##### Table of Contents





UNITED STATES
 SECURITIES AND EXCHANGE
    COMMISSION
 Washington, D.C.
    20549
  Form 10-K
 (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2008oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from           to   Commission File
    Number: 001-16295
  ENCORE ACQUISITION
    COMPANY
 (Exact name of registrant as
    specified in its charter)
  Delaware

75-2759650State or other jurisdiction
    of incorporation or organization

(I.R.S. Employer
    Identification No.)777 Main Street, Suite 1400, Fort Worth, Texas

76102(Address of principal executive
    offices)

(Zip Code)   Registrants telephone number, including area code:
    (817) 877-9955
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of each class

Name of each exchange on which registeredCommon Stock

New York Stock ExchangeRights to Purchase Series A Junior Participating Preferred
    Stock

New York Stock Exchange   Securities registered pursuant to Section 12(g) of the
    Act: None
   þ o
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
  Large accelerated
    filer þ

Accelerated
    filer o

Non-accelerated
    filer o
    (Do not check if a smaller reporting company)

Smaller reporting
    company o   Rule 12b-2).  Yes o þ
  Aggregate market value of the voting and non-voting common
    equity held by non-affiliates computed by reference to the price
    at which the common equity of the registrant was last sold as of
    June 30, 2008 (the last business day of the
    registrants most recently completed second fiscal quarter)

$
3,715,001,806Number of shares of Common Stock, $0.01 par value,
    outstanding as of February 18, 2009


51,819,037   DOCUMENTS INCORPORATED BY REFERENCE
  Form 10-K.




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##### 





ENCORE
    ACQUISITION COMPANY
   INDEX
  PagePART IItems 1. and 2.

Business and Properties


1Item 1A.

Risk Factors


23Item 1B.

Unresolved Staff Comments


33Item 3.

Legal Proceedings


33Item 4.

Submission of Matters to a Vote of Security
    Holders


33PART IIItem 5.

Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


34Item 6.

Selected Financial Data


36Item 7.

Managements Discussion and Analysis of
    Financial Condition and Results of Operations


39Item 7A.

Quantitative and Qualitative Disclosures About
    Market Risk


72Item 8.

Financial Statements and Supplementary Data


75Item 9.

Changes in and Disagreements With Accountants on
    Accounting and Financial Disclosure


133Item 9A.

Controls and Procedures


133Item 9B.

Other Information


135PART IIIItem 10.

Directors, Executive Officers and Corporate
    Governance


136Item 11.

Executive Compensation


136Item 12.

Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


136Item 13.

Certain Relationships and Related Transactions,
    and Director Independence


137Item 14.

Principal Accountant Fees and Services


137PART IVItem 15.

Exhibits and Financial Statement Schedules


137EX-12.1EX-21.1EX-23.1EX-23.2EX-31.1EX-31.2EX-32.1EX-32.2   i




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ENCORE
    ACQUISITION COMPANY
  GLOSSARY
  Form 10-K Rule 4-10(a)(2-4) Regulation S-X.
  
    Bbl.  One stock tank barrel, or 42
    U.S. gallons liquid volume, used in reference to oil or
    other liquid hydrocarbons.
    Bbl/D.  One Bbl per day.
    Bcf.  One billion cubic feet, used in reference
    to natural gas.
    BOE.  One barrel of oil equivalent, calculated
    by converting natural gas to oil equivalent barrels at a ratio
    of six Mcf of natural gas to one Bbl of oil.
    BOE/D.  One BOE per day.
    Completion.  The installation of permanent
    equipment for the production of oil or natural gas.
    Council of Petroleum Accountants Societies
    (COPAS).  A professional organization
    of oil and gas accountants that maintains consistency in
    accounting procedures and interpretations, including the
    procedures that are part of most joint operating agreements.
    These procedures establish a drilling rate and an overhead rate
    to reimburse the operator of a well for overhead costs, such as
    accounting and engineering.
    Delay Rentals.  Fees paid to the lessor of an
    oil and natural gas lease during the primary term of the lease
    prior to the commencement of production from a well.
    Developed Acreage.  The number of acres
    allocated or assignable to producing wells or wells capable of
    production.
    Development Well.  A well drilled within the
    proved area of an oil or natural gas reservoir to the depth of a
    stratigraphic horizon known to be productive.
    Dry Hole or Unsuccessful Well.  A well found to
    be incapable of producing hydrocarbons in sufficient quantities
    such that proceeds from the sale of such production would exceed
    production costs.
    EAC.  Encore Acquisition Company, a publicly
    traded Delaware corporation, together with its subsidiaries.
    ENP.  Encore Energy Partners LP, a publicly
    traded Delaware limited partnership, together with its
    subsidiaries.
    Exploratory Well.  A well drilled to find and
    produce oil or natural gas in an unproved area, to find a new
    reservoir in a field previously producing oil or natural gas in
    another reservoir, or to extend a known reservoir.
    Farm-out.  Transfer of all or part of the
    operating rights from the working interest holder to an
    assignee, who assumes all or some of the burden of development,
    in return for an interest in the property. The assignor usually
    retains an overriding royalty, but may retain any type of
    interest.
    FASB.  Financial Accounting Standards Board.
    Field.  An area consisting of a single
    reservoir or multiple reservoirs, all grouped on or related to
    the same individual geological structural feature
    and/or
    stratigraphic condition.
    GAAP.  Accounting principles generally accepted
    in the United States. ii




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ENCORE
    ACQUISITION COMPANY
   
    Gross Acres or Gross Wells.  The total acres or
    wells, as the case may be, in which an entity owns a working
    interest.
    Horizontal Drilling.  A drilling operation in
    which a portion of a well is drilled horizontally within a
    productive or potentially productive formation. This operation
    usually yields a well which has the ability to produce higher
    volumes than a vertical well drilled in the same formation.
    Lease Operations Expense
    (LOE).  All direct and allocated
    indirect costs of producing oil and natural gas after completion
    of drilling and before removal of production from the property.
    Such costs include labor, superintendence, supplies, repairs,
    maintenance, and direct overhead charges.
    LIBOR.  London Interbank Offered Rate.
    MBbl.  One thousand Bbls.
    MBOE.  One thousand BOE.
    MBOE/D.  One thousand BOE per day.
    Mcf.  One thousand cubic feet, used in
    reference to natural gas.
    Mcf/D.  One Mcf per day.
    Mcfe.  One Mcf equivalent, calculated by
    converting oil to natural gas equivalent at a ratio of one Bbl
    of oil to six Mcf of natural gas.
    Mcfe/D.  One Mcfe per day.
    MMBbl.  One million Bbls.
    MMBOE.  One million BOE.
    MMBtu.  One million British thermal units. One
    British thermal unit is the quantity of heat required to raise
    the temperature of a one-pound mass of water by one degree
    Fahrenheit.
    MMcf.  One million cubic feet, used in
    reference to natural gas.
    Natural Gas Liquids (NGLs).  The
    combination of ethane, propane, butane, and natural gasolines
    that when removed from natural gas become liquid under various
    levels of higher pressure and lower temperature.
    Net Acres or Net Wells.  Gross acres or wells,
    as the case may be, multiplied by the working interest
    percentage owned by an entity.
    Net Production.  Production owned by an entity
    less royalties, net profits interests, and production due others.
    Net Profits Interest.  An interest that
    entitles the owner to a specified share of net profits from
    production of hydrocarbons.
    NYMEX.  New York Mercantile Exchange.
    NYSE.  The New York Stock Exchange.
    Oil.  Crude oil, condensate, and NGLs.
    Operator.  The entity responsible for the
    exploration, development, and production of an oil or natural
    gas well or lease.
    Present Value of Future Net Revenues
    (PV-10).  The
    present value of estimated future revenues to be generated from
    the production of proved reserves, net of estimated future
    production and development costs, using prices and costs as of
    the date of estimation without future escalation, without iii




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ENCORE
    ACQUISITION COMPANY
  giving effect to commodity derivative activities, non-property
    related expenses such as general and administrative expenses,
    debt service, depletion, depreciation, and amortization, and
    income taxes, discounted at an annual rate of 10 percent.  
    Production Margin.  Oil and natural gas
    wellhead revenues less production expenses.
    Productive Well.  A producing well or a well
    capable of production, including natural gas wells awaiting
    pipeline connections to commence deliveries and oil wells
    awaiting connection to production facilities.
    Proved Developed Reserves.  Proved reserves
    that can be expected to be recovered from existing wells with
    existing equipment and operating methods.
    Proved Reserves.  The estimated quantities of
    crude oil, natural gas, and NGLs that geological and engineering
    data demonstrate with reasonable certainty are recoverable in
    future years from known reservoirs under existing economic and
    operating conditions.
    Proved Undeveloped Reserves.  Proved reserves
    that are expected to be recovered from new wells on undrilled
    acreage for which the existence and recoverability of such
    reserves can be estimated with reasonable certainty, or from
    existing wells where a relatively major expenditure is required
    for recompletion. Proved undeveloped reserves include unrealized
    production response from enhanced recovery techniques that have
    been proved effective by actual tests in the area and in the
    same reservoir.
    Recompletion.  The completion for production of
    an existing well bore in another formation from that in which
    the well has been previously completed.
    Reservoir.  A porous and permeable underground
    formation containing a natural accumulation of producible oil
    and/or
    natural gas that is confined by impermeable rock or water
    barriers and is individual and separate from other reservoirs.
    Royalty.  An interest in an oil and natural gas
    lease that gives the owner the right to receive a portion of the
    production from the leased acreage (or of the proceeds from the
    sale thereof), but does not require the owner to pay any portion
    of the production or development costs on the leased acreage.
    Royalties may be either landowners royalties, which are
    reserved by the owner of the leased acreage at the time the
    lease is granted, or overriding royalties, which are usually
    reserved by an owner of the leasehold in connection with a
    transfer to a subsequent owner.
    SEC.  The United States Securities and Exchange
    Commission.
    Secondary Recovery.  Enhanced recovery of oil
    or natural gas from a reservoir beyond the oil or natural gas
    that can be recovered by normal flowing and pumping operations.
    Secondary recovery techniques involve maintaining or enhancing
    reservoir pressure by injecting water, gas, or other substances
    into the formation. The purpose of secondary recovery is to
    maintain reservoir pressure and to displace hydrocarbons toward
    the wellbore. The most common secondary recovery techniques are
    gas injection and waterflooding.
    SFAS.  Statement of Financial Accounting
    Standards.
    Standardized Measure.  Future cash inflows from
    proved oil and natural gas reserves, less future production
    costs, development costs, net abandonment costs, and income
    taxes, discounted at 10 percent per annum to reflect the
    timing of future net cash flows. Standardized Measure differs
    from PV-10
    because Standardized Measure includes the effect of estimated
    future income taxes.
    Successful Well.  A well capable of producing
    oil and/or
    natural gas in commercial quantities.
    Tertiary Recovery.  An enhanced recovery
    operation that normally occurs after waterflooding in which
    chemicals or natural gases are used as the injectant. iv




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ENCORE
    ACQUISITION COMPANY
   
    Undeveloped Acreage.  Lease acreage on which
    wells have not been drilled or completed to a point that would
    permit the production of commercial quantities of oil or natural
    gas regardless of whether such acreage contains proved reserves.
    Unit.  A specifically defined area within which
    acreage is treated as a single consolidated lease for operations
    and for allocations of costs and benefits without regard to
    ownership of the acreage. Units are established for the purpose
    of recovering oil and natural gas from specified zones or
    formations.
    Waterflood.  A secondary recovery operation in
    which water is injected into the producing formation in order to
    maintain reservoir pressure and force oil toward and into the
    producing wells.
    Working Interest.  An interest in an oil or
    natural gas lease that gives the owner the right to drill for
    and produce oil and natural gas on the leased acreage and
    requires the owner to pay a share of the production and
    development costs.
    Workover.  Operations on a producing well to
    restore or increase production. v




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ENCORE
    ACQUISITION COMPANY
   PART I ITEMS 1
    and 2.  BUSINESS AND PROPERTIES  General
  Our Business.
  
    the Cedar Creek Anticline (CCA) in the Williston
    Basin of Montana and North Dakota;
    the Permian Basin of West Texas and southeastern New Mexico;
    the Rockies, which includes non-CCA assets in the Williston, Big
    Horn, and Powder River Basins in Wyoming, Montana, and North
    Dakota, and the Paradox Basin in southeastern Utah; and
    the Mid-Continent area, which includes the Arkoma and Anadarko
    Basins in Oklahoma, the North Louisiana Salt Basin, the East
    Texas Basin, and the Mississippi Salt Basin.  Proved Reserves.
  Most Valuable Asset.
  Drilling.
 1




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ENCORE
    ACQUISITION COMPANY
  Oil and Natural Gas Reserve Replacement.
  Year Ended December 31,


Three-Year2008


2007


2006


Average(In MBOE, except percentages)Acquisition Reserve Replacement:Changes in Proved Reserves:Acquisitions of
    minerals-in-place


1,303



43,146



64



14,838Divided by:Production


14,446



13,539



11,244



13,076Acquisition Reserve Replacement


9
%


319
%


1
%


113
%Development Reserve Replacement:Changes in Proved Reserves:Extensions, discoveries, and improved recovery


19,952



15,983



27,504



21,146Revisions of previous estimates


(52,432
)


896



(7,461
)


(19,666
)Total development program


(32,480
)


16,879



20,043



1,480Divided by:Production


14,446



13,539



11,244



13,076Development Reserve Replacement


(225
)%


125
%


178
%


11
%Total Reserve Replacement:Changes in Proved Reserves:Acquisitions of
    minerals-in-place


1,303



43,146



64



14,838Extensions, discoveries, and improved recovery


19,952



15,983



27,504



21,146Revisions of previous estimates


(52,432
)


896



(7,461
)


(19,666
)Total reserve additions


(31,177
)


60,025



20,107



16,318Divided by:Production


14,446



13,539



11,244



13,076Total Reserve Replacement


(216
)%


443
%


179
%


125
%      2




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  Encore Energy Partners.
      Financial Information About Operating
    Segments.
  Business
    Strategy
    
    Maintain a development program to maximize existing reserves
    and production.  Our technological expertise,
    combined with our proficient field operations and reservoir
    engineering, has allowed us to increase production on our
    properties through infill, offset, and re-entry drilling,
    workovers, and recompletions. Our plan is to maintain an
    inventory of exploitation and development projects that provide
    a good source of future production.
    Utilize enhanced oil recovery techniques to maximize existing
    reserves and production.  We budget a portion of
    internally generated cash flows for secondary and tertiary
    recovery projects that are longer-term in nature to increase
    production and proved reserves on our properties. Throughout our
    Williston and Permian Basin properties, we have successfully
    used waterfloods to increase production. On certain of our
    non-operated properties in the Rockies, a tertiary recovery
    technique that uses carbon dioxide instead of water is being
    used successfully. Throughout our Bell Creek properties, we have
    successfully used a polymer injection program to increase our
    production. We believe that these enhanced oil recovery projects
    will continue to be a source of reserve and production growth.
    Expand our reserves, production, and development inventory
    through a disciplined acquisition program.  Using
    our experience, we have developed and refined an acquisition
    program designed to increase our reserves and complement our
    core properties. We have a staff of engineering and geoscience
    professionals who manage our core properties and use their
    experience and expertise to target and evaluate attractive
    acquisition opportunities. Following an acquisition, our
    technical professionals seek to enhance the value of the new
    assets through a proven development and exploitation program. We
    will continue to evaluate acquisition opportunities with the
    same disciplined commitment to acquire assets that fit our
    existing portfolio of properties and create value for our
    shareholders.
    Explore for reserves.  We believe exploration
    programs can provide a rate of return comparable to property
    acquisitions in certain areas. We seek to acquire undeveloped
    acreage
    and/or enter
    into 3




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ENCORE
    ACQUISITION COMPANY
  development arrangements to explore in areas that complement our
    existing portfolio of properties. Successful exploration
    projects would expand our existing fields and could set up
    multi-well exploitation projects in the future.  
    Operate in a cost effective, efficient, and safe
    manner.  As of December 31, 2008, we operated
    properties representing approximately 79 percent of our
    proved reserves, which allows us to better control expenses,
    capital allocation, operate in a safe manner, and control timing
    of investments.  Challenges to Implementing Our Strategy.
  Operations
  Well
    Operations
      Natural
    Gas Gathering
    
    realize faster connection of newly drilled wells to the existing
    system;
    control pipeline operating pressures and capacity to maximize
    our production;
    control compression costs and fuel use;
    maintain system integrity; 4




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ENCORE
    ACQUISITION COMPANY
   
    control the monthly nominations on the receiving pipelines to
    prevent imbalances and penalties; and
    track sales volumes and receipts closely to assure all
    production values are realized.  Seasonal
    Nature of Business
    Production
    and Price History
    Year Ended December 31,2008


2007


2006Total Production Volumes:Oil (MBbls)


10,050



9,545



7,335Natural gas (MMcf)


26,374



23,963



23,456Combined (MBOE)


14,446



13,539



11,244Average Daily Production Volumes:Oil (Bbls/D)


27,459



26,152



20,096Natural gas (Mcf/D)


72,060



65,651



64,262Combined (BOE/D)


39,470



37,094



30,807Average Realized Prices:Oil (per Bbl)

$
89.30


$
58.96


$
47.30Natural gas (per Mcf)


8.63



6.26



6.24Combined (per BOE)


77.87



52.66



43.87Average Costs per BOE:Lease operations expense

$
12.12


$
10.59


$
8.73Production, ad valorem, and severance taxes


7.66



5.51



4.43Depletion, depreciation, and amortization


15.80



13.59



10.09Impairment of long-lived assets


4.12







Exploration


2.71



2.05



2.71Derivative fair value loss (gain)


(23.97
)


8.31



(2.17
)General and administrative


3.35



2.89



2.06Provision for doubtful accounts


0.14



0.43



0.18Other operating expense


0.90



1.26



0.71Marketing loss (gain)


(0.06
)


(0.11
)


0.09  5




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ENCORE
    ACQUISITION COMPANY
  Productive
    Wells
    Oil Wells


Natural Gas WellsAverage








AverageGross


Net


Working


Gross


Net


WorkingWells(a)


Wells


Interest


Wells(a)


Wells


InterestCCA


743



659



89
%


22



6



27
%Permian Basin


1,967



769



39
%


634



314



50
%Rockies


1,437



837



58
%


60



45



75
%Mid-Continent


235



141



60
%


676



181



27
%Total


4,382



2,406



55
%


1,392



546



39
%     (a)
    
    Our total wells include 3,094 operated wells and 2,680
    non-operated wells. At December 31, 2008, 52 of our wells
    had multiple completions. 6




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ENCORE
    ACQUISITION COMPANY
   Acreage
    Gross


NetAcreage


AcreageCCA:Developed


117,209



109,775Undeveloped


150,283



117,793267,492



227,568Permian Basin:Developed


66,280



45,173Undeveloped


21,564



17,23287,844



62,405Rockies:Developed


231,846



156,350Undeveloped


809,323



574,3231,041,169



730,673Mid-Continent:Developed


79,231



41,122Undeveloped


344,963



245,472424,194



286,594Total:Developed


494,566



352,420Undeveloped


1,326,133



954,8201,820,699



1,307,240  7




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ENCORE
    ACQUISITION COMPANY
  Development
    Results
    Year Ended December 31,2008


