
 
If the Parties are unable to resolve any dispute regarding the validity or terms
of this Agreement or its termination, service or performance issues, there is a
material breach of this Agreement that has not been corrected within thirty (30)
days of receipt of notice of such breach or any other dispute between the
parties related to this Agreement, either party hereto may refer the matter to
an arbitrator selected in accordance with the rules of JAMS in Tarrant County,
Texas as the exclusive remedy for any such dispute, and in lieu of any court
action, which is hereby waived.  The only exception shall be a claim by either
Party for injunctive relief pending arbitration.
 
 
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ARTICLE XI
 
GENERAL PROVISIONS
 
Section 11.1 Notices.  All notices or other communications required or permitted
under, or otherwise in connection with, this Agreement must be in writing and
must be given by (1) depositing same in the mail, addressed to the Person to be
notified, postpaid and registered or certified with return receipt requested,
(2) transmitting by national overnight courier, (3) delivery in person or (4)
facsimile to such Party.  Notice given by mail, national overnight courier or
personal delivery shall be effective upon actual receipt.  Notice given by
facsimile shall be effective upon confirmation of a successful
transmission.  All notices to be sent to a Party pursuant to this Agreement
shall be sent to or made at the address, in each case as follows:
 
if to the General Partner or the Partnership:
 
Encore Energy Partners GP LLC
5847 San Felipe, Suite 3000
Houston. TX  77057
Facsimile:  (832) 327-2260
Attention:  Scott W. Smith

if to the Operating Company:

Encore Energy Partners Operating LLC
5847 San Felipe, Suite 3000
Houston. TX  77057
Facsimile:  (832) 327-2260
Attention:  Scott W. Smith

if to Vanguard:

Vanguard Natural Gas, LLC
5847 San Felipe, Suite 3000
Houston. TX  77057
Facsimile:  (832) 327-2260
Attention:  Scott W. Smith

Section 11.2 Further Action.  The Parties shall execute and deliver all
documents, provide all information and take or refrain from taking action as may
be necessary or appropriate to achieve the purposes of this Agreement.
 
Section 11.3 Binding Effect.  This Agreement shall be binding upon and inure to
the benefit of the Parties hereto and their heirs, executors, administrators,
successors, legal representatives and permitted assigns.
 
Section 11.4 Integration.  This Agreement constitutes the entire Agreement among
the Parties hereto pertaining to the subject matter hereof and supersedes all
prior agreements and understandings pertaining thereto.
 
 
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Section 11.5 Creditors.  None of the provisions of this Agreement shall be for
the benefit of, or shall be enforceable by, any creditor of the Partnership.
 
Section 11.6 Waiver.  No failure by any party to insist upon the strict
performance of any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof shall
constitute waiver of any such breach of any other covenant, duty, agreement or
condition.
 
Section 11.7 Counterparts.  This Agreement may be executed in counterparts, all
of which together shall constitute an agreement binding on all the Parties
hereto, notwithstanding that all such Parties are not signatories to the
original or the same counterpart.  Each Party shall become bound by this
Agreement immediately upon affixing its signature hereto.
 
Section 11.8 Applicable Law.  This Agreement shall be construed in accordance
with and governed by the laws of the State of Texas, without regard to the
principles of conflicts of law.
 
Section 11.9 Invalidity of Provisions.  If any provision of this Agreement is or
becomes invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein shall not be
affected thereby.
 
Section 11.10 Amendment or Restatement.  This Agreement may be amended or
restated only by a written instrument executed by each of the Parties, other
than DRI and Encore Operating; provided, however, that after the completion of
the Partnership’s initial public offering of common units representing limited
partner interests, the Partnership may not, without the prior approval of the
conflicts committee of the board of directors of the General Partner or, if
there is no such committee, the independent members of such board of directors,
agree to any amendment or modification of this Agreement that the General
Partner determines will adversely affect the holders of such common units.  The
Parties hereto agree that, for purposes of this Section 11.10, any material
change in the nature, quantity or duration of the Services to be provided under
this Agreement shall constitute a modification of this Agreement.
 
Section 11.11 Directly or Indirectly.  Where any provision of this Agreement
refers to action to be taken by any Party, or which such Party is prohibited
from taking, such provision shall be applicable whether such action is taken
directly or indirectly by such Party, including actions taken by or on behalf of
any Affiliate of such Party.
 

 
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IN WITNESS WHEREOF, the Parties have executed this Agreement on, and effective
as of, the Effective Date.
 
ENCORE ENERGY PARTNERS GP LLC

By:  /s/ Phil
Rykhoek                                                              
Name:         Phil Rykhoek
Title:           Chief Executive Officer

ENCORE ENERGY PARTNERS LP
 
By:         Encore Energy Partners GP LLC,
its general partner

By:    /s/ Phil
Rykhoek                                                           
Name:         Phil Rykhoek
Title:           Chief Executive Officer

 
ENCORE ENERGY PARTNERS OPERATING LLC

By:   /s/ Phil
Rykhoek                                                             
Name:         Phil Rykhoek
Title:           Chief Executive Officer

 
ENCORE OPERATING, L.P.

 
By:         EAP Operating, LLC,
its general partner

By:    /s/ Phil
Rykhoek                                                           
Name:          Phil Rykhoek
Title:           Chief Executive Officer

 
Signature Page to Administrative Services Agreement
 
1of 2
 

 
 

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DENBURY RESOURCES INC.

By: /s/ Phil Rykhoek 
Name:         Phil Rykhoek
Title:           Chief Executive Officer

VANGUARD NATURAL GAS, LLC

By: /s/ Scott W.
Smith                                                                
Name:     Scott W. Smith
 
Title:
President and Chief Executive Officer

 

 
 
Signature Page to Administrative Services Agreement
 
2 of 2
 

 
 

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SCHEDULE I
 
SERVICES PROVIDED BY VANGUARD
 
TO THE PARTNERSHIP GROUP
 
1.  
Accounting

 
2.  
Information Technology

 
3.  
Real Property

 
4.  
Legal

 
5.  
Securities and Exchange Commission Reporting

 
6.  
Operations/Reservoir Engineering/Geology/Geophysics

 
7.  
Administrative Services

 
8.  
Financial Services

 
9.  
Insurance Services

 
10.  
Risk Management

 
11.  
Corporate Development

 
12.  
Commercial and Marketing

 
13.  
Treasury

 
14.  
Tax

 
15.  
Audit

 
16.  
Sarbanes-Oxley Compliance

 
17.  
Investor Relations

 

 
 
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