2007


2006Gross


Net


Gross


Net


Gross


NetDevelopment Wells:Productive


186



73



165



62



182



72Dry holes


5



3



5



3



4



3191



76



170



65



186



75Exploratory Wells:Productive


96



32



63



21



71



19Dry holes


8



4



5



3



14



8104



36



68



24



85



27Total:Productive


282



105



228



83



253



91Dry holes


13



7



10



6



18



11295



112



238



89



271



102   Present
    Activities
    Delivery
    Commitments and Marketing Arrangements
     8




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ENCORE
    ACQUISITION COMPANY
      Actual


ForecastFirst Quarter


Second Quarter


Third Quarter


Fourth Quarter


First Quarterof 2008


of 2008


of 2008


of 2008


of 2009Oil wellhead to NYMEX percentage


91
%


94
%


91
%


80
%


78
%Natural gas wellhead to NYMEX percentage


103
%


102
%


93
%


86
%


103
%   Principal
    Customers
    Competition
       9




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ENCORE
    ACQUISITION COMPANY
  Properties
  Nature
    of Our Ownership Interests
  PV-10
  Proved Reserve Quantities2008 Net Production


at December 31, 2008


PV-10Natural











Natural








at December 31, 2008Oil


Gas


Total


Percent


Oil


Gas


Total


Percent


Amount(a)


Percent(MBbls)


(MMcf)


(MBOE)





(MBbls)


(MMcf)


(MBOE)





(In thousands)CCA


4,146



978



4,309



30
%


71,892



13,327



74,113



40
%

$
550,734



39
%Permian Basin


1,246



12,442



3,320



23
%


19,736



161,720



46,689



25
%


362,000



26
%Rockies


4,256



1,870



4,567



32
%


40,074



16,552



42,833



23
%


326,196



23
%Mid-Continent


402



11,084



2,250



15
%


2,750



115,921



22,070



12
%


170,019



12
%Total


10,050



26,374



14,446



100
%


134,452



307,520



185,705



100
%

$
1,408,949



100
%     (a)
    
    Giving effect to commodity derivative contracts, our
    PV-10 would
    increase by $339.1 million at December 31, 2008.
    Standardized Measure at December 31, 2008 was
    $1.2 billion. Standardized Measure differs from
    PV-10 by
    $189.0 million because Standardized Measure includes the
    effects of future net abandonment costs and future income taxes.
    Since we are taxed at the corporate level, future income taxes
    are determined on a combined property basis and cannot be
    accurately subdivided among our core areas. Therefore, we
    believe
    PV-10
    provides the best method for assessing the relative value of
    each of our areas.  PV-10 PV-10
  Form EIA-23. Form EIA-23,
  10




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ENCORE
    ACQUISITION COMPANY
  
  CCA
    Properties
        
    effective management of the existing wellbores;
    addition of strategically positioned horizontal and vertical
    wellbores;
    re-entry horizontal drilling using existing wellbores;
    waterflood enhancements; 11




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ENCORE
    ACQUISITION COMPANY
   
    extensional drilling; and
    other enhanced oil recovery techniques.      2 2 2 2 2 2
  18-month
  Net Profits Interest.
  Permian
    Basin Properties
  West Texas.
   12




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ENCORE
    ACQUISITION COMPANY
            New Mexico.
  Mid-Continent
    Properties
    Oklahoma, Arkansas, and Kansas.
  North Louisiana Salt Basin and East Texas
    Basin.
 13




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ENCORE
    ACQUISITION COMPANY
      Tuscaloosa Marine Shale.
    Rockies
    Properties
  Big Horn Basin.
      Williston Basin. thirty-day
   14




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ENCORE
    ACQUISITION COMPANY
  Bell Creek.
    2 2 2
  Paradox Basin.
    Title to
    Properties
      
    royalties, overriding royalties, net profits interests, and
    other burdens under oil and natural gas leases;
    contractual obligations, including, in some cases, development
    obligations arising under joint operating agreements, farm-out
    agreements, production sales contracts, and other agreements
    that may affect the properties or their titles;
    liens that arise in the normal course of operations, such as
    those for unpaid taxes, statutory liens securing unpaid
    suppliers and contractors, and contractual liens under joint
    operating agreements;
    pooling, unitization, and communitization agreements,
    declarations, and orders; and
    easements, restrictions, rights-of-way, and other matters that
    commonly affect property.     15




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ENCORE
    ACQUISITION COMPANY
  Environmental
    Matters and Regulation
  General.
  
    require the acquisition of various permits before development
    commences;
    require the installation of pollution control equipment;
    enjoin some or all of the operations of facilities deemed in
    non-compliance with permits;
    restrict the types, quantities, and concentration of various
    substances that can be released into the environment in
    connection with oil and natural gas development, production, and
    transportation activities;
    restrict the way in which wastes are handled and disposed;
    limit or prohibit development activities on certain lands lying
    within wilderness, wetlands, areas inhabited by threatened or
    endangered species, and other protected areas;
    require remedial measures to mitigate pollution from former and
    ongoing operations, such as requirements to close pits and plug
    abandoned wells;
    impose substantial liabilities for pollution resulting from
    operations; and
    require preparation of a Resource Management Plan, an
    Environmental Assessment,
    and/or an
    Environmental Impact Statement for operations affecting federal
    lands or leases.      Waste Handling.
  Site Remediation.
 16




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ENCORE
    ACQUISITION COMPANY
         17




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ENCORE
    ACQUISITION COMPANY
  Water Discharges.
    Air Emissions.
    Massachusetts,
    et al. v. EPA Massachusetts
 18




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ENCORE
    ACQUISITION COMPANY
    Activities on Federal Lands.
  Occupational Safety and Health Act (OSH Act) and
    Other Laws and Regulation. and/or
    Other
    Regulation of the Oil and Natural Gas Industry
      Development and Production.
  
    location of wells; 19




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ENCORE
    ACQUISITION COMPANY
   
    methods of developing and casing wells;
    surface use and restoration of properties upon which wells are
    drilled;
    plugging and abandoning of wells; and
    notification of surface owners and other third parties.    Interstate Crude Oil
    Transportation.
  Natural Gas Gathering.
   20




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ENCORE
    ACQUISITION COMPANY
  Sales of Natural Gas.
    State Regulation.
      Federal, State, or Native American Leases. on-site
  Operating
    Hazards and Insurance
   21




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ENCORE
    ACQUISITION COMPANY
      Employees
    Principal
    Executive Office
  (817) 877-9955.
  Available
    Information
  www.encoreacq.com Form 10-K, Form 10-Q, Form 8-K, 1-800-SEC-0330. www.sec.gov
         22




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ENCORE
    ACQUISITION COMPANY
  ITEM 1A.
    RISK
    FACTORS  You should carefully consider each of the following risks and
    all of the information provided elsewhere in this Report. If any
    of the risks described below or elsewhere in this Report were
    actually to occur, our business, financial condition, results of
    operations, or cash flows could be materially and adversely
    affected. In that case, we may be unable to pay interest on, or
    the principal of, our debt securities, the trading price of our
    common stock could decline, and you could lose all or part of
    your investment.
  Oil
    and natural gas prices are very volatile. A decline in commodity
    prices could materially and adversely affect our financial
    condition, results of operations, liquidity, and cash
    flows.
    
    overall domestic and global economic conditions;
    weather conditions;
    political and economic conditions in oil and natural gas
    producing countries, including those in the Middle East, Africa,
    and South America;
    actions of the Organization of Petroleum Exporting Countries and
    state-controlled oil companies relating to oil price and
    production controls;
    the impact of U.S. dollar exchange rates on oil and natural
    gas prices;
    technological advances affecting energy consumption and energy
    supply;
    domestic and foreign governmental regulations and taxation;
    the impact of energy conservation efforts;
    the proximity, capacity, cost, and availability of oil and
    natural gas pipelines and other transportation facilities;
    the availability of refining capacity; and
    the price and availability of alternative fuels.      
    negatively impact the value of our reserves, because declines in
    oil and natural gas prices would reduce the amount of oil and
    natural gas that we can produce economically; 23




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ENCORE
    ACQUISITION COMPANY
   
    reduce the amount of cash flow available for capital
    expenditures, repayment of indebtedness, and other corporate
    purposes; and
    result in a decrease in the borrowing base under our revolving
    credit facility or otherwise limit our ability to borrow money
    or raise additional capital.  An
    increase in the differential between benchmark prices of oil and
    natural gas and the wellhead price we receive could adversely
    affect our financial condition, results of operations, and cash
    flows.
    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.
         24




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ENCORE
    ACQUISITION COMPANY
  Our
    oil and natural gas reserves naturally decline and the failure
    to replace our reserves could adversely affect our financial
    condition.
      Price
    declines may result in a write-down of our asset carrying
    values, which could have a material adverse effect on our
    results of operations and limit our ability to borrow funds
    under our revolving credit facility.
    If we
    do not make acquisitions, our future growth could be
    limited.
    
    unable to identify attractive acquisition candidates or
    negotiate acceptable purchase contracts with them;
    unable to obtain financing for these acquisitions on
    economically acceptable terms; or
    outbid by competitors.    Any
    acquisitions we complete are subject to substantial risks that
    could adversely affect our financial condition and results of
    operations.
    
    the validity of our assumptions about reserves, future
    production, revenues, capital expenditures, and operating costs,
    including synergies; 25




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ENCORE
    ACQUISITION COMPANY
   
    an inability to integrate the businesses we acquire successfully;
    a decrease in our liquidity by using a significant portion of
    our available cash or borrowing capacity to finance acquisitions;
    a significant increase in our interest expense or financial
    leverage if we incur additional debt to finance acquisitions;
    the assumption of unknown liabilities, losses, or costs for
    which we are not indemnified or for which our indemnity is
    inadequate;
    the diversion of managements attention from other business
    concerns;
    an inability to hire, train, or retain qualified personnel to
    manage and operate our growing business and assets;
    natural disasters;
    the incurrence of other significant charges, such as impairment
    of goodwill or other intangible assets, asset devaluation, or
    restructuring charges;
    unforeseen difficulties encountered in operating in new
    geographic areas; and
    customer or key employee losses at the acquired businesses.      A
    substantial portion of our producing properties is located in
    one geographic area and adverse developments in any of our
    operating areas would negatively affect our financial condition
    and results of operations.
    Our
    commodity derivative contract activities could result in
    financial losses or could reduce our income and cash flows.
    Furthermore, in the future our commodity derivative contract
    positions may not adequately protect us from changes in
    commodity prices.
   26




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ENCORE
    ACQUISITION COMPANY
    
    a counterparty may not perform its obligation under the
    applicable derivative instrument, which risk may have been
    exacerbated by the worldwide financial and credit
    crisis; and
    there may be a change in the expected differential between the
    underlying commodity price in the derivative instrument and the
    actual price received, which may result in payments to our
    derivative counterparty that are not accompanied by our receipt
    of higher prices from our production in the field.      The
    counterparties to our derivative contracts may not be able to
    perform their obligations to us, which could materially affect
    our cash flows and results of operations.
    We
    have limited control over the activities on properties we do not
    operate.
    Our
    development and exploratory drilling efforts may not be
    profitable or achieve our targeted returns.
   27




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ENCORE
    ACQUISITION COMPANY
        Developing
    and producing oil and natural gas are costly and high-risk
    activities with many uncertainties that could adversely affect
    our financial condition or results of operations.
    
    higher costs, shortages, or delivery delays of rigs, equipment,
    labor, or other services;
    unexpected operational events
    and/or
    conditions;
    reductions in oil and natural gas prices;
    increases in severance taxes;
    limitations in the market for oil and natural gas;
    adverse weather conditions and natural disasters;
    facility or equipment malfunctions, and equipment failures or
    accidents;
    title problems;
    pipe or cement failures and casing collapses;
    compliance with environmental and other governmental
    requirements; 28




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ENCORE
    ACQUISITION COMPANY
   
    environmental hazards, such as natural gas leaks, oil spills,
    pipeline ruptures, and discharges of toxic gases;
    lost or damaged oilfield development and service tools;
    unusual or unexpected geological formations, and pressure or
    irregularities in formations;
    loss of drilling fluid circulation;
    fires, blowouts, surface craterings, and explosions;
    uncontrollable flows of oil, natural gas, or well
    fluids; and
    loss of leases due to incorrect payment of royalties.    Secondary
    and tertiary recovery techniques may not be successful, which
    could adversely affect our financial condition or results of
    operations.
    
    lower than expected production;
    longer response times;
    higher operating and capital costs;
    shortages of equipment; and
    lack of technical expertise.    Our
    operations are subject to operational hazards and unforeseen
    interruptions for which we may not be adequately
    insured.
     29




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ENCORE
    ACQUISITION COMPANY
    Our
    development, exploitation, and exploration operations require
    substantial capital, and we may be unable to obtain needed
    financing on satisfactory terms.
    Shortages
    of rigs, equipment, and crews could delay our
    operations.
    The
    loss of key personnel could adversely affect our
    business.
      Our
    business depends in part on gathering and transportation
    facilities owned by others. Any limitation in the availability
    of those facilities could interfere with our ability to market
    our oil and natural gas production and could harm our
    business.
   30




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ENCORE
    ACQUISITION COMPANY
  Competition
    in the oil and natural gas industry is intense, and many of our
    competitors have greater resources than we do. As a result, we
    may be unable to effectively compete with larger
    competitors.
    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
    have significant indebtedness and may incur significant
    additional indebtedness, which could negatively impact our
    financial condition, results of operations, and business
    prospects.
    
    our ability to obtain additional financing, if necessary, for
    working capital, capital expenditures, acquisitions, or other
    purposes may not be available on favorable terms, if at all;
    covenants contained in future debt arrangements may require us
    to meet financial tests that may affect our flexibility in
    planning for and reacting to changes in our business, including
    possible acquisition opportunities; 31




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ENCORE
    ACQUISITION COMPANY
   
    we will need a substantial portion of our cash flow to make
    principal and interest payments on our indebtedness, reducing
    the funds that would otherwise be available for operations and
    future business opportunities; and
    our debt level will make us more vulnerable to competitive
    pressures, or a downturn in our business or the economy in
    general, than our competitors with less debt.  and/or
    We are unable to predict the impact of the recent downturn
    in the credit markets and the resulting costs or constraints in
    obtaining financing on our business and financial
    results.
    Our
    operations expose us to significant costs and liabilities with
    respect to environmental and operational safety
    matters.
     32




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ENCORE
    ACQUISITION COMPANY
  ITEM 1B.
    UNRESOLVED
    STAFF COMMENTS    ITEM 3.
    LEGAL
    PROCEEDINGS    ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS   33




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ENCORE
    ACQUISITION COMPANY
  PART II  ITEM 5.
    MARKET
    FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
    AND ISSUER PURCHASES OF EQUITY SECURITIES    High


Low2008Quarter ended December 31

$
41.05


$
17.89Quarter ended September 30

$
79.62


$
36.84Quarter ended June 30

$
77.35


$
38.45Quarter ended March 31

$
40.74


$
26.102007Quarter ended December 31

$
38.55


$
30.59Quarter ended September 30

$
33.00


$
25.79Quarter ended June 30

$
29.96


$
24.21Quarter ended March 31

$
26.50


$
21.74     Purchases
    of Equity Securities by the Issuer and Affiliated
    Purchasers
    Total Number of


Approximate DollarShares Purchased


Value of SharesTotal Number





as Part of Publicly


That May Yet Beof Shares


Average Price


Announced Plans


Purchased Under theMonth

Purchased


Paid per Share


or Programs


Plans or ProgramsOctober


620,265


$
27.68



620,265November(a)


4,753


$
21.31



December





$




Total


625,018


$
27.63



620,265


$
22,830,139     (a)
    
    During the fourth quarter of 2008, certain employees directed us
    to withhold 4,753 shares of common stock to satisfy minimum
    tax withholding obligations in conjunction with vesting of
    restricted shares.  Dividends
   34




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ENCORE
    ACQUISITION COMPANY
    Stock
    Performance Graph
    Comparison
    of Total Return Since January 1, 2004 Among Encore
    Acquisition Company, the Standard & Poors 500
    Index, and the
    Independent Oil and Gas Index
  
 35




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ENCORE
    ACQUISITION COMPANY
  ITEM 6.
    SELECTED
    FINANCIAL DATA    Year Ended December 31,(f)2008


2007


2006


2005


2004(In thousands, except per share amounts)Consolidated Statements of Operations Data:Revenues(a):Oil

$
897,443


$
562,817


$
346,974


$
307,959


$
220,649Natural gas


227,479



150,107



146,325



149,365



77,884Marketing(b)


10,496



42,021



147,563







Total revenues


1,135,418



754,945



640,862



457,324



298,533Expenses:Production:Lease operations(c)


175,115



143,426



98,194



69,744



47,807Production, ad valorem, and severance taxes


110,644



74,585



49,780



45,601



30,313Depletion, depreciation, and amortization


228,252



183,980



113,463



85,627



48,522Impairment of long-lived assets(g)


59,526















Exploration


39,207



27,726



30,519



14,443



3,935General and administrative(c)


48,421



39,124



23,194



17,268



12,059Marketing(b)


9,570



40,549



148,571







Derivative fair value loss (gain)(d)


(346,236
)


112,483



(24,388
)


5,290



5,011Loss on early redemption of debt














19,477



Provision for doubtful accounts


1,984



5,816



1,970



231



Other operating


12,975



17,066



8,053



9,254



5,028Total expenses


339,458



644,755



449,356



266,935



152,675Operating income


795,960



110,190



191,506



190,389



145,858Other income (expenses):Interest


(73,173
)


(88,704
)


(45,131
)


(34,055
)


(23,459
)Other


3,898



2,667



1,429



1,039



240Total other expenses


(69,275
)


(86,037
)


(43,702
)


(33,016
)


(23,219
)Income before income taxes and minority interest


726,685



24,153



147,804



157,373



122,639Income tax provision


(241,621
)


(14,476
)


(55,406
)


(53,948
)


(40,492
)Minority interest in loss (income) of consolidated partnership


(54,252
)


7,478











Net income

$
430,812


$
17,155


$
92,398


$
103,425


$
82,147Net income per common share:Basic

$
8.24


$
0.32


$
1.78


$
2.12


$
1.74
(e)Diluted

$
8.07


$
0.32


$
1.75


$
2.09


$
1.72
(e)Weighted average common shares outstanding:Basic


52,270



53,170



51,865



48,682



47,090
(e)Diluted


53,414



54,144



52,736



49,522



47,738
(e)   36




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ENCORE
    ACQUISITION COMPANY
  Year Ended December 31,(f)2008


2007


2006


2005


2004(In thousands, except per unit amounts)Total Production Volumes:Oil (Bbls)


10,050



9,545



7,335



6,871



6,679Natural gas (Mcf)


26,374



23,963



23,456



21,059



14,089Combined (BOE)


14,446



13,539



11,244



10,381



9,027Average Realized Prices:Oil ($/Bbl)

$
89.30


$
58.96


$
47.30


$
44.82


$
33.04Natural gas ($/Mcf)


8.63



6.26



6.24



7.09



5.53Combined ($/BOE)


77.87



52.66



43.87



44.05



33.07Average Costs per BOE:Lease operations

$
12.12


$
10.59


$
8.73


$
6.72


$
5.30Production, ad valorem, and severance taxes


7.66



5.51



4.43



4.39



3.36Depletion, depreciation, and amortization


15.80



13.59



10.09



8.25



5.38Impairment of long-lived assets


4.12















Exploration


2.71



2.05



2.71



1.39



0.44General and administrative


3.35



2.89



2.06



1.67



1.33Derivative fair value loss (gain)


(23.97
)


8.31



(2.17
)


0.51



0.56Provision for doubtful accounts


0.14



0.43



0.18



0.02



Other operating expense


0.90



1.26



0.72



0.89



0.56Marketing loss (gain)


(0.06
)


(0.11
)


0.09







Consolidated Statements of Cash Flows Data:Cash provided by (used in):Operating activities

$
663,237


$
319,707


$
297,333


$
292,269


$
171,821Investing activities


(728,346
)


(929,556
)


(397,430
)


(573,560
)


(433,470
)Financing activities


65,444



610,790



99,206



281,842



262,321Proved Reserves:Oil (Bbls)


134,452



188,587



153,434



148,387



134,048Natural gas (Mcf)


307,520



256,447



306,764



283,865



234,030Combined (BOE)


185,705



231,328



204,561



195,698



173,053Consolidated Balance Sheets Data:Working capital

$
188,678


$
(16,220
)

$
(40,745
)

$
(56,838
)

$
(15,566
)Total assets


3,633,195



2,784,561



2,006,900



1,705,705



1,123,400Long-term debt


1,319,811



1,120,236



661,696



673,189



379,000Stockholders equity


1,314,128



948,155



816,865



546,781



473,575     (a)
    
    For 2008, 2007, 2006, 2005, and 2004, we reduced oil and natural
    gas revenues for net profits interests by $56.5 million,
    $32.5 million, $23.4 million, $21.2 million, and
    $12.6 million, respectively.(b)
    
    In 2006, we began purchasing third-party oil Bbls from a
    counterparty other than to whom the Bbls were sold for
    aggregation and sale with our own equity production in various
    markets. These purchases assisted us in marketing our production
    by decreasing our dependence on individual markets. These
    activities allowed us to aggregate larger volumes, facilitated
    our efforts to maximize the prices we received for production,
    provided for a greater allocation of future pipeline capacity in
    the event of curtailments, and enabled us to reach other
    markets. In 2007, we discontinued purchasing oil from third
    party companies as market conditions changed and pipeline space
    was gained. Implementing this change allowed us to focus on the
    marketing of our own oil production, leveraging newly gained
    pipeline space, and delivering oil to various newly developed
    markets in an effort to maximize the value of the oil at the
    wellhead. In March 37




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ENCORE
    ACQUISITION COMPANY
  2007, ENP acquired a natural gas pipeline as part of the Big
    Horn Basin asset acquisition. Natural gas volumes are purchased
    from numerous gas producers at the inlet to the pipeline and
    resold downstream to various local and off-system markets.
    Marketing expenses include pipeline tariffs, storage, truck
    facility fees, and tank bottom costs used to support the sale of
    equity crude, the revenues of which are included in our oil
    revenues instead of marketing revenues.(c)
    
    On January 1, 2006, we adopted the provisions of
    SFAS No. 123R, Share-Based Payment
    (SFAS 123R). Due to the adoption of
    SFAS 123R, non-cash equity-based compensation expense for
    2005 and 2004 has been reclassified to allocate the amount to
    the same respective income statement lines as the respective
    employees cash compensation. This resulted in increases in
    LOE of $1.3 million and $0.7 million during 2005 and
    2004, respectively, increases in general and administrative
    (G&A) expense of $2.6 million and
    $1.1 million during 2005 and 2004, respectively.(d)
    
    During July 2006, we elected to discontinue hedge accounting
    prospectively for all of our remaining commodity derivative
    contracts which were previously accounted for as hedges. From
    that point forward, all mark-to-market gains or losses on all
    commodity derivative contracts are recorded in Derivative
    fair value loss (gain) while in periods prior to that
    point, only the ineffective portions of commodity derivative
    contracts which were designated as hedges were recorded in
    Derivative fair value loss (gain).(e)
    
    Adjusted for the effects of the
    3-for-2
    stock split in July 2005.(f)
    
    We acquired certain oil and natural gas properties and related
    assets in the Big Horn and Williston Basins in March 2007 and
    April 2007, respectively. We also acquired Crusader Energy
    Corporation in October 2005 and Cortez Oil & Gas, Inc.
    in April 2004. The operating results of these acquisitions are
    included in our Consolidated Statements of Operations from the
    date of acquisition forward. We disposed of certain oil and
    natural gas properties and related assets in the Mid-Continent
    in June 2007. The operating results of this disposition are
    included in our Consolidated Statements of Operations through
    the date of disposition.(g)
    
    During 2008, circumstances indicated that the carrying amounts
    of certain oil and natural gas properties, primarily four wells
    in the Tuscaloosa Marine Shale, may not be recoverable. We
    compared the assets carrying amounts to the undiscounted
    expected future net cash flows, which indicated a need for an
    impairment charge. We then compared the net carrying amounts of
    the impaired assets to their estimated fair value, which
    resulted in a write-down of the value of proved oil and natural
    gas properties of $59.5 million. Fair value was determined
    using estimates of future production volumes and estimates of
    future prices we might receive for these volumes, discounted to
    a present value. 38




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ENCORE
    ACQUISITION COMPANY
  ITEM 7.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS  The following discussion and analysis of our consolidated
    financial condition and results of operations should be read in
    conjunction with our consolidated financial statements and notes
    and supplementary data thereto included in Item 8.
    Financial Statements and Supplementary Data. The following
    discussion and analysis contains forward-looking statements
    including, without limitation, statements relating to our plans,
    strategies, objectives, expectations, intentions, and resources.
    Actual results could differ materially from those discussed in
    the forward-looking statements. We do not undertake to update,
    revise, or correct any of the forward-looking information unless
    required to do so under federal securities laws. Readers are
    cautioned that such forward-looking statements should be read in
    conjunction with our disclosures under the headings:
    Information Concerning Forward-Looking Statements
    and Item 1A. Risk Factors.
  Introduction
    
    Overview of Business
    2008 Highlights
    Recent Developments
    2009 Outlook
    Results of Operations      
    Capital Commitments, Capital Resources, and Liquidity
    Changes in Prices
    Critical Accounting Policies and Estimates
    New Accounting Pronouncements
    Information Concerning Forward-Looking Statements  Overview
    of Business
    
    Maintaining an active development program to maximize existing
    reserves and production;
    Utilizing enhanced oil recovery techniques to maximize existing
    reserves and production;
    Expanding our reserves, production, and development inventory
    through a disciplined acquisition program;
    Exploring for reserves; and
    Operating in a cost effective, efficient, and safe manner.   39




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ENCORE
    ACQUISITION COMPANY
              2008
    Highlights
    
    Our oil and natural gas revenues increased 58 percent to
    $1.1 billion as compared to $712.9 million in 2007 as
    a result of increased production volumes and higher average
    realized prices.
    Our average realized oil price increased 51 percent to
    $89.30 per Bbl as compared to $58.96 per Bbl in 2007. Our
    average realized natural gas price increased 38 percent to
    $8.63 per Mcf as compared to $6.26 per Mcf in 2007.
    Our average daily production volumes increased six percent to
    39,470 BOE/D as compared to 37,094 BOE/D in 2007. Oil
    represented 70 percent and 71 percent of our total
    production volumes in 2008 and 2007, respectively. 40




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ENCORE
    ACQUISITION COMPANY
   
    Our production margin (defined as oil and natural gas wellhead
    revenues less production expenses) increased 54 percent to
    $842.0 million as compared to $548.5 million in 2007.
    Total oil and natural gas wellhead revenues per BOE increased by
    38 percent while total production expenses per BOE
    increased by 23 percent. On a per BOE basis, our production
    margin increased 44 percent to $58.29 per BOE as compared
    to $40.52 per BOE for 2007.
    We reported record net income for 2008, which increased to
    $430.8 million ($8.07 per diluted share) from the
    $17.2 million ($0.32 per diluted share) reported for 2007.
    We invested $775.9 million in oil and natural gas
    activities (excluding asset retirement obligations of
    $0.6 million), of which $618.5 million was invested in
    development, exploitation, and exploration activities, yielding
    282 gross (104.8 net) productive wells, and
    $157.4 million was invested in acquisitions, primarily of
    unproved acreage.  Recent
    Developments
    2009
    Outlook
    Drilling

$
215,000Improved oil recovery, workovers


60,000Land, seismic, and other


35,000Total

$
310,000     
    the duration and severity of the worldwide economic recession;
    political developments in Iraq, Iran, Venezuela, Nigeria, and
    other oil-producing countries;
    the extent to which members of OPEC and other oil exporting
    nations are able to manage oil supply through export quotas;
    Russias increasing position as a major supplier of natural
    gas to world markets; 41




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
   
    the level of economic growth in China, India, and other
    developing countries;
    concerns that major oil fields throughout the world have reached
    peak production;
    the level of interest rates;
    oilfield service costs;
    the potential for terrorist activity; and
    the value of the U.S. dollar relative to other currencies.    First
    Quarter 2009 Outlook
         42




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  Results
    of Operations
  Comparison
    of 2008 to 2007
  Oil and natural gas revenues.
  Year Ended December 31,


Increase2008


2007


$


%Revenues (in thousands):Oil wellhead

$
900,300


$
606,112


$
294,188Oil commodity derivative contracts


(2,857
)


(43,295
)


40,438Total oil revenues

$
897,443


$
562,817


$
334,626



59
%Natural gas wellhead

$
227,479


$
160,399


$
67,080Natural gas commodity derivative contracts






(10,292
)


10,292Total natural gas revenues

$
227,479


$
150,107


$
77,372



52
%Combined wellhead

$
1,127,779


$
766,511


$
361,268Combined commodity derivative contracts


(2,857
)


(53,587
)


50,730Total combined oil and natural gas revenues

$
1,124,922


$
712,924


$
411,998



58
%Average realized prices:Oil wellhead ($/Bbl)

$
89.58


$
63.50


$
26.08Oil commodity derivative contracts ($/Bbl)


(0.28
)


(4.54
)


4.26Total oil revenues ($/Bbl)

$
89.30


$
58.96


$
30.34



51
%Natural gas wellhead ($/Mcf)

$
8.63


$
6.69


$
1.94Natural gas commodity derivative contracts ($/Mcf)






(0.43
)


0.43Total natural gas revenues ($/Mcf)

$
8.63


$
6.26


$
2.37



38
%Combined wellhead ($/BOE)

$
78.07


$
56.62


$
21.45Combined commodity derivative contracts ($/BOE)


(0.20
)


(3.96
)


3.76Total combined oil and natural gas revenues ($/BOE)

$
77.87


$
52.66


$
25.21



48
%Total production volumes:Oil (MBbls)


10,050



9,545



505



5
%Natural gas (MMcf)


26,374



23,963



2,411



10
%Combined (MBOE)


14,446



13,539



907



7
%Average daily production volumes:Oil (Bbl/D)


27,459



26,152



1,307



5
%Natural gas (Mcf/D)


72,060



65,651



6,409



10
%Combined (BOE/D)


39,470



37,094



2,376



6
%Average NYMEX prices:Oil (per Bbl)

$
99.75


$
72.45


$
27.30



38
%Natural gas (per Mcf)

$
9.04


$
6.86


$
2.18



32
%    43




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
                Year Ended December 31,2008


2007Oil wellhead ($/Bbl)

$
89.58


$
63.50Average NYMEX ($/Bbl)

$
99.75


$
72.45Differential to NYMEX

$
(10.17
)

$
(8.95
)Oil wellhead to NYMEX percentage


90
%


88
%Natural gas wellhead ($/Mcf)

$
8.63


$
6.69Average NYMEX ($/Mcf)

$
9.04


$
6.86Differential to NYMEX

$
(0.41
)

$
(0.17
)Natural gas wellhead to NYMEX percentage


95
%


98
%    44




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  Marketing revenues and expenses.
  Year Ended December 31,


Decrease2008


2007


$


%(In thousands, except per BOE amounts)Marketing revenues

$
10,496


$
42,021


$
(31,525
)


(75
)%Marketing expenses


9,570



40,549



(30,979
)


(76
)%Marketing gain

$
926


$
1,472


$
(546
)


(37
)%Marketing revenues per BOE

$
0.72


$
3.10


$
(2.38
)


(77
)%Marketing expenses per BOE


0.66



2.99



(2.33
)


(78
)%Marketing gain, per BOE

$
0.06


$
0.11


$
(0.05
)


(45
)%   Expenses.
  Year Ended December 31,


Increase/(Decrease)2008


2007


$


%Expenses (in thousands):Production:Lease operations

$
175,115


$
143,426


$
31,689Production, ad valorem, and severance taxes


110,644



74,585



36,059Total production expenses


285,759



218,011



67,748



31
%Other:Depletion, depreciation, and amortization


228,252



183,980



44,272Impairment of long-lived assets


59,526







59,526Exploration


39,207



27,726



11,481General and administrative


48,421



39,124



9,297Derivative fair value loss (gain)


(346,236
)


112,483



(458,719
)Provision for doubtful accounts


1,984



5,816



(3,832
)Other operating


12,975



17,066



(4,091
)Total operating


329,888



604,206



(274,318
)


(45
)%Interest


73,173



88,704



(15,531
)Income tax provision


241,621



14,476



227,145Total expenses

$
644,682


$
707,386


$
(62,704
)


(9
)% 45




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  Year Ended December 31,


Increase/(Decrease)2008


2007


$


%Expenses (per BOE):Production:Lease operations

$
12.12


$
10.59


$
1.53Production, ad valorem, and severance taxes


7.66



5.51



2.15Total production expenses


19.78



16.10



3.68



23
%Other:Depletion, depreciation, and amortization


15.80



13.59



2.21Impairment of long-lived assets


4.12







4.12Exploration


2.71



2.05



0.66General and administrative


3.35



2.89



0.46Derivative fair value loss (gain)


(23.97
)


8.31



(32.28
)Provision for doubtful accounts


0.14



0.43



(0.29
)Other operating


0.90



1.26



(0.36
)Total operating


22.83



44.63



(21.80
)


(49
)%Interest


5.07



6.55



(1.48
)Income tax provision


16.73



1.07



15.66Total expenses

$
44.63


$
52.25


$
(7.62
)


(15
)%   Production expenses.
    
    increases in prices paid to oilfield service companies and
    suppliers;
    increases in natural gas prices resulting in higher electricity
    costs and gas plant fuel costs;
    higher compensation levels for engineers and other technical
    professionals; and
    an increase of (1) approximately $4.7 million ($0.32
    per BOE) for retention bonuses paid in August 2008 and
    (2) approximately $4.1 million ($0.28 per BOE) for
    retention bonuses to be paid in August 2009, related to our
    strategic alternatives process.    DD&A expense.
 46




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  Impairment of long-lived assets.
  Exploration expense.
  Year Ended December 31,2008


2007


Increase(In thousands)Dry holes

$
14,683


$
14,673


$
10Geological and seismic


2,851



1,455



1,396Delay rentals


1,482



784



698Impairment of unproved acreage


20,191



10,814



9,377Total

$
39,207


$
27,726


$
11,481   G&A expense.
  
    a full year of ENP public entity expenses;
    higher activity levels;
    increased personnel costs due to intense competition for human
    resources within the industry; and
    an increase of (1) approximately $2.9 million for
    retention bonuses paid in August 2008 and (2) approximately
    $2.8 million for retention bonuses to be paid in August
    2009, related to our strategic alternatives process;
    partially offset by a $3.1 million decrease in non-cash
    equity-based compensation.  Derivative fair value loss (gain).
  Year Ended December 31,


Increase/2008


2007


(Decrease)(In thousands)Ineffectiveness on designated derivative contracts

$
372


$



$
372Mark-to-market loss (gain) on derivative contracts


(365,495
)


36,272



(401,767
)Premium amortization


62,352



41,051



21,301Settlements on commodity derivative contracts


(43,465
)


35,160



(78,625
)Total derivative fair value loss (gain)

$
(346,236
)

$
112,483


$
(458,719
)    47




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
    Provision for doubtful accounts.
  Other operating expense.
  Interest expense.
    Year Ended December 31,


Increase/2008


2007


(Decrease)(In thousands)6.25% Notes

$
9,727


$
9,705


$
226.0% Notes


18,550



18,517



337.25% Notes


10,996



10,988



8Revolving credit facilities


31,038



46,085



(15,047
)Other


2,862



3,409



(547
)Total

$
73,173


$
88,704


$
(15,531
)   Minority interest.
  Income taxes.
 48




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  Comparison
    of 2007 to 2006
  Oil and natural gas revenues.
  Increase/Year Ended December 31,


(Decrease)2007


2006


$


%Revenues (in thousands):Oil wellhead

$
606,112


$
399,180


$
206,932Oil commodity derivative contracts


(43,295
)


(52,206
)


8,911Total oil revenues

$
562,817


$
346,974


$
215,843



62
%Natural gas wellhead

$
160,399


$
154,458


$
5,941Natural gas commodity derivative contracts


(10,292
)


(8,133
)


(2,159
)Total natural gas revenues

$
150,107


$
146,325


$
3,782



3
%Combined wellhead

$
766,511


$
553,638


$
212,873Combined commodity derivative contracts


(53,587
)


(60,339
)


6,752Total combined oil and natural gas revenues

$
712,924


$
493,299


$
219,625



45
%Average realized prices:Oil wellhead ($/Bbl)

$
63.50


$
54.42


$
9.08Oil commodity derivative contracts ($/Bbl)


(4.54
)


(7.12
)


2.58Total oil revenues ($/Bbl)

$
58.96


$
47.30


$
11.66



25
%Natural gas wellhead ($/Mcf)

$
6.69


$
6.59


$
0.10Natural gas commodity derivative contracts ($/Mcf)


(0.43
)


(0.35
)


(0.08
)Total natural gas revenues ($/Mcf)

$
6.26


$
6.24


$
0.02



0
%Combined wellhead ($/BOE)

$
56.62


$
49.24


$
7.38Combined commodity derivative contracts ($/BOE)


(3.96
)


(5.37
)


1.41Total combined oil and natural gas revenues ($/BOE)

$
52.66


$
43.87


$
8.79



20
%Total production volumes:Oil (MBbls)


9,545



7,335



2,210



30
%Natural gas (MMcf)


23,963



23,456



507



2
%Combined (MBOE)


13,539



11,244



2,295



20
%Average daily production volumes:Oil (Bbl/D)


26,152



20,096



6,056



30
%Natural gas (Mcf/D)


65,651



64,262



1,389



2
%Combined (BOE/D)


37,094



30,807



6,287



20
%Average NYMEX prices:Oil (per Bbl)

$
72.45


$
66.26


$
6.19



9
%Natural gas (per Mcf)

$
6.86


$
7.17


$
(0.31
)


(4
)%    49




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
              Year Ended December 31,2007


2006Oil wellhead ($/Bbl)

$
63.50


$
54.42Average NYMEX ($/Bbl)

$
72.45


$
66.26Differential to NYMEX

$
(8.95
)

$
(11.84
)Oil wellhead to NYMEX percentage


88
%


82
%Natural gas wellhead ($/Mcf)

$
6.69


$
6.59Average NYMEX ($/Mcf)

$
6.86


$
7.17Differential to NYMEX

$
(0.17
)

$
(0.58
)Natural gas wellhead to NYMEX percentage


98
%


92
%     Marketing revenues and expenses.
 50




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
        Year Ended December 31,


Increase/(Decrease)2007


2006


$


%(In thousands, except per BOE amounts)Marketing revenues

$
42,021


$
147,563


$
(105,542
)


(72
)%Marketing expenses


40,549



148,571



(108,022
)


(73
)%Marketing gain (loss)

$
1,472


$
(1,008
)

$
2,480



(246
)%Marketing revenues per BOE

$
3.10


$
13.12


$
(10.02
)


(76
)%Marketing expenses per BOE


2.99



13.21



(10.22
)


(77
)%Marketing gain (loss), per BOE

$
0.11


$
(0.09
)

$
0.20



(222
)%  51




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  Expenses.
  Year Ended December 31,


Increase/ (Decrease)2007


2006


$


%Expenses (in thousands):Production:Lease operations

$
143,426


$
98,194


$
45,232Production, ad valorem, and severance taxes


74,585



49,780



24,805Total production expenses


218,011



147,974



70,037



47
%Other:Depletion, depreciation, and amortization


183,980



113,463



70,517Exploration


27,726



30,519



(2,793
)General and administrative


39,124



23,194



15,930Derivative fair value loss (gain)


112,483



(24,388
)


136,871Provision for doubtful accounts


5,816



1,970



3,846Other operating


17,066



8,053



9,013Total operating


604,206



300,785



303,421



101
%Interest


88,704



45,131



43,573Income tax provision


14,476



55,406



(40,930
)Total expenses

$
707,386


$
401,322


$
306,064



76
%Expenses (per BOE):Production:Lease operations

$
10.59


$
8.73


$
1.86Production, ad valorem, and severance taxes


5.51



4.43



1.08Total production expenses


16.10



13.16



2.94



22
%Other:Depletion, depreciation, and amortization


13.59



10.09



3.50Exploration


2.05



2.71



(0.66
)General and administrative


2.89



2.06



0.83Derivative fair value loss (gain)


8.31



(2.17
)


10.48Provision for doubtful accounts


0.43



0.18



0.25Other operating


1.26



0.71



0.55Total operating


44.63



26.74



17.89



67
%Interest


6.55



4.01



2.54Income tax provision


1.07



4.93



(3.86
)Total expenses

$
52.25


$
35.68


$
16.57



46
%   Production expenses.
 52




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
    
    increases in prices paid to oilfield service companies and
    suppliers;
    increased operational activity to maximize production;
    HPAI expenses at the CCA; and
    higher salary levels for engineers and other technical
    professionals.    DD&A expense.
  Exploration expense.
  Year Ended December 31,


Increase/2007


2006


(Decrease)(In thousands)Dry holes

$
14,673


$
17,257


$
(2,584
)Geological and seismic


1,455



1,720



(265
)Delay rentals


784



670



114Impairment of unproved acreage


10,814



10,872



(58
)Total

$
27,726


$
30,519


$
(2,793
)   G&A expense.
  
    a $6.4 million increase in non-cash equity-based
    compensation expense;
    increased staffing to manage our larger asset base;
    higher activity levels; and
    increased personnel costs due to intense competition for human
    resources within the industry. 53




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
   Derivative fair value loss (gain).
  Year Ended December 31,


Increase/2007


2006


(Decrease)(In thousands)Ineffectiveness on designated cash flow hedges

$



$
1,748


$
(1,748
)Mark-to-market loss (gain) on commodity derivative contracts


36,272



(31,205
)


67,477Premium amortization


41,051



13,926



27,125Settlements on commodity derivative contracts


35,160



(8,857
)


44,017Total derivative fair value loss (gain)

$
112,483


$
(24,388
)

$
136,871   Provision for doubtful accounts.
  Other operating expense.
  Interest expense.
    Year Ended December 31,


Increase/2007


2006


(Decrease)(In thousands)6.25% Notes

$
9,705


$
9,684


$
216.0% Notes


18,517



18,418



997.25% Notes


10,988



10,984



4Revolving credit facilities


46,085



3,609



42,476Other


3,409



2,436



973Total

$
88,704


$
45,131


$
43,573   Minority interest.
  Income taxes.
  Capital
    Commitments, Capital Resources, and Liquidity
  Capital commitments.
  
    Development, exploitation, and exploration of oil and natural
    gas properties; 54




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
   
    Acquisitions of oil and natural gas properties;
    Funding of necessary working capital; and
    Contractual obligations.  Development, exploitation, and exploration of oil and natural
    gas properties.
  Year Ended December 31,2008


2007


2006(In thousands)Development and exploitation

$
362,111


$
270,016


$
253,484Exploration


256,437



97,453



95,205Total

$
618,548


$
367,469


$
348,689     Acquisitions of oil and natural gas properties and leasehold
    acreage.
  Year Ended December 31,2008


2007


2006(In thousands)Acquisitions of proved property

$
28,729


$
787,988


$
4,486Acquisitions of leasehold acreage


128,635



52,306



24,462Total

$
157,364


$
840,294


$
28,948       Funding of necessary working capital.
 55




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
      Off-balance sheet arrangements.
  Contractual obligations.
  Payments Due by PeriodContractual Obligations and Commitments

Maturity Date


Total


2009


2010 - 2011


2012 - 2013


Thereafter(In thousands)6.25% Notes(a)


4/15/2014


$
201,563


$
9,375


$
18,750


$
18,750


$
154,6886.0% Notes(a)


7/15/2015



426,000



18,000



36,000



36,000



336,0007.25% Notes(a)


12/1/2017



247,875



10,875



21,750



21,750



193,500Revolving credit facilities(a)


3/7/2012



789,626



19,885



39,770



729,971



Commodity derivative contracts(b)






















Interest rate swaps






4,342



1,269



3,071



2



Capital lease obligations






1,747



466



932



349



Development commitments(c)






134,860



134,860











Operating leases and commitments(d)






17,493



3,952



7,577



5,964



Asset retirement obligations(e)






178,889



1,511



3,022



3,022



171,334Total





$
2,002,395


$
200,193


$
130,872


$
815,808


$
855,522     (a)
    
    Includes principal and projected interest payments. Please read
    Note 8 of Notes to Consolidated Financial Statements included in
    Item 8. Financial Statements and Supplementary
    Data for additional information regarding our long-term
    debt.(b)
    
    At December 31, 2008, our commodity derivative contracts
    were in a net asset position. With the exception of
    $67.6 million of deferred premiums on commodity derivative
    contracts, the ultimate settlement amounts of our commodity
    derivative contracts are unknown because they are subject to
    continuing market risk. Please read Item 7A.
    Quantitative and Qualitative Disclosures about Market Risk
    and Notes 13 and 14 of Notes to Consolidated Financial
    Statements included in Item 8. Financial Statements and
    Supplementary Data for additional information regarding
    our commodity derivative contracts. 56




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
   (c)
    
    Development commitments include: authorized purchases for work
    in process of $116.7 million and future minimum payments
    for drilling rig operations of $18.1 million. Also at
    December 31, 2008, we had $178.2 million of authorized
    purchases not placed to vendors (authorized AFEs), which were
    not accrued and are excluded from the above table but are
    budgeted for and are expected to be made unless circumstances
    change.(d)
    
    Operating leases and commitments include office space and
    equipment obligations that have non-cancelable lease terms in
    excess of one year of $16.8 million and future minimum
    payments for other operating commitments of $0.7 million.
    Please read Note 4 of Notes to Consolidated Financial
    Statements included in Item 8. Financial Statements
    and Supplementary Data for additional information
    regarding our operating leases.(e)
    
    Asset retirement obligations represent the undiscounted future
    plugging and abandonment expenses on oil and natural gas
    properties and related facilities disposal at the end of field
    life. Please read Note 5 of Notes to Consolidated Financial
    Statements included in Item 8. Financial Statements
    and Supplementary Data for additional information
    regarding our asset retirement obligations.  Other contingencies and commitments.
     57




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
    Actual


ForecastFirst Quarter


Second Quarter


Third Quarter


Fourth Quarter


First Quarterof 2008


of 2008


of 2008


of 2008


of 2009Oil wellhead to NYMEX percentage


91
%


94
%


91
%


80
%


78
%Natural gas wellhead to NYMEX percentage


103
%


102
%


93
%


86
%


103
%   Capital
    resources
  Cash flows from operating activities.
    Cash flows from investing activities.
    Cash flows from financing activities.
     58




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
        Liquidity.
  Internally generated cash flows. mid-February
  Revolving credit facilities.
 59




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
      Percentage of

Percentage ofOil Derivative

Natural Gas DerivativeContracts

ContractsCounterparty

Committed

CommittedBNP Paribas


22
%


24
%Calyon


15
%


31
%Fortis


11
%


UBS


16
%


Wachovia


11
%


38
%   Encore Acquisition Company Senior Secured Credit Agreement
         60




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
    Applicable Margin for

Applicable Margin forRatio of Total Outstanding Borrowings to Borrowing Base

Eurodollar Loans

Base Rate LoansLess than .50 to 1


1.250
%


0.000
%Greater than or equal to .50 to 1 but less than .75 to 1


1.500
%


0.250
%Greater than or equal to .75 to 1 but less than .90 to 1


1.750
%


0.500
%Greater than or equal to .90 to 1


2.000
%


0.750
%         
    a prohibition against incurring debt, subject to permitted
    exceptions;
    a prohibition against paying dividends or making distributions,
    purchasing or redeeming capital stock, or prepaying
    indebtedness, subject to permitted exceptions;
    a restriction on creating liens on our and our restricted
    subsidiaries assets, subject to permitted exceptions;
    restrictions on merging and selling assets outside the ordinary
    course of business;
    restrictions on use of proceeds, investments, transactions with
    affiliates, or change of principal business;
    a provision limiting oil and natural gas hedging transactions
    (other than puts) to a volume not exceeding 75 percent of
    anticipated production from proved producing reserves;
    a requirement that we maintain a ratio of consolidated current
    assets (as defined in the EAC Credit Agreement) to consolidated
    current liabilities (as defined in the EAC Credit Agreement) of
    not less than 1.0 to 1.0; and
    a requirement that we maintain a ratio of consolidated EBITDA
    (as defined in the EAC Credit Agreement) to the sum of
    consolidated net interest expense plus letter of credit fees of
    not less than 2.5 to 1.0.      CommitmentRatio of Total Outstanding Borrowings to Borrowing Base

Fee PercentageLess than .50 to 1


0.250
%Greater than or equal to .50 to 1 but less than .75 to 1


0.300
%Greater than or equal to .75 to 1


0.375
%  61




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
    Encore Energy Partners Operating LLC Credit Agreement
          Applicable Margin for

Applicable Margin forRatio of Total Outstanding Borrowings to Borrowing Base

Eurodollar Loans

Base Rate LoansLess than .50 to 1


1.000
%


0.000
%Greater than or equal to .50 to 1 but less than .75 to 1


1.250
%


0.000
%Greater than or equal to .75 to 1 but less than .90 to 1


1.500
%


0.250
%Greater than or equal to .90 to 1


1.750
%


0.500
%         
    a prohibition against incurring debt, subject to permitted
    exceptions;
    a prohibition against purchasing or redeeming capital stock, or
    prepaying indebtedness, subject to permitted exceptions; 62




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
   
    a restriction on creating liens on the assets of ENP, OLLC and
    its restricted subsidiaries, subject to permitted exceptions;
    restrictions on merging and selling assets outside the ordinary
    course of business;
    restrictions on use of proceeds, investments, transactions with
    affiliates, or change of principal business;
    a provision limiting oil and natural gas hedging transactions
    (other than puts) to a volume not exceeding 75 percent of
    anticipated production from proved producing reserves;
    a requirement that ENP and OLLC maintain a ratio of consolidated
    current assets (as defined in the OLLC Credit Agreement) to
    consolidated current liabilities (as defined in the OLLC Credit
    Agreement) of not less than 1.0 to 1.0;
    a requirement that ENP and OLLC maintain a ratio of consolidated
    EBITDA (as defined in the OLLC Credit Agreement) to the sum of
    consolidated net interest expense plus letter of credit fees of
    not less than 1.5 to 1.0;
    a requirement that ENP and OLLC maintain a ratio of consolidated
    EBITDA (as defined in the OLLC Credit Agreement) to consolidated
    senior interest expense of not less than 2.5 to 1.0; and
    a requirement that ENP and OLLC maintain a ratio of consolidated
    funded debt (excluding certain related party debt) to
    consolidated adjusted EBITDA (as defined in the OLLC Credit
    Agreement) of not more than 3.5 to 1.0.      CommitmentRatio of Total Outstanding Borrowings to Borrowing Base

Fee PercentageLess than .50 to 1


0.250
%Greater than or equal to .50 to 1 but less than .75 to 1


0.300
%Greater than or equal to .75 to 1


0.375
%       Indentures governing our senior subordinated
    notes.
  
    incur additional indebtedness;
    pay dividends on our capital stock or redeem, repurchase, or
    retire our capital stock or subordinated indebtedness;
    make investments; 63




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
   
    incur liens;
    create any consensual limitation on the ability of our
    restricted subsidiaries to pay dividends, make loans, or
    transfer property to us;
    engage in transactions with our affiliates;
    sell assets, including capital stock of our subsidiaries;
    consolidate, merge, or transfer assets;
    a requirement that we maintain a current ratio (as defined in
    the indentures) of not less than 1.0 to 1.0; and
    a requirement that we maintain a ratio of consolidated EBITDA
    (as defined in the indentures) to consolidated interest expense
    of not less than 2.5 to 1.0.    Debt covenants.
  Capitalization.
  Changes
    in Prices
    Year Ended December 31,2008


2007


2006Average realized prices:Oil ($/Bbl)

$
89.30


$
58.96


$
47.30Natural gas ($/Mcf)


8.63



6.26



6.24Combined ($/BOE)


77.87



52.66



43.87Average wellhead prices:Oil ($/Bbl)

$
89.58


$
63.50


$
54.42Natural gas ($/Mcf)


8.63



6.69



6.59Combined ($/BOE)


78.07



56.62



49.24    64




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
    Critical
    Accounting Policies and Estimates
    Oil
    and Natural Gas Properties
  Successful efforts method. Financial
    Accounting and Reporting by Oil and Gas Producing
    Companies
       65




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
      Accounting
    for the Impairment or Disposal of Long-Lived Assets and/or
  property-by-property
  Oil and natural gas reserves. well-by-well
  
    quality and quantity of available data;
    interpretation of that data; 66




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
   
    accuracy of various mandated economic assumptions; and
    judgment of the independent reserve engineer.    Asset retirement obligations. Accounting for Asset
    Retirement
    Goodwill
    and Other Intangible Assets
  Goodwill and
    Other Intangible Assets
     67




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
    Net
    Profits Interests
    Oil
    and Natural Gas Revenue Recognition
    Income
    Taxes
  and/or
  Derivatives
   68




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
    Accounting for Derivative Instruments and Hedging
    Activities
          New
    Accounting Pronouncements
  SFAS No. 157,
    Fair Value Measurements
    (SFAS 157)
  No. FAS 157-2, Effective Date of FASB Statement No. 157 FAS 157-2), FAS 157-2, FAS 157-2,
  SFAS No. 159,
    The Fair Value Option for Financial Assets and Financial
    Liabilities  including an amendment of FASB Statement
    No. 115 (SFAS 159)
  instrument-by-instrument
 69




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
    FSP on
    FASB Interpretation (FIN)
    39-1,
    Amendment of FASB Interpretation No. 39 (FSP
    FIN 39-1)
  FIN 39-1, Offsetting of
    Amounts Related to Certain Contracts FIN 39-1 FIN 39-1
  SFAS No. 141
    (revised 2007), Business Combinations
    (SFAS 141R)
  Business
    Combinations
  SFAS No. 160,
    Noncontrolling Interests in Consolidated Financial
    Statements   an amendment to ARB No. 51
    (SFAS 160)
  Consolidated Financial Statements
  SFAS No. 161,
    Disclosures about Derivative Instruments and Hedging
    Activities  an amendment of FASB Statement
    No. 133 (SFAS 161)
   70




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
    SFAS No. 162,
    The Hierarchy of Generally Accepted Accounting
    Principles (SFAS 162)
    FSP
    No. EITF
    03-6-1,
    Determining Whether Instruments Granted in Share-Based
    Payment Transactions Are Participating Securities
    (FSP EITF
    03-6-1)
  EITF 03-6-1, Earnings per Share EITF 03-6-1 EITF 03-6-1
  Information
    Concerning Forward-Looking Statements
    
    items of income and expense (including, without limitation, LOE,
    production taxes, DD&A, G&A, and effective tax rates);
    expected capital expenditures and the focus of our capital
    program;
    areas of future growth;
    our development and exploitation programs;
    future secondary development and tertiary recovery potential;
    anticipated prices for oil and natural gas and expectations
    regarding differentials between wellhead prices and benchmark
    prices (including, without limitation, the effects of the
    worldwide economic recession);
    projected results of operations;
    timing and amount of future production of oil and natural gas;
    availability of pipeline capacity;
    expected commodity derivative positions and payments related
    thereto (including the ability of counterparties to fulfill
    obligations);
    expectations regarding working capital, cash flow, and liquidity; 71




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
   
    projected borrowings under our revolving credit facility (and
    the ability of lenders to fund their commitments); and
    the marketing of our oil and natural gas production.    ITEM 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK    Derivative policy.
  Counterparties.
  Percentage of

Percentage ofOil Derivative

Natural Gas DerivativeCounterparty

Contracts Committed

Contracts CommittedBNP Paribas


22
%


24
%Calyon


15
%


31
%Fortis


11
%


UBS


16
%


Wachovia


11
%


38
%     Commodity price sensitivity.
 72




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
        Oil
    Derivative Contracts
  Average


Weighted



Average


Weighted



Average


Weighted



Average


Weighted



AssetDaily


Average



Daily


Average



Daily


Average



Daily


Average



FairFloor


Floor



Short Floor


Short Floor



Cap


Cap



Swap


Swap



MarketPeriod

Volume


Price



Volume


Price



Volume


Price



Volume


Price



Value(Bbl)


(per Bbl)



(Bbl)


(per Bbl)



(Bbl)


(per Bbl)



(Bbl)


(per Bbl)



(In thousands)2009(a)





































$
342,06311,630


$
110.00







$








$





2,000


$
90.468,000



80.00













440



97.75




500



89.39








(5,000
)


50.00













1,000



68.702010






































17,618880



80.00













440



93.80








2,000



75.00













1,000



77.23








2011


1,880



80.00













1,440



95.41













15,1121,000



70.00


























$
374,793     (a)
    
    In addition, ENP has a floor contract for 1,000 Bbls/D at
    $63.00 per Bbl and a short floor contract for 1,000 Bbls/D
    at $65.00 per Bbl. 73




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
   Natural
    Gas Derivative Contracts
  Average


Weighted



Average


Weighted



Average


Weighted



Average


Weighted



AssetDaily


Average



Daily


Average



Daily


Average



Daily


Average



FairFloor


Floor



Short Floor


Short Floor



Cap


Cap



Swap


Swap



MarketPeriod

Volume


Price



Volume


Price



Volume


Price



Volume


Price



Value(Mcf)


(per Mcf)



(Mcf)


(per Mcf)



(Mcf)


(per Mcf)



(Mcf)


(per Mcf)



(In thousands)2009





































$
7,2813,800


$
8.20







$





3,800


$
9.83







$
3,800



7.20


























1,800



6.76


























2010






































4,6903,800



8.20













3,800



9.58




902



6.304,698



7.26


























2011






































424898



6.76






















902



6.702012






































424898



6.76






















902



6.66$
12,819   Interest rate sensitivity.
        Notional


Fixed


FloatingTerm

Amount


Rate


Rate(In thousands)Jan. 2009  Jan. 2011

$
50,000



3.1610
%


1-month LIBORJan. 2009  Jan. 2011


25,000



2.9650
%


1-month LIBORJan. 2009  Jan. 2011


25,000



2.9613
%


1-month LIBORJan. 2009  Mar. 2012


50,000



2.4200
%


1-month LIBOR  74




---



##### 



ENCORE
    ACQUISITION COMPANY
  ITEM 8.
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA  Index to
    Consolidated Financial Statements
   
 PageReport of Independent Registered Public
    Accounting Firm


76Consolidated Balance Sheets as of
    December 31, 2008 and 2007


77Consolidated Statements of Operations for the
    Years Ended December 31, 2008, 2007, and 2006


78Consolidated Statements of Stockholders
    Equity and Comprehensive Income for the Years Ended
    December 31, 2008, 2007, and 2006


79Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2008, 2007, and 2006


80Notes to Consolidated Financial Statements


81Supplementary Information


129   75




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  
          Internal Control  Integrated Framework
  Ernst &
    Young LLP
   
 76




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  CONSOLIDATED
    BALANCE SHEETS
  December 31,2008


2007(In thousands, exceptshare and per shareamounts)ASSETSCurrent assets:Cash and cash equivalents

$
2,039


$
1,704Accounts receivable, net of allowance for doubtful accounts of
    $381 and $0, respectively


129,065



134,880Inventory


24,798



16,257Derivatives


349,344



9,722Deferred taxes






20,420Income taxes receivable


29,445



2,661Other


6,239



2,866Total current assets


540,930



188,510Properties and equipment, at cost  successful efforts
    method:Proved properties, including wells and related equipment


3,538,459



2,845,776Unproved properties


124,339



63,352Accumulated depletion, depreciation, and amortization


(771,564
)


(489,004
)2,891,234



2,420,124Other property and equipment


25,192



21,750Accumulated depreciation


(12,753
)


(10,733
)12,439



11,017Goodwill


60,606



60,606Derivatives


38,497



34,579Long-term receivables, net of allowance for doubtful accounts of
    $7,643 and $6,045, respectively


60,915



40,945Other


28,574



28,780Total assets

$
3,633,195


$
2,784,561LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
10,017


$
21,548Accrued liabilities:Lease operations expense


19,108



15,057Development capital


79,435



48,359Interest


11,808



12,795Production, ad valorem, and severance taxes


25,133



24,694Marketing


3,594



8,721Derivatives


63,476



39,337Oil and natural gas revenues payable


10,821



13,076Deferred taxes


105,768



Other


23,092



21,143Total current liabilities


352,252



204,730Derivatives


8,922



47,091Future abandonment cost, net of current portion


48,058



27,371Deferred taxes


416,915



312,914Long-term debt


1,319,811



1,120,236Other


3,989



1,530Total liabilities


2,149,947



1,713,872Commitments and contingencies (see Note 4)Minority interest in consolidated partnership


169,120



122,534Stockholders equity:Preferred stock, $.01 par value, 5,000,000 shares
    authorized, none issued and outstanding






Common stock, $.01 par value, 144,000,000 shares
    authorized, 51,551,937 and 53,303,464 issued and outstanding,
    respectively


516



534Additional paid-in capital


525,763



538,620Treasury stock, at cost, of 4,753 and 17,690 shares,
    respectively


(101
)


(590
)Retained earnings


789,698



411,377Accumulated other comprehensive loss


(1,748
)


(1,786
)Total stockholders equity


1,314,128



948,155Total liabilities and stockholders equity

$
3,633,195


$
2,784,561     77




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY



CONSOLIDATED
    STATEMENTS OF OPERATIONS  Year Ended December 31,2008


2007


2006(In thousands, except per share amounts)Revenues:Oil

$
897,443


$
562,817


$
346,974Natural gas


227,479



150,107



146,325Marketing


10,496



42,021



147,563Total revenues


1,135,418



754,945



640,862Expenses:Production:Lease operations


175,115



143,426



98,194Production, ad valorem, and severance taxes


110,644



74,585



49,780Depletion, depreciation, and amortization


228,252



183,980



113,463Impairment of long-lived assets


59,526







Exploration


39,207



27,726



30,519General and administrative


48,421



39,124



23,194Marketing


9,570



40,549



148,571Derivative fair value loss (gain)


(346,236
)


112,483



(24,388
)Provision for doubtful accounts


1,984



5,816



1,970Other operating


12,975



17,066



8,053Total expenses


339,458



644,755



449,356Operating income


795,960



110,190



191,506Other income (expenses):Interest


(73,173
)


(88,704
)


(45,131
)Other


3,898



2,667



1,429Total other expenses


(69,275
)


(86,037
)


(43,702
)Income before income taxes and minority interest


726,685



24,153



147,804Income tax provision


(241,621
)


(14,476
)


(55,406
)Minority interest in loss (income) of consolidated partnership


(54,252
)


7,478



Net income

$
430,812


$
17,155


$
92,398Net income per common share:Basic

$
8.24


$
0.32


$
1.78Diluted

$
8.07


$
0.32


$
1.75Weighted average common shares outstanding:Basic


52,270



53,170



51,865Diluted


53,414



54,144



52,736     78




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
 CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY
    AND COMPREHENSIVE INCOME  Issued

















AccumulatedShares of





Additional


Shares of








Other


TotalCommon


Common


Paid-in


Treasury


Treasury


Retained


Comprehensive


StockholdersStock


Stock


Capital


Stock


Stock


Earnings


Loss


Equity(In thousands)Balance at December 31, 2005


48,785


$
488


$
316,619



(11
)

$
(375
)

$
302,875


$
(72,826
)

$
546,781Exercise of stock options and vesting of restricted stock


280



3



3,641



















3,644Purchase of treasury stock














(25
)


(633
)










(633
)Cancellation of treasury stock


(18
)






(195
)


18



551



(356
)






Issuance of common stock


4,000



40



127,061



















127,101Non-cash stock-based compensation










10,075



















10,075Components of comprehensive income:Net income






















92,398







92,398Change in deferred hedge gain/loss, net of tax of $22,365


























37,499



37,499Total comprehensive income






























129,897Balance at December 31, 2006


53,047



531



457,201



(18
)


(457
)


394,917



(35,327
)


816,865Exercise of stock options and vesting of restricted stock


313



3



1,587



















1,590Purchase of treasury stock














(39
)


(1,136
)










(1,136
)Cancellation of treasury stock


(39
)






(338
)


39



1,003



(665
)






Non-cash equity-based compensation










14,632



















14,632EACs share of ENPs offering costs










(12,088
)


















(12,088
)ENP distributions to holders of management incentive units






















(30
)






(30
)Adjustment to reflect gain on sale of ENP common units










77,626



















77,626Components of comprehensive income:Net income






















17,155







17,155Amortization of deferred hedge losses, net of tax of $20,047


























33,541



33,541Total comprehensive income






























50,696Balance at December 31, 2007


53,321



534



538,620



(18
)


(590
)


411,377



(1,786
)


948,155Exercise of stock options and vesting of restricted stock


300



2



2,620



















2,622Repurchase and retirement of common stock


(2,018
)


(20
)


(19,279
)










(47,871
)






(67,170
)Purchase of treasury stock














(33
)


(1,055
)










(1,055
)Cancellation of treasury stock


(46
)






(465
)


46



1,544



(1,079
)






Non-cash equity-based compensation










14,505



















14,505ENP distributions to holders of management incentive units






















(3,541
)






(3,541
)Adjustment to reflect gain on issuance of ENP common units










3,458



















3,458Economic uniformity adjustment related to conversion of
    management incentive units










(13,920
)


















(13,920
)Other










224



















224Components of comprehensive income:Net income






















430,812







430,812Change in deferred hedge loss on interest rate swaps, net of tax
    of $957 and net of minority interest of $1,568


























(1,748
)


(1,748
)Amortization of deferred loss on commodity derivative contracts,
    net of tax of $1,071


























1,786



1,786Total comprehensive income






























430,850Balance at December 31, 2008


51,557


$
516


$
525,763



(5
)

$
(101
)

$
789,698


$
(1,748
)

$
1,314,128     79




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
 CONSOLIDATED
    STATEMENTS OF CASH FLOWS  Year Ended December 31,2008


2007


2006(In thousands)Cash flows from operating activities:Net income

$
430,812


$
17,155


$
92,398Adjustments to reconcile net income to net cash provided by
    operating activities:Depletion, depreciation, and amortization


228,252



183,980



113,463Impairment of long-lived assets


59,526







Non-cash exploration expense


34,874



25,487



28,128Deferred taxes


232,614



12,588



51,220Non-cash equity-based compensation expense


14,115



15,997



8,980Non-cash derivative loss (gain)


(299,914
)


130,910



(10,434
)Loss (gain) on disposition of assets


(3,623
)


7,409



(297
)Minority interest in income (loss) of consolidated partnership


54,252



(7,478
)


Provision for doubtful accounts


1,984



5,816



1,970Other


6,479



10,182



7,577Changes in operating assets and liabilities, net of effects from
    acquisitions:Accounts receivable


(8,488
)


(48,647
)


(2,275
)Current derivatives


(13,681
)


(17,430
)


Other current assets


(35,495
)


3,108



(4,945
)Long-term derivatives


(8,601
)


(35,750
)


Other assets


(2,174
)


(1,214
)


(365
)Accounts payable


(11,468
)


4,461



1,833Other current liabilities


(14,351
)


14,788



10,080Other noncurrent liabilities


(1,876
)


(1,655
)


Net cash provided by operating activities


663,237



319,707



297,333Cash flows from investing activities:Proceeds from disposition of assets


4,235



287,928



1,522Purchases of other property and equipment


(4,208
)


(3,519
)


(4,290
)Acquisition of oil and natural gas properties


(142,559
)


(848,545
)


(30,119
)Development of oil and natural gas properties


(560,997
)


(335,897
)


(340,582
)Net advances to working interest partners


(24,817
)


(29,523
)


(22,425
)Other










(1,536
)Net cash used in investing activities


(728,346
)


(929,556
)


(397,430
)Cash flows from financing activities:Proceeds from issuance of common stock, net of issuance costs










127,101Proceeds from issuance of ENP common units, net of issuance costs






193,461



Repurchase and retirement of common stock


(67,170
)






Exercise of stock options and vesting of restricted stock, net
    of treasury stock purchases


1,567



454



3,011Proceeds from long-term debt, net of issuance costs


1,370,339



1,479,259



281,853Payments on long-term debt


(1,172,500
)


(1,034,428
)


(294,000
)Payment of commodity derivative contract premiums


(39,184
)


(26,195
)


(7,848
)ENP distributions to holder of management incentive units and
    public units


(27,545
)


(568
)


Change in cash overdrafts


(63
)


(1,193
)


(10,911
)Net cash provided by financing activities


65,444



610,790



99,206Increase (decrease) in cash and cash equivalents


335



941



(891
)Cash and cash equivalents, beginning of period


1,704



763



1,654Cash and cash equivalents, end of period

$
2,039


$
1,704


$
763     80




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
 NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  Note 1.
    Description
    of Business    
    the Cedar Creek Anticline (CCA) in the Williston
    Basin of Montana and North Dakota;
    the Permian Basin of West Texas and southeastern New Mexico;
    the Rockies, which includes non-CCA assets in the Williston, Big
    Horn, and Powder River Basins in Wyoming, Montana, and North
    Dakota, and the Paradox Basin in southeastern Utah; and
    the Mid-Continent area, which includes the Arkoma and Anadarko
    Basins in Oklahoma, the North Louisiana Salt Basin, the East
    Texas Basin, and the Mississippi Salt Basin.  Note 2.
    Summary
    of Significant Accounting Policies  Principles
    of Consolidation
    No. 04-5, Determining Whether a General Partner, or the General
    Partners as a Group, Controls a Limited Partnership or Similar
    Entity When the Limited Partners Have Certain Rights Accounting for Sales of
    Stock by a Subsidiary
    Use of
    Estimates
   81




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Cash
    and Cash Equivalents
  bank-by-bank
  Supplemental
    Disclosures of Cash Flow Information
    Year Ended December 31,2008


2007


2006(In thousands)Cash paid during the period for:Interest

$
67,519


$
82,649


$
46,389Income taxes


33,110



260



464Non-cash investing and financing activities:Deferred premiums on commodity derivative contracts


53,387



20,341



30,319ENPs issuance of common units in connection with
    acquisition of net profits interest in certain Crockett County
    properties


5,748







   Accounts
    Receivable
   82




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2008


2007(In thousands)Allowance for doubtful accounts at January 1

$
6,045


$
2,329Bad debt expense


1,984



5,816Write off


(5
)


(2,100
)Allowance for doubtful accounts at December 31

$
8,024


$
6,045     Inventory
    December 31,2008


2007(In thousands)Materials and supplies

$
15,933


$
11,030Oil in pipelines


8,865



5,227Total inventory

$
24,798


$
16,257   Properties
    and Equipment
  Oil and Natural Gas Properties. Financial Accounting
    and Reporting by Oil and Gas Producing Companies
   83




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Accounting
    for the Impairment or Disposal of Long-Lived Assets and/or
  property-by-property
 84




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2008


2007(In thousands)Proved leasehold costs

$
1,421,859


$
1,346,516Wells and related equipment  Completed


1,943,275



1,408,512Wells and related equipment  In process


173,325



90,748Total proved properties

$
3,538,459


$
2,845,776   Other Property and Equipment.
  Goodwill
    and Other Intangible Assets
  Goodwill and
    Other Intangible Assets
       85




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Asset
    Retirement Obligations
  Accounting
    for Asset Retirement Obligations
  Equity-Based
    Compensation
  Share-Based Payment
    Segment
    Reporting
    Major
    Customers/Concentration of Credit Risk
     86




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Income
    Taxes
    Oil
    and Natural Gas Revenue Recognition
      Marketing
    Revenues and Expenses
  No. 04-13, Accounting for Purchases and Sales of Inventory with
    the Same Counterparty
  Shipping
    Costs
   87




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Derivatives
    Accounting for Derivative Instruments and Hedging
    Activities
        Comprehensive
    Income
    Reclassifications
    New
    Accounting Pronouncements
  SFAS No. 157,
    Fair Value Measurements
    (SFAS 157)
   88




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  No. FAS 157-2, Effective Date of FASB Statement No. 157 FAS 157-2), FAS 157-2, FAS 157-2,
  SFAS No. 159,
    The Fair Value Option for Financial Assets and Financial
    Liabilities  including an amendment of FASB Statement
    No. 115 (SFAS 159)
  instrument-by-instrument
  FSP on
    FASB Interpretation (FIN)
    39-1,
    Amendment of FASB Interpretation No. 39
    (FSP
    FIN 39-1)
  FIN 39-1, Offsetting of
    Amounts Related to Certain Contracts FIN 39-1 FIN 39-1
  SFAS No. 141
    (revised 2007), Business Combinations
    (SFAS 141R)
  Business
    Combinations
 89




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  SFAS No. 160,
    Noncontrolling Interests in Consolidated Financial
    Statements  an amendment to ARB No. 51
    (SFAS 160)
  Consolidated Financial Statements
  SFAS No. 161,
    Disclosures about Derivative Instruments and Hedging
    Activities  an amendment of FASB Statement
    No. 133 (SFAS 161)
    SFAS No. 162,
    The Hierarchy of Generally Accepted Accounting
    Principles (SFAS 162)
    FSP
    No. EITF 03-6-1,
    Determining Whether Instruments Granted in Share-Based
    Payment Transactions Are Participating Securities
    (FSP
    EITF 03-6-1)
  EITF 03-6-1, Earnings per Share EITF 03-6-1 EITF 03-6-1
  Note 3.  Acquisitions
    and Dispositions
  Acquisitions
   90




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  2000-37
      Dispositions
    Pro
    Formas
    91




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Year Ended December 31,2007


2006(In thousands, except per share amounts)Pro forma total revenues

$
749,659


$
785,281Pro forma net income

$
20,685


$
100,702Pro forma net income per common share:Basic

$
0.39


$
1.94Diluted

$
0.38


$
1.91   Note 4.  Commitments
    and Contingencies
  Litigation
    Leases
    2009

$
3,6032010


3,6092011


3,5982012


3,3582013


2,607Thereafter


$
16,775     ExxonMobil
       92




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Note 5.  Asset
    Retirement Obligations
    Year Ended December 31,2008


2007(In thousands)Future abandonment liability at January 1

$
28,079


$
19,841Wells drilled


498



145Acquisition of properties


111



8,251Disposition of properties






(959
)Accretion of discount


1,361



1,145Plugging and abandonment costs incurred


(1,756
)


(1,655
)Revision of previous estimates


21,276



1,311Future abandonment liability at December 31

$
49,569


$
28,079     Note 6.  Capitalization
    of Exploratory Well Costs
  No. 19-1 Accounting for Suspended Well Costs (FSP 19-1),
 93




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2008


2007


2006(In thousands)Beginning balance at January 1

$
19,479


$
13,048


$
6,560Additions to capitalized exploratory well costs pending the
    determination of proved reserves


28,757



19,479



13,048Reclassification to proved property and equipment based on the
    determination of proved reserves


(19,229
)


(9,390
)


(1,457
)Capitalized exploratory well costs charged to expense


(250
)


(3,658
)


(5,103
)Total

$
28,757


$
19,479


$
13,048     Note 7.  Other
    Current Liabilities
    December 31,2008


2007(In thousands)Net profits interests payable

$
995


$
3,996Income taxes payable


940



2,789Accrued compensation


16,216



8,431Current portion of future abandonment liability


1,511



708Other


3,430



5,219Total

$
23,092


$
21,143   Note 8.  Long-Term
    Debt
    Maturity


December 31,Date


2008


2007(In thousands)Revolving credit facilities


3/7/2012


$
725,000


$
526,0006.25% Senior Subordinated Notes


4/15/2014



150,000



150,0006.0% Senior Subordinated Notes, net of unamortized discount
    of $3,960 and $4,440, respectively


7/15/2015



296,040



295,5607.25% Senior Subordinated Notes, net of unamortized
    discount of $1,229 and $1,324, respectively


12/1/2017



148,771



148,676Total





$
1,319,811


$
1,120,236   Senior
    Subordinated Notes
   94




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      
    limitations on incurrence of additional debt, restrictions on
    asset dispositions, and restricted payments;
    a requirement that EAC maintain a current ratio (as defined in
    the indentures) of not less than 1.0 to 1.0; and
    a requirement that EAC maintain a ratio of consolidated EBITDA
    (as defined in the indentures) to consolidated interest expense
    of not less than 2.5 to 1.0.      Revolving
    Credit Facilities
  Encore
    Acquisition Company Senior Secured Credit Agreement
         95




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Applicable Margin for

Applicable Margin forRatio of Total Outstanding Borrowings to Borrowing Base

Eurodollar Loans

Base Rate LoansLess than .50 to 1


1.250
%


0.000
%Greater than or equal to .50 to 1 but less than .75 to 1


1.500
%


0.250
%Greater than or equal to .75 to 1 but less than .90 to 1


1.750
%


0.500
%Greater than or equal to .90 to 1


2.000
%


0.750
%         
    a prohibition against incurring debt, subject to permitted
    exceptions;
    a prohibition against paying dividends or making distributions,
    purchasing or redeeming capital stock, or prepaying
    indebtedness, subject to permitted exceptions;
    a restriction on creating liens on EACs and its restricted
    subsidiaries assets, subject to permitted exceptions;
    restrictions on merging and selling assets outside the ordinary
    course of business;
    restrictions on use of proceeds, investments, transactions with
    affiliates, or change of principal business;
    a provision limiting oil and natural gas hedging transactions
    (other than puts) to a volume not exceeding 75 percent of
    anticipated production from proved producing reserves;
    a requirement that we maintain a ratio of consolidated current
    assets (as defined in the EAC Credit Agreement) to consolidated
    current liabilities (as defined in the EAC Credit Agreement) of
    not less than 1.0 to 1.0; and
    a requirement that we maintain a ratio of consolidated EBITDA
    (as defined in the EAC Credit Agreement) to the sum of
    consolidated net interest expense plus letter of credit fees of
    not less than 2.5 to 1.0.     96




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    CommitmentRatio of Total Outstanding Borrowings to Borrowing Base

Fee PercentageLess than .50 to 1


0.250
%Greater than or equal to .50 to 1 but less than .75 to 1


0.300
%Greater than or equal to .75 to 1


0.375
%     Encore
    Energy Partners Operating LLC Credit Agreement
          Applicable Margin for

Applicable Margin forRatio of Total Outstanding Borrowings to Borrowing Base

Eurodollar Loans

Base Rate LoansLess than .50 to 1


1.000
%


0.000
%Greater than or equal to .50 to 1 but less than .75 to 1


1.250
%


0.000
%Greater than or equal to .75 to 1 but less than .90 to 1


1.500
%


0.250
%Greater than or equal to .90 to 1


1.750
%


0.500
%    97




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      
    a prohibition against incurring debt, subject to permitted
    exceptions;
    a prohibition against purchasing or redeeming capital stock, or
    prepaying indebtedness, subject to permitted exceptions;
    a restriction on creating liens on the assets of ENP, OLLC and
    its restricted subsidiaries, subject to permitted exceptions;
    restrictions on merging and selling assets outside the ordinary
    course of business;
    restrictions on use of proceeds, investments, transactions with
    affiliates, or change of principal business;
    a provision limiting oil and natural gas hedging transactions
    (other than puts) to a volume not exceeding 75 percent of
    anticipated production from proved producing reserves;
    a requirement that ENP and OLLC maintain a ratio of consolidated
    current assets (as defined in the OLLC Credit Agreement) to
    consolidated current liabilities (as defined in the OLLC Credit
    Agreement) of not less than 1.0 to 1.0;
    a requirement that ENP and OLLC maintain a ratio of consolidated
    EBITDA (as defined in the OLLC Credit Agreement) to the sum of
    consolidated net interest expense plus letter of credit fees of
    not less than 1.5 to 1.0;
    a requirement that ENP and OLLC maintain a ratio of consolidated
    EBITDA (as defined in the OLLC Credit Agreement) to consolidated
    senior interest expense of not less than 2.5 to 1.0; and
    a requirement that ENP and OLLC maintain a ratio of consolidated
    funded debt (excluding certain related party debt) to
    consolidated adjusted EBITDA (as defined in the OLLC Credit
    Agreement) of not more than 3.5 to 1.0.      CommitmentRatio of Total Outstanding Borrowings to Borrowing Base

Fee PercentageLess than .50 to 1


0.250
%Greater than or equal to .50 to 1 but less than .75 to 1


0.300
%Greater than or equal to .75 to 1


0.375
%    98




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Long-Term
    Debt Maturities
    Payments Due by PeriodTotal


2009


2010


2011


2012


2013


Thereafter(In thousands)6.25% Notes

$
150,000


$



$



$



$



$



$
150,0006.0% Notes


300,000























300,0007.25% Notes


150,000























150,000Revolving credit facilities


725,000















725,000







Total

$
1,325,000


$



$



$



$
725,000


$



$
600,000     Note 9.
    Taxes
  Income
    Taxes
    Year Ended December 31,2008


2007


2006(In thousands)Federal:Current

$
(7,626
)

$
(1,888
)

$
(3,785
)Deferred


(222,651
)


(11,229
)


(48,327
)Total federal


(230,277
)


(13,117
)


(52,112
)State, net of federal benefit:Current


(1,381
)






(401
)Deferred


(9,963
)


(1,359
)


(2,893
)Total state


(11,344
)


(1,359
)


(3,294
)Income tax provision(a)

$
(241,621
)

$
(14,476
)

$
(55,406
)     (a)
    
    Excludes an excess tax benefit related to stock option exercises
    and vesting of restricted stock, which was recorded directly to
    additional paid-in capital, of $2.1 million and
    $1.3 million during 2008 and 2006, respectively. During
    2007, EAC did not recognize an excess tax benefit related to
    stock option exercises and vesting of restricted stock. 99




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Year Ended December 31,2008


2007


2006(In thousands)Income before income taxes, net of minority interest

$
672,433


$
31,631


$
147,804Income taxes at the Federal statutory rate

$
(235,352
)

$
(11,071
)

$
(51,731
)State income taxes, net of federal benefit


(12,861
)


(716
)


(3,440
)Enactment of the Texas margin tax










(1,062
)Change in estimated future state tax rate


2,113



(495
)


1,208Nondeductible deferred compensation expense


(1,124
)


(1,963
)


Permanent and other


5,603



(231
)


(381
)Income tax provision

$
(241,621
)

$
(14,476
)

$
(55,406
)    100




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2008


2007(In thousands)Current:Assets:Unrealized hedge loss in accumulated other comprehensive loss

$
222


$
1,071Derivative fair value loss






15,442Other


2,422



3,907Total current deferred tax assets


2,644



20,420Liabilities:Derivative fair value gain


(108,412
)


Total current deferred tax liabilities


(108,412
)


Net current deferred tax asset (liability)

$
(105,768
)

$
20,420Long-term:Assets:Alternative minimum tax credits

$
2,300


$
2,676Unrealized hedge loss in accumulated other comprehensive loss


735



Derivative fair value loss






10,775Section 43 credits


8,889



13,227Net operating loss carryforward


1,439



23,806Change in accounting method


5,583



Asset retirement obligations


17,842



11,266Deferred equity-based compensation


6,757



6,599Other


1,556



Total long-term deferred tax assets


45,101



68,349Liabilities:Derivative fair value gain


(2,711
)


Other






(11,076
)Book basis of oil and natural gas properties in excess of tax
    basis


(459,305
)


(370,187
)Total current deferred tax liabilities


(462,016
)


(381,263
)Net long-term deferred tax liability

$
(416,915
)

$
(312,914
)    101




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Federal


StateExpiration Date

AMT Credits


NOL(In thousands)2012

$



$
412014






2992024






1962025






6562026






1522027






95Indefinite


2,300



$
2,300


$
1,439   Accounting for Uncertainty in
    Income Taxes  an Interpretation of FASB Statement
    No. 109 Accounting for
    Income Taxes
    
    a review of documentation of tax positions taken on previous
    returns including an assessment of whether EAC followed industry
    practice or the applicable requirements under the tax code;
    a review of open tax returns (on a jurisdiction by jurisdiction
    basis) as well as supporting documentation used to support those
    tax returns;
    a review of the results of past tax examinations;
    a review of whether tax returns have been filed in all
    appropriate jurisdictions;
    a review of existing permanent and temporary
    differences; and
    consideration of any tax planning strategies that may have been
    used to support realization of deferred tax assets.   102




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Taxes
    Other than Income Taxes
    Year Ended December 31,2008


2007


2006(In thousands)Production and severance taxes

$
96,468


$
65,145


$
43,458Ad valorem taxes


14,176



9,440



6,322Franchise, payroll, and other taxes


2,479



2,263



1,745Total

$
113,123


$
76,848


$
51,525   Note 10.  Stockholders
    Equity
  Public
    Offering of Common Stock
    Stock
    Option Exercises and Restricted Stock Vestings
    Preferred
    Stock
    Stock
    Repurchase Programs
      Issuance
    of ENP Common Units
   103




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Rights
    Plan
     104




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 11.  EPS
    Year Ended December 31,2008


2007


2006(In thousands, except per share data)Numerator:Net income

$
430,812


$
17,155


$
92,398Denominator:Denominator for basic EPS:Weighted average shares outstanding


52,270



53,170



51,865Effect of dilutive options(a)


596



459



491Effect of dilutive restricted stock(b)


548



515



380Denominator for diluted EPS


53,414



54,144



52,736Net income per common share:Basic

$
8.24


$
0.32


$
1.78Diluted

$
8.07


$
0.32


$
1.75     (a)
    
    For 2008, 2007, and 2006, options to purchase 157,614, 121,651,
    and 103,856 shares of common stock, respectively, were
    outstanding but excluded from the diluted EPS calculations
    because their effect would have been antidilutive.(b)
    
    For 2008 and 2007, 17,511 and 59,865 shares of restricted
    stock, respectively, were outstanding but excluded from the
    diluted EPS calculations because their effect would have been
    antidilutive. There were no antidilutive shares of restricted
    stock for 2006.  Note 12.  Employee
    Benefit Plans
  401(k) Plan
    Incentive
    Stock Plans
   105




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      
    an employee may not be granted awards covering or relating to
    more than 300,000 shares of common stock during any
    calendar year;
    a non-employee director may not be granted awards covering or
    relating to more than 20,000 shares of common stock during
    any calendar year; and
    an employee may not receive awards consisting of cash (including
    cash awards that are granted as performance awards) in respect
    of any calendar year having a value determined on the grant date
    in excess of $5.0 million.  change-in-control, change-in-control.
      Stock Options. Valuation of
    Share-Based Payment Arrangements for Public Companies
 106




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2008


2007


2006Expected volatility


33.7
%


35.7
%


42.8
%Expected dividend yield


0.0
%


0.0
%


0.0
%Expected term (in years)


6.25



6.0



6.0Risk-free interest rate


3.0
%


4.8
%


4.6
%     Year Ended December 31,2008


2007


2006WeightedAverageWeighted


Remaining


Aggregate





Weighted





WeightedNumber of


Average


Contractual


Intrinsic


Number of


Average


Number of


AverageOptions


Strike Price


Term


Value


Options


Strike Price


Options


Strike Price(In thousands)Outstanding at beginning of year


1,381,782


$
16.03











1,337,118


$
14.44



1,440,812


$
13.20Granted


176,170



33.76











200,059



25.73



122,890



31.10Forfeited or expired


(14,923
)


30.83











(26,686
)


27.15



(48,410
)


24.65Exercised


(45,616
)


14.11











(128,709
)


12.34



(178,174
)


13.14Outstanding at end of year


1,497,413



18.02



5.1


$
13,224



1,381,782



16.03



1,337,118



14.44Exercisable at end of year


1,177,015



14.65



4.2



13,224



1,103,018



13.25



1,076,815



11.90    107




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Weighted





WeightedRange of

Number of


Average


Average


Number ofStrike Prices

Options


Life


Strike


OptionsYear of Grant

Per Share

Outstanding


(Years)


Price


Exercisable2001

$8.33 to $9.33


409,486



2.5


$
8.85



409,4862002

$8.50 to $12.40


284,085



3.8



11.94



284,0852003

$11.49 to $13.61


35,965



4.5



12.28



35,9652004

$17.17 to $19.77


259,075



5.1



17.55



259,0752005

$26.55


68,105



6.1



26.55



68,1052006

$31.10


92,823



7.1



31.10



61,7162007

$25.73


181,174



8.1



25.73



58,5832008

$33.76


166,700



9.1



33.76



1,497,413











1,177,015   Restricted Stock.
  WeightedAverageNumber of


Grant DateShares


Fair ValueOutstanding at January 1, 2008


918,338


$
27.07Granted


314,086



37.02Vested


(256,785
)


25.63Forfeited


(37,232
)


29.59Outstanding at December 31, 2008


938,407



30.67     Year of VestingYear of Grant

2009


2010


2011


2012


Total2004


25,119















25,1192005


71,483



71,483











142,9662006


169,408



60,793











230,2012007


75,014



79,183



79,184



4,167



237,5482008


52,827



52,832



76,836



52,839



235,334Total


393,851



264,291



156,020



57,006



871,168  108




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year of VestingYear of Grant

2009


2010


2011


2012


Total2008


16,810



16,810



16,810



16,809



67,239     Note 13.  Financial
    Instruments
    December 31,2008


2007Book


Fair


Book


FairValue


Value


Value


Value(In thousands)Cash and cash equivalents

$
2,039


$
2,039


$
1,704


$
1,704Accounts receivable, net


129,065



129,065



134,880



134,880Plugging bond


824



1,202



777



921Bell Creek escrow


9,229



9,241



6,701



6,728Accounts payable


10,017



10,017



(21,548
)


(21,548
)6.25% Notes


(150,000
)


(101,250
)


(150,000
)


(138,375
)6.0% Notes


(296,040
)


(194,250
)


(295,560
)


(264,750
)7.25% Notes


(148,771
)


(94,500
)


(148,676
)


(143,813
)Revolving credit facilities


(725,000
)


(725,000
)


(526,000
)


(526,000
)Commodity derivative contracts


387,612



387,612



9,798



9,798Deferred premiums on commodity derivative contracts


(67,610
)


(67,610
)


(51,926
)


(51,926
)Interest rate swaps


(4,559
)


(4,559
)






    109




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Derivative
    Financial Instruments
  Commodity Derivative Contracts.
     110




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Oil
    Derivative Contracts
  Average


Weighted



Average


Weighted



Average


Weighted



Average


WeightedDaily


Average



Daily


Average



Daily


Average



Daily


Average



AssetFloor


Floor



Short Floor


Short Floor



Cap


Cap



Swap


Swap



Fair MarketPeriod

Volume


Price



Volume


Price



Volume


Price



Volume


Price



Value(Bbl)


(per Bbl)



(Bbl)


(per Bbl)



(Bbl)


(per Bbl)



(Bbl)


(per Bbl)



(In thousands)2009(a)





































$
342,06311,630


$
110.00







$








$





2,000


$
90.468,000



80.00













440



97.75




500



89.39








(5,000
)


50.00













1,000



68.702010






































17,618880



80.00













440



93.80








2,000



75.00













1,000



77.23








2011






































15,1121,880



80.00













1,440



95.41








1,000



70.00


























$
374,793     (a)
    
    In addition, ENP has a floor contract for 1,000 Bbls/D at
    $63.00 per Bbl and a short floor contract for 1,000 Bbls/D
    at $65.00 per Bbl.  Natural
    Gas Derivative Contracts
  Average


Weighted



Average


Weighted



Average


Weighted



Average


WeightedDaily


Average



Daily


Average



Daily


Average



Daily


Average



AssetFloor


Floor



Short Floor


Short Floor



Cap


Cap



Swap


Swap



Fair MarketPeriod

Volume


Price



Volume


Price



Volume


Price



Volume


Price



Value(Mcf)


(per Mcf)



(Mcf)


(per Mcf)



(Mcf)


(per Mcf)



(Mcf)


(per Mcf)



(In thousands)2009





































$
7,2813,800


$
8.20







$





3,800


$
9.83







$
3,800



7.20


























1,800



6.76


























2010






































4,6903,800



8.20













3,800



9.58




902



6.304,698



7.26


























2011






































424898



6.76






















902



6.702012






































424898



6.76






















902



6.66$
12,819   Interest Rate Swaps.
 111




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Notional


Fixed


FloatingTerm

Amount


Rate


Rate(In thousands)Jan. 2009 - Jan. 2011

$
50,000



3.1610%



1-month LIBORJan. 2009 - Jan. 2011


25,000



2.9650%



1-month LIBORJan. 2009 - Jan. 2011


25,000



2.9613%



1-month LIBORJan. 2009 - Mar. 2012


50,000



2.4200%



1-month LIBOR     Current Period Impact.
  Year Ended December 31,2008


2007


2006(In thousands)Ineffectiveness on designated derivative contracts

$
372


$



$
1,748Mark-to-market loss (gain) derivative contracts


(365,495
)


36,272



(31,205
)Premium amortization


62,352



41,051



13,926Settlements on commodity derivative contracts


(43,465
)


35,160



(8,857
)Total derivative fair value loss (gain)

$
(346,236
)

$
112,483


$
(24,388
)   Counterparty Risk.
  Percentage of

Percentage ofOil Derivative

Natural Gas DerivativeCounterparty

Contracts Committed

Contracts CommittedBNP Paribas


22%



24
%Calyon


15%



31
%Fortis


11%



UBS


16%



Wachovia


11%



38
%    112




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Accumulated Other Comprehensive Loss.
    Note 14.  Fair
    Value Measurements
    
    Level 1  Unadjusted quoted prices are available
    in active markets for identical assets or liabilities.
    Level 2  Pricing inputs, other than quoted
    prices within Level 1, that are either directly or
    indirectly observable.
    Level 3  Pricing inputs that are unobservable
    requiring the use of valuation methodologies that result in
    managements best estimate of fair value.    
    Level 2  Fair values of oil and natural gas
    swaps were estimated using a combined income and market-based
    valuation methodology based upon forward commodity price curves
    obtained from independent pricing services reflecting broker
    market quotes. Fair values of interest rate swaps were estimated
    using a combined income and market-based valuation methodology
    based upon credit ratings and forward interest rate yield curves
    obtained from independent pricing services reflecting broker
    market quotes.
    Level 3 Fair values of oil and natural
    gas floors and caps were estimated using pricing models and
    discounted cash flow methodologies based on inputs that are not
    readily available in public markets. 113




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Fair Value Measurements at Reporting Date UsingQuoted Prices inActive Markets for


Significant Other


SignificantDecember 31,


Identical Assets


Observable Inputs


Unobservable InputsDescription

2008


(Level 1)


(Level 2)


(Level 3)(In thousands)Oil derivative contracts  swaps

$
37,458


$



$
37,458


$
Oil derivative contracts  floors and caps


337,335











337,335Natural gas derivative contracts  swaps


78







78



Natural gas derivative contracts  floors and caps


12,741











12,741Interest rate swaps


(4,559
)






(4,559
)


Total

$
383,053


$



$
32,977


$
350,076     Fair Value Measurements Using SignificantUnobservable Inputs (Level 3)Oil Derivative


Natural GasContracts -


Derivative Contracts -Floors and Caps


Floors and Caps


Total(In thousands)Balance at January 1, 2008

$
16,647


$
7,081


$
23,728Total gains (losses):Included in earnings


350,584



5,104



355,688Purchases, issuances, and settlements


(29,896
)


556



(29,340
)Balance at December 31, 2008

$
337,335


$
12,741


$
350,076The amount of total gains or losses for the period included in
    earnings attributable to the change in unrealized gains or
    losses relating to assets still held at the reporting date

$
350,584


$
5,104


$
355,688     Note 15.  Related
    Party Transactions
     114




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 16.  Financial
    Statements of Subsidiary Guarantors
    
    EAP Properties, Inc.;
    EAP Operating, LLC;
    Encore Operating; and
    Encore Operating Louisiana, LLC.    
    ENP;
    OLLC;
    GP LLC;
    Encore Partners GP Holdings LLC;
    Encore Partners LP Holdings LLC;
    Encore Energy Partners Finance Corporation; and
    Encore Clear Fork Pipeline LLC.   115




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONDENSED
    CONSOLIDATING BALANCE SHEET
    December 31, 2008
  Guarantor


Non-Guarantor





ConsolidatedParent


Subsidiaries


Subsidiaries


Eliminations


Total(In thousands)ASSETSCurrent assets:Cash and cash equivalents

$
607


$
813


$
619


$



$
2,039Other current assets


29,004



421,392



90,797



(2,302
)


538,891Total current assets


29,611



422,205



91,416



(2,302
)


540,930Properties and equipment, at cost  successful efforts
    method:Proved properties, including wells and related equipment






3,016,937



521,522







3,538,459Unproved properties






124,272



67







124,339Accumulated depletion, depreciation, and amortization






(670,991
)


(100,573
)






(771,564
)



2,470,218



421,016







2,891,234Other property and equipment, net






11,877



562







12,439Other assets, net


12,846



129,482



46,264







188,592Investment in subsidiaries


2,976,208



(12,865
)






(2,963,343
)


Total assets

$
3,018,665


$
3,020,917


$
559,258


$
(2,965,645
)

$
3,633,195LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities

$
118,089


$
215,640


$
20,825


$
(2,302
)

$
352,252Deferred taxes


416,637







278







416,915Long-term debt


1,169,811







150,000







1,319,811Other liabilities






48,000



12,969







60,969Total liabilities


1,704,537



263,640



184,072



(2,302
)


2,149,947Commitments and contingencies (see Note 4)Minority interest in consolidated partnership










169,120







169,120Total stockholders equity


1,314,128



2,757,277



206,066



(2,963,343
)


1,314,128Total liabilities and stockholders equity

$
3,018,665


$
3,020,917


$
559,258


$
(2,965,645
)

$
3,633,195  116




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONDENSED
    CONSOLIDATING BALANCE SHEET
    December 31, 2007
  Guarantor


Non-Guarantor





ConsolidatedParent


Subsidiaries


Subsidiaries


Eliminations


Total(In thousands)ASSETSCurrent assets:Cash and cash equivalents

$
1


$
1,700


$
3


$



$
1,704Other current assets


535,221



437,852



21,053



(807,320
)


186,806Total current assets


535,222



439,552



21,056



(807,320
)


188,510Properties and equipment, at cost  successful efforts
    method:Proved properties, including wells and related equipment






2,467,606



378,170







2,845,776Unproved properties






63,352











63,352Accumulated depletion, depreciation, and amortization






(451,343
)


(37,661
)






(489,004
)



2,079,615



340,509







2,420,124Other property and equipment, net






10,610



407







11,017Other assets, net


14,899



121,904



28,107







164,910Investment in subsidiaries


2,090,471



20,611







(2,111,082
)


Total assets

$
2,640,592


$
2,672,292


$
390,079


$
(2,918,402
)

$
2,784,561LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities

$
306,787


$
687,351


$
17,885


$
(807,293
)

$
204,730Deferred taxes


312,914















312,914Long-term debt


1,072,736







47,500







1,120,236Other liabilities






49,461



26,531







75,992Total liabilities


1,692,437



736,812



91,916



(807,293
)


1,713,872Commitments and contingencies (see Note 4)Minority interest in consolidated partnership










122,534







122,534Total stockholders equity


948,155



1,935,480



175,629



(2,111,109
)


948,155Total liabilities and stockholders equity

$
2,640,592


$
2,672,292


$
390,079


$
(2,918,402
)

$
2,784,561  117




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONDENSED
    CONSOLIDATING STATEMENT OF OPERATIONS AND
    COMPREHENSIVE INCOME
    For the Year Ended December 31, 2008
  Guarantor


Non-Guarantor





ConsolidatedParent


Subsidiaries


Subsidiaries


Eliminations


Total(In thousands)Revenues:Oil

$



$
749,864


$
147,579


$



$
897,443Natural gas






192,942



34,537







227,479Marketing






5,172



5,324







10,496Total revenues






947,978



187,440







1,135,418Expenses:Production:Lease operations






146,460



28,655







175,115Production, ad valorem, and severance taxes






91,809



18,835







110,644Depletion, depreciation, and amortization






190,548



37,704







228,252Impairment of long-lived assets






59,526











59,526Exploration






39,026



181







39,207General and administrative


15,801



24,751



12,135



(4,266
)


48,421Marketing






4,104



5,466







9,570Derivative fair value gain






(249,356
)


(96,880
)






(346,236
)Provision for doubtful accounts






1,984











1,984Other operating


165



11,485



1,325







12,975Total expenses


15,966



320,337



7,421



(4,266
)


339,458Operating income (loss)


(15,966
)


627,641



180,019



4,266



795,960Other income (expenses):Interest


(66,204
)






(6,969
)






(73,173
)Equity income from subsidiaries


736,408



51,468







(787,876
)


Other


98



7,967



99



(4,266
)


3,898Total other expenses


670,302



59,435



(6,870
)


(792,142
)


(69,275
)Income before income taxes and minority interest


654,336



687,076



173,149



(787,876
)


726,685Income tax provision


(240,986
)






(635
)






(241,621
)Minority interest in income of consolidated partnership














(54,252
)


(54,252
)Net income


413,350



687,076



172,514



(842,128
)


430,812Amortization of deferred loss on commodity derivative contracts,
    net of tax


(1,071
)


2,857











1,786Change in deferred hedge gain on interest rate swaps, net of tax


942







(2,690
)






(1,748
)Comprehensive income

$
413,221


$
689,933


$
169,824


$
(842,128
)

$
430,850  118




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONDENSED
    CONSOLIDATING STATEMENT OF OPERATIONS AND
    COMPREHENSIVE INCOME (LOSS)
    For the Year Ended December 31, 2007
  Guarantor


Non-Guarantor





ConsolidatedParent


Subsidiaries


Subsidiaries


Eliminations


Total(In thousands)Revenues:Oil

$



$
503,981


$
58,836


$



$
562,817Natural gas






137,838



12,269







150,107Marketing






33,439



8,582







42,021Total revenues






675,258



79,687







754,945Expenses:Production:Lease operations






129,506



13,920







143,426Production, ad valorem, and severance taxes






66,014



8,571







74,585Depletion, depreciation, and amortization






157,982



25,998







183,980Exploration






27,726











27,726General and administrative


15,107



15,354



10,707



(2,044
)


39,124Marketing






33,876



6,673







40,549Derivative fair value loss






86,182



26,301







112,483Provision for doubtful accounts






5,816











5,816Other operating


221



16,083



762







17,066Total expenses


15,328



538,539



92,932



(2,044
)


644,755Operating income (loss)


(15,328
)


136,719



(13,245
)


2,044



110,190Other income (expenses):Interest


(82,825
)


(6,415
)


(12,294
)


12,830



(88,704
)Equity income (loss) from subsidiaries


123,381



(3,205
)






(120,176
)


Other


6,405



10,940



196



(14,874
)


2,667Total other expenses


46,961



1,320



(12,098
)


(122,220
)


(86,037
)Income (loss) before income taxes and minority interest


31,633



138,039



(25,343
)


(120,176
)


24,153Income tax benefit (provision)


(14,478
)






2







(14,476
)Minority interest in loss of consolidated partnership










7,478







7,478Net income (loss)


17,155



138,039



(17,863
)


(120,176
)


17,155Amortization of deferred loss on commodity derivative contracts,
    net of tax


(20,047
)


53,588











33,541Comprehensive income (loss)

$
(2,892
)

$
191,627


$
(17,863
)

$
(120,176
)

$
50,696  119




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONDENSED
    CONSOLIDATING STATEMENT OF CASH FLOWS
    For the Year Ended December 31, 2008
  Guarantor


Non-Guarantor





ConsolidatedParent


Subsidiaries


Subsidiaries


Eliminations


Total(In thousands)Cash flows from operating activities:Net cash provided by (used in) operating activities

$
629,345


$
(81,882
)

$
115,774


$



$
663,237Cash flows from investing activities:Acquisition of oil and natural gas properties






(142,471
)


(88
)






(142,559
)Development of oil and natural gas properties






(543,399
)


(17,598
)






(560,997
)Investments in subsidiaries


(681,766
)










681,766



Other






(24,475
)


(315
)






(24,790
)Net cash used in investing activities


(681,766
)


(710,345
)


(18,001
)


681,766



(728,346
)Cash flows from financing activities:Repurchase of common stock


(67,170
)














(67,170
)Proceeds from long-term debt, net of issuance costs


1,127,029







243,310







1,370,339Payments on long-term debt


(1,031,500
)






(141,000
)






(1,172,500
)Net equity distributions






806,460



(124,694
)


(681,766
)


Other


24,668



(15,120
)


(74,773
)






(65,225
)Net cash provided by (used in) financing activities


53,027



791,340



(97,157
)


(681,766
)


65,444Increase (decrease) in cash and cash equivalents


606



(887
)


616







335Cash and cash equivalents, beginning of period


1



1,700



3







1,704Cash and cash equivalents, end of period

$
607


$
813


$
619


$



$
2,039  120




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONDENSED
    CONSOLIDATING STATEMENT OF CASH FLOWS
    For the Year Ended December 31, 2007
  Guarantor


Non-Guarantor





ConsolidatedParent


Subsidiaries


Subsidiaries


Eliminations


Total(In thousands)Cash flows from operating activities:Net cash provided by (used in) operating activities

$
(305,868
)

$
615,484


$
10,091


$



$
319,707Cash flows from investing activities:Proceeds from disposition of assets






287,928











287,928Acquisition of oil and natural gas properties






(518,251
)


(330,294
)






(848,545
)Development of oil and natural gas properties






(329,252
)


(6,645
)






(335,897
)Investments in subsidiaries


(93,658
)










93,658



Other






(32,585
)


(457
)






(33,042
)Net cash used in investing activities


(93,658
)


(592,160
)


(337,396
)


93,658



(929,556
)Cash flows from financing activities:Proceeds from issuance of ENP common units, net of issuance costs










193,461







193,461Proceeds from long-term debt, net of issuance costs


1,208,501







270,758







1,479,259Payments on long-term debt


(809,428
)






(225,000
)






(1,034,428
)Net equity contributions










93,658



(93,658
)


Other


454



(22,387
)


(5,569
)






(27,502
)Net cash provided by (used in) financing activities


399,527



(22,387
)


327,308



(93,658
)


610,790Increase in cash and cash equivalents


1



937



3







941Cash and cash equivalents, beginning of period






763











763Cash and cash equivalents, end of period

$
1


$
1,700


$
3


$



$
1,704   Note 17.  ENP
   121




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Contribution,
    Conveyance and Assumption Agreement
    
    Encore Operating transferred certain oil and natural gas
    properties and related assets in the Permian Basin to ENP in
    exchange for 4,043,478 common units; and
    EAC agreed to indemnify ENP for certain environmental
    liabilities, tax liabilities, and title defects, as well as
    defects relating to retained assets and liabilities, occurring
    or existing before the closing.    Administrative
    Services Agreement
      Purchase
    and Investment Agreement
   122




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Long-Term
    Incentive Plan
    Phantom Units.
    WeightedAverageNumber of


Grant DateShares


Fair ValueOutstanding at January 1, 2008


20,000


$
20.21Granted


30,000



17.91Vested


(6,250
)


19.93Forfeited






Outstanding at December 31, 2008


43,750



18.67    123




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year of VestingYear of Grant

2009


2010


2011


2012


Total2007


5,000



5,000



5,000







15,0002008


7,500



7,500



7,500



6,250



28,750Total


12,500



12,500



12,500



6,250



43,750     Management
    Incentive Units
      Distributions
    Note 18.
    Segment
    Information  Disclosure about Segments of an Enterprise and Related
    Information Disclosures about Oil and Gas
    Producing Activities
  124




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  For the Year Ended December 31, 2008EAC








ConsolidatedStandalone


ENP


Eliminations


Total(In thousands)Revenues:Oil

$
749,864


$
147,579


$



$
897,443Natural gas


192,942



34,537







227,479Marketing


5,172



5,324







10,496Total revenues


947,978



187,440







1,135,418Expenses:Production:Lease operations


146,460



28,655







175,115Production, ad valorem, and severance taxes


91,809



18,835







110,644Depletion, depreciation, and amortization


190,548



37,704







228,252Impairment of long-lived assets


59,526











59,526Exploration


39,026



181







39,207General and administrative


40,555



12,132



(4,266
)


48,421Marketing


4,104



5,466







9,570Derivative fair value gain


(249,356
)


(96,880
)






(346,236
)Provision for doubtful accounts


1,984











1,984Other operating


11,650



1,325







12,975Total expenses


336,306



7,418



(4,266
)


339,458Operating income


611,672



180,022



4,266



795,960Other income (expenses):Interest


(66,204
)


(6,969
)






(73,173
)Other


8,065



99



(4,266
)


3,898Total other expenses


(58,139
)


(6,870
)


(4,266
)


(69,275
)Income before income taxes and minority interest


553,533



173,152







726,685Income tax provision


(240,986
)


(635
)






(241,621
)Minority interest in income of consolidated partnership


(54,252
)










(54,252
)Net income


258,295



172,517







430,812Amortization of deferred loss on commodity derivative contracts,
    net of tax


1,786











1,786Change in deferred hedge gain on interest rate swaps, net of tax


2,512



(4,260
)






(1,748
)Comprehensive income

$
262,593


$
168,257


$



$
430,850Costs incurred related to oil and natural gas properties

$
755,495


$
21,026


$



$
776,521Segment assets (as of December 31, 2008)

$
3,074,614


$
559,258


$
(677
)

$
3,633,195Segment liabilities (as of December 31, 2008)

$
1,967,518


$
184,072


$
(1,643
)

$
2,149,947   125




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  For the Year Ended December 31, 2007EAC








ConsolidatedStandalone


ENP


Eliminations


Total(In thousands)Revenues:Oil

$
503,981


$
58,836


$



$
562,817Natural gas


137,838



12,269







150,107Marketing


33,439



8,582







42,021Total revenues


675,258



79,687







754,945Expenses:Production:Lease operations


129,506



13,920







143,426Production, ad valorem, and severance taxes


66,014



8,571







74,585Depletion, depreciation, and amortization


157,982



25,998







183,980Exploration


27,726











27,726General and administrative


30,461



10,707



(2,044
)


39,124Marketing


33,876



6,673







40,549Derivative fair value loss


86,182



26,301







112,483Provision for doubtful accounts


5,816











5,816Other operating


16,304



762







17,066Total expenses


553,867



92,932



(2,044
)


644,755Operating income (loss)


121,391



(13,245
)


2,044



110,190Other income (expenses):Interest


(82,825
)


(12,294
)


6,415



(88,704
)Other


10,930



196



(8,459
)


2,667Total other income (expenses)


(71,895
)


(12,098
)


(2,044
)


(86,037
)Income (loss) before income taxes and minority interest


49,496



(25,343
)






24,153Income tax provision


(14,478
)


2







(14,476
)Minority interest in loss of consolidated partnership


7,478











7,478Net income (loss)


42,496



(25,341
)






17,155Amortization of deferred loss on commodity derivative contracts,
    net of tax


33,541











33,541Comprehensive income (loss)

$
76,037


$
(25,341
)

$



$
50,696Costs incurred related to oil and natural gas properties

$
874,811


$
341,348


$



$
1,216,159Segment assets (as of December 31, 2007)

$
2,395,135


$
390,079


$
(653
)

$
2,784,561Segment liabilities (as of December 31, 2007)

$
1,623,282


$
91,943


$
(1,353
)

$
1,713,872  126




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 19.
    Impairment
    of Long-Lived Assets    Note 20.
    Subsequent
    Events  Unaudited  Commodity
    Derivative Contracts
    Oil
    Derivative Contracts
  Average


Weighted



Average


Weighted



Average


Weighted



Average


WeightedDaily


Average



Daily


Average



Daily


Average



Daily


AverageFloor


Floor



Short Floor


Short Floor



Cap


Cap



Swap


SwapPeriod

Volume


Price



Volume


Price



Volume


Price



Volume


Price(Bbl)


(Per Bbl)



(Bbl)


(Per Bbl)



(Bbl)


(Per Bbl)



(Bbl)


(Per Bbl)Feb.  Dec. 2009


11,630


$
110.00







$





440


$
97.75




2,000


$
90.468,000



80.00






















500



89.39


























1,000



68.70








(5,000
)


50.00

















2010


880



80.00













440



93.80








2,000



75.00













1,500



75.48








3,000



60.00













500



65.60








1,000



56.00






















2,000



60.482011


1,880



80.00













1,440



95.41








1,000



70.00


























  127




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Natural
    Gas Derivative Contracts
  Average


Weighted



Average


Weighted



Average


Weighted



Average


WeightedDaily


Average



Daily


Average



Daily


Average



Daily


AverageFloor


Floor



Short Floor


Short Floor



Cap


Cap



Swap


SwapPeriod

Volume


Price



Volume


Price



Volume


Price



Volume


Price(Mcf)


(Per Mcf)



(Mcf)


(Per Mcf)



(Mcf)


(Per Mcf)



(Mcf)


(Per Mcf)Feb 2009  Dec 2009


3,800


$
8.20







$





3,800


$
9.83







$
3,800



7.20













5,000



7.45








6,800



6.57













15,000



6.63








15,000



5.64


























2010


3,800



8.20













3,800



9.58








4,698



7.26






















902



6.302011


898



6.76






















902



6.702012


898



6.76






















902



6.66     Purchase
    and Sale Agreement
      Other
    Events
     128




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
 SUPPLEMENTARY
    INFORMATION  Capitalized
    Costs and Costs Incurred Relating to Oil and Natural Gas
    Producing Activities
    December 31,2008


2007(In thousands)Properties and equipment, at cost  successful efforts
    method:Proved properties, including wells and related equipment

$
3,538,459


$
2,845,776Unproved properties


124,339



63,352Accumulated depletion, depreciation, and amortization


(771,564
)


(489,004
)$
2,891,234


$
2,420,124     Year Ended December 31,2008


2007


2006(In thousands)Acquisitions:Proved properties

$
28,729


$
787,988


$
4,486Unproved properties


128,635



52,306



24,462Asset retirement obligations


111



8,251



785Total acquisitions


157,475



848,545



29,733Development:Drilling and exploitation


362,111



270,016



253,484Asset retirement obligations


498



145



147Total development


362,609



270,161



253,631Exploration:Drilling and exploitation


252,104



95,221



92,839Geological and seismic


2,851



1,456



1,720Delay rentals


1,482



776



646Total exploration


256,437



97,453



95,205Total costs incurred

$
776,521


$
1,216,159


$
378,569   Oil &
    Natural Gas Producing Activities  Unaudited
     129




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  SUPPLEMENTARY
    INFORMATION  (Continued)
    December 31,2008


2007


2006Oil (per Bbl)

$
44.60


$
96.01


$
61.06Natural gas (per Mcf)

$
5.62


$
7.47


$
5.48         December 31,2008


2007


2006Proved reserves:Oil (MBbl)


134,452



188,587



153,434Natural gas (MMcf)


307,520



256,447



306,764Combined (MBOE)


185,705



231,328



204,561Proved developed reserves:Oil (MBbl)


110,014



125,213



94,246Natural gas (MMcf)


232,715



191,072



235,049Combined (MBOE)


148,800



157,058



133,421  130




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  SUPPLEMENTARY
    INFORMATION  (Continued)
    Natural


OilOil


Gas


Equivalent(MBbl)


(MMcf)


(MBOE)Balance, December 31, 2005


148,387



283,865



195,698Purchases of
    minerals-in-place


25



235



64Extensions and discoveries


3,269



78,861



16,412Improved recovery


10,935



941



11,092Revisions of previous estimates


(1,847
)


(33,682
)


(7,461
)Production


(7,335
)


(23,456
)


(11,244
)Balance, December 31, 2006


153,434



306,764



204,561Purchases of
    minerals-in-place


40,534



15,667



43,146Sales of
    minerals-in-place


(1,845
)


(107,249
)


(19,719
)Extensions and discoveries


4,362



65,639



15,302Improved recovery


666



90



681Revisions of previous estimates


981



(501
)


896Production


(9,545
)


(23,963
)


(13,539
)Balance, December 31, 2007


188,587



256,447



231,328Purchases of
    minerals-in-place


266



6,220



1,303Extensions and discoveries


7,411



73,527



19,665Improved recovery


287







287Revisions of previous estimates


(52,049
)


(2,300
)


(52,432
)Production


(10,050
)


(26,374
)


(14,446
)Balance, December 31, 2008(a)


134,452



307,520



185,705     (a)
    
    Includes reserves of 16.6 MMBbls of oil and 56.5 Bcf
    of natural gas (26.1 MMBOE) attributable to ENP in which
    there was a 36 percent minority interest as of
    December 31, 2008.    December 31,2008


2007


2006(In thousands)Future cash inflows

$
6,754,431


$
17,394,468


$
9,291,007Future production costs


(3,082,814
)


(5,721,804
)


(3,668,897
)Future development costs


(497,197
)


(469,034
)


(371,396
)Future abandonment costs, net of salvage


(96,480
)


(75,172
)


(134,103
)Future income tax expense


(555,370
)


(3,236,356
)


(1,499,290
)Future net cash flows


2,522,570



7,892,102



3,617,32110% annual discount


(1,302,616
)


(4,600,393
)


(2,155,514
)Standardized measure of discounted estimated future net cash
    flows(a)

$
1,219,954


$
3,291,709


$
1,461,807  131




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  SUPPLEMENTARY
    INFORMATION  (Continued)
    (a)
    
    Includes $200.0 million attributable to ENP in which there
    was a 36 percent minority interest as of December 31,
    2008.    Year Ended December 31,2008


2007


2006(In thousands)Net change in prices and production costs

$
(2,848,387
)

$
1,718,818


$
(634,033
)Purchases of
    minerals-in-place


14,155



1,249,008



539Sales of
    minerals-in-place






(300,727
)


Extensions, discoveries, and improved recovery


171,509



282,163



141,211Revisions of previous quantity estimates


(474,926
)


21,887



(62,615
)Production, net of production costs


(321,935
)


(710,134
)


(340,036
)Development costs incurred during the period


148,569



270,016



253,484Accretion of discount


329,171



146,181



191,847Change in estimated future development costs


(176,732
)


(235,005
)


(185,212
)Net change in income taxes


991,368



(672,807
)


248,491Change in timing and other


95,453



60,502



(70,340
)Net change in standardized measure


(2,071,755
)


1,829,902



(456,664
)Standardized measure, beginning of year


3,291,709



1,461,807



1,918,471Standardized measure, end of year

$
1,219,954


$
3,291,709


$
1,461,807   Selected
    Quarterly Financial Data  Unaudited
    QuarterFirst


Second


Third


Fourth(In thousands, except per share data)2008Revenues

$
272,902


$
357,334


$
337,478


$
167,704Operating income (loss)

$
68,956


$
(55,925
)

$
375,148


$
407,781Net income (loss)

$
31,220


$
(35,720
)

$
206,307


$
229,005Net income (loss) per share:Basic

$
0.59


$
(0.68
)

$
3.95


$
4.43Diluted

$
0.58


$
(0.68
)

$
3.80


$
4.352007Revenues

$
130,542


$
189,643


$
195,016


$
239,744Operating income (loss)

$
(29,592
)

$
50,914


$
41,059


$
47,809Net income (loss)

$
(29,429
)

$
15,171


$
11,985


$
19,428Net income (loss) per share:Basic

$
(0.55
)

$
0.29


$
0.23


$
0.36Diluted

$
(0.55
)

$
0.28


$
0.22


$
0.36  132




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  ITEM 9.
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE    ITEM 9A.
    CONTROLS
    AND PROCEDURES  Evaluation
    of Disclosure Controls and Procedures
  Rules 13a-15 15d-15,
  Managements
    Report on Internal Control Over Financial Reporting
      Form 10-K,
 133




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  
              Ernst &
    Young LLP
   
 134




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  Changes
    in Internal Control over Financial Reporting
    ITEM 9B.
    OTHER
    INFORMATION    
    meet budgeted volumes;
    achieve negative forecast revisions for proved developed
    producing properties of one percent or less;
    generate at least $150 million of free cash flow;
    achieve development costs of $22 per Bbl or less; and
    generate a 15 percent rate of return based on constant oil
    and natural gas prices.      Name

Target 2009 Bonus OpportunityJon S. Brumley


250
%I. Jon Brumley


200
%L. Ben Nivens


200
%Robert C. Reeves


175
%John W. Arms


125
%        135




---



##### Table of Contents



ENCORE
    ACQUISITION COMPANY
   PART III ITEM 10.
    DIRECTORS,
    EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE      ITEM 11.
    EXECUTIVE
    COMPENSATION    ITEM 12.
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
    RELATED STOCKHOLDER MATTERS    (a)


(b)


(c)Number of SecuritiesNumber of





Remaining AvailableSecurities to Be





for Future IssuanceIssued upon


Weighted-Average


Under EquityExercise of


Exercise Price of


Compensation PlansOutstanding


Outstanding


(Excluding SecuritiesOptions, Warrants


Options, Warrants


Reflected inand Rights(1)


and Rights


Column (a))Equity compensation plans approved by security holders


1,497,413


$
18.02



2,389,000Equity compensation plans not approved by security holders





$




Total


1,497,413


$
18.02



2,389,000     (1)
    
    There are no outstanding warrants or equity rights awarded under
    our equity compensation plans. Excludes 938,407 shares of
    unvested restricted stock.(2)
    
    In May 2008, our stockholders approved the 2008 Incentive Stock
    Plan. No additional awards will be granted under our 2000
    Incentive Stock Plan and any previously granted awards
    outstanding under the 2000 Plan will remain outstanding in
    accordance with their terms. Please read Note 12 of Notes
    to Consolidated Financial Statements included in Item 8.
    Financial Statements and Supplementary Data for additional
    information regarding our equity compensation plans.   136




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  ITEM 13.
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
    INDEPENDENCE    ITEM 14.
    PRINCIPAL
    ACCOUNTANT FEES AND SERVICES   PART IV  ITEM 15.
    EXHIBITS
    AND FINANCIAL STATEMENT SCHEDULES  (a)
    The following documents are filed as a part of this Report:    PageReport of Independent Registered Public Accounting Firm


76Consolidated Balance Sheets as of December 31, 2008 and 2007


77Consolidated Statements of Operations for the Years Ended
    December 31, 2008, 2007, and 2006


78Consolidated Statements of Stockholders Equity and
    Comprehensive Income for the Years Ended December 31, 2008,
    2007, and 2006


79Consolidated Statements of Cash Flows for the Years Ended
    December 31, 2008, 2007, and 2006


80Notes to Consolidated Financial Statements


81        137




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ENCORE
    ACQUISITION COMPANY
  ExhibitNo.

Description3
.1

Second Amended and Restated Certificate of Incorporation of
    Encore Acquisition Company EAC (incorporated by reference from
    Exhibit 3.1 to EACs Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2001, filed with the
    SEC on November 7, 2001).3
.1.2

Certificate of Amendment to Second Amended and Restated
    Certificate of Incorporation of Encore Acquisition Company
    (incorporated by reference from Exhibit 3.1.2 to EACs
    Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2005, filed with the SEC on
    May 5, 2005).3
.1.3

Certificate of Designations of Series A Junior
    Participating Preferred Stock of Encore Acquisition Company
    (incorporated by reference from Exhibit 3.1 to EACs
    Current Report on
    Form 8-K,
    filed with the SEC on October 31, 2008).3
.2

Second Amended and Restated Bylaws of Encore Acquisition Company
    (incorporated by reference from EACs Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2001, filed with the
    SEC on November 7, 2001).4
.1

Specimen certificate of Encore Acquisition Company (incorporated
    by referenced from Exhibit 4.1 to EACs Registration
    Statement on
    Form S-1,
    Registration
    No. 333-47540,
    filed with the SEC on December 15, 2000).4
.2.1

Indenture, dated as of April 2, 2004, among Encore
    Acquisition Company, the subsidiary guarantors party thereto and
    Wells Fargo Bank, National Association, with respect to the
    6.25% Senior Subordinated Notes due 2014 (incorporated by
    reference from Exhibit 4.1 of EACs Registration
    Statement on
    Form S-4
    (Registration
    No. 333-117025)
    filed with the SEC on June 30, 2004).4
.2.2

Form of 6.25% Senior Subordinated Note to Cede &
    Co. or its registered assigns (included as Exhibit A to
    Exhibit 4.2.1 above).4
.2.3

First Supplemental Indenture, dated as of January 2, 2008,
    among Encore Acquisition Company, the subsidiary guarantors
    party thereto and Wells Fargo Bank, National Association, with
    respect to the 6.25% Senior Subordinated Notes due 2014
    (incorporated by reference from Exhibit 4.2.3 to EACs
    Annual Report on
    Form 10-K
    for the year ended December 31, 2007, filed with the SEC on
    February 28, 2008).4
.3.1

Indenture, dated as of July 13, 2005, among Encore
    Acquisition Company, the subsidiary guarantors party thereto and
    Wells Fargo Bank, National Association, with respect to the
    6.0% Senior Subordinated Notes due 2015 (incorporated by
    reference from Exhibit 4.1 to EACs Current Report on
    Form 8-K,
    filed with the SEC on July 14, 2005).4
.3.2

Form of 6.0% Senior Subordinated Note due 2015 (included as
    Exhibit A to Exhibit 4.3.1 above).4
.3.3

First Supplemental Indenture, dated as of January 2, 2008,
    among Encore Acquisition Company, the subsidiary guarantors
    party thereto and Wells Fargo Bank, National Association, with
    respect to the 6.0% Senior Subordinated Notes due 2015
    (incorporated by reference from Exhibit 4.3.3 to EACs
    Annual Report on
    Form 10-K
    for the year ended December 31, 2007, filed with the SEC on
    February 28, 2008).4
.4.1

Indenture, dated as of November 16, 2005, among Encore
    Acquisition Company, the subsidiary guarantors party thereto and
    Wells Fargo Bank, National Association with respect to
    Subordinated Debt Securities (incorporated by reference from
    Exhibit 4.1 to EACs Current Report on
    Form 8-K,
    filed with the SEC on November 23, 2005).4
.4.2

First Supplemental Indenture, dated as of November 16,
    2005, among Encore Acquisition Company, the subsidiary
    guarantors party thereto and Wells Fargo Bank, National
    Association, with respect to the 7.25% Senior Subordinated
    Notes due 2017 (incorporated by reference from Exhibit 4.2
    to EACs Current Report on
    Form 8-K,
    filed with the SEC on November 23, 2005).4
.4.3

Form of 7.25% Senior Subordinated Note due 2017 (included
    as Exhibit A to Exhibit 4.4.2 above).4
.4.4

Second Supplemental Indenture, dated as of January 2, 2008,
    among Encore Acquisition Company, the subsidiary guarantors
    party thereto and Wells Fargo Bank, National Association, with
    respect to the 7.25% Senior Subordinated Notes due 2017
    (incorporated by reference from Exhibit 4.4.4 to EACs
    Annual Report on
    Form 10-K
    for the year ended December 31, 2007, filed with the SEC on
    February 28, 2008). 138




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ENCORE
    ACQUISITION COMPANY
  ExhibitNo.

Description4
.5

Rights Agreement dated as of October 28, 2008 between
    Encore Acquisition Company and BNY Mellon Shareowner Services,
    LLC, as Rights Agent (incorporated by reference from
    Exhibit 4.1 to EACs Current Report on
    Form 8-K,
    filed with the SEC on October 31, 2008).10
.1+

2000 Incentive Stock Plan (incorporated by reference from
    Exhibit 4.1 to EACs Registration Statement on
    Form S-8
    (File
    No. 333-120422),
    filed with the SEC on November 12, 2004).10
.2+

2008 Incentive Stock Plan (incorporated by reference from
    Exhibit 4.5 to EACs Registration Statement on
    Form S-8
    (File
    No. 333-151323),
    filed with the SEC on May 30, 2008).10
.3+

Employee Severance Protection Plan (incorporated by reference
    from Exhibit 10.1 to EACs Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2003, filed with the SEC on
    May 8, 2003).10
.4+

Form of Stock Option Agreement  Nonqualified
    (incorporated by reference from Exhibit 10.2 to EACs
    Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2008, filed with the SEC on
    May 9, 2008).10
.5+

Form of Stock Option Agreement  Incentive
    (incorporated by reference from Exhibit 10.3 to EACs
    Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2008, filed with the SEC on
    May 9, 2008).10
.6+

Form of Stock Option Agreement  Executive
    (incorporated by reference from Exhibit 10.4 to EACs
    Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2008, filed with the SEC on
    May 9, 2008).10
.7+

Form of Indemnification Agreement for directors and executive
    officers (incorporated by reference from Exhibit 10.6 of
    EACs Annual Report on
    Form 10-K
    for the year ended December 31, 2004, filed with the SEC on
    March 10, 2005).10
.8

Description of Compensation Payable to Non-Management Directors
    (incorporated by reference from Exhibit 10.1 of EACs
    Current Report on
    Form 8-K,
    filed with the SEC on February 22, 2006).10
.9

Amended and Restated Credit Agreement dated as of March 7,
    2007 by and among Encore Acquisition Company, Encore Operating,
    L.P., Bank of America, N.A., as administrative agent and L/C
    Issuer, Fortis Capital Corp. and Wachovia Bank, N.A., as
    co-syndication agents, BNP Paribas and Calyon New York Branch,
    as co-documentation agents, Banc of America Securities LLC, as
    sole lead arranger and sole book manager, and other lenders
    party thereto (incorporated by reference from Exhibit 10.1
    to EACs Current Report on
    Form 8-K,
    filed with the SEC on March 13, 2007).10
.10

First Amendment to Amended and Restated Credit Agreement, dated
    as of January 31, 2008, by and among Encore Acquisition
    Company, Encore Operating, L.P., Bank of America, N.A., as
    administrative agent and L/C Issuer, and the lenders party
    thereto (incorporated by reference from Exhibit 10.1 to
    EACs Current Report on
    Form 8-K,
    filed with the SEC on February 8, 2008).10
.11

Second Amendment to Amended and Restated Credit Agreement, dated
    as of May 22, 2008, by and among Encore Acquisition
    Company, Encore Operating, L.P., Bank of America, N.A., as
    administrative agent and L/C Issuer, and the lenders party
    thereto (incorporated by reference from Exhibit 99.2 to
    EACs Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2008, filed with the SEC on
    August 8, 2008).10
.12

Credit Agreement dated as of March 7, 2007 by and among
    Encore Energy Partners Operating LLC, Encore Energy Partners LP,
    Bank of America, N.A., as administrative agent and L/C Issuer,
    Banc of America Securities LLC, as sole lead arranger and sole
    book manager, and other lenders (incorporated by reference from
    Exhibit 10.2 to EACs Current Report on
    Form 8-K,
    filed with the SEC on March 13, 2007).10
.13

First Amendment to Credit Agreement, dated August 22, 2007,
    by and among Encore Energy Partners Operating LLC, Encore Energy
    Partners LP, Bank of America, N.A., as administrative agent and
    L/C Issuer, Banc of America Securities LLC, as sole lead
    arranger and sole book manager and other lenders (incorporated
    by reference from Exhibit 10.1 to EACs Current Report
    on
    Form 8-K,
    filed with the SEC on August 28, 2007).10
.14

Amended and Restated Administrative Services Agreement, dated as
    of September 17, 2007, by and among Encore Energy Partners
    GP LLC, Encore Energy Partners LP, Encore Energy Partners
    Operating LLC, Encore Acquisition Company and Encore Operating,
    L.P. (incorporated by reference from Exhibit 10.2 to
    EACs Current Report on
    Form 8-K,
    filed with the SEC on September 21, 2007). 139




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  ExhibitNo.

Description10
.15

Registration Rights Agreement, dated August 18, 1998, by
    and among EAC and the other parties thereto (incorporated by
    reference to Exhibit 4.2 to EACs Registration
    Statement on
    Form S-1
    (File
    No. 333-47540),
    filed with the SEC on October 6, 2000).10
.16

Second Amended and Restated Agreement of Limited Partnership of
    Encore Energy Partners LP (incorporated by reference from
    Exhibit 10.3 to EACs Current Report on
    Form 8-K,
    filed with the SEC on September 21, 2007).10
.17

Amendment No. 1 to Second Amended and Restated Agreement of
    Limited Partnership of Encore Energy Partners LP, dated as of
    May 10, 2007 (incorporated by reference from
    Exhibit 10.5 to EACs Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2008, filed with the SEC on
    May 9, 2008).12
.1*

Statement showing computation of ratios of earnings to fixed
    charges.21
.1*

Subsidiaries of EAC as of February 18, 2009.23
.1*

Consent of Ernst & Young LLP.23
.2*

Consent of Miller and Lents, Ltd.24
.1*

Power of Attorney (included on the signature page of this
    report).31
.1*

Rule 13a-14(a)/15d-14(a)
    Certification (Principal Executive Officer).31
.2*

Rule 13a-14(a)/15d-14(a)
    Certification (Principal Financial Officer).32
.1*

Section 1350 Certification (Principal Executive Officer).32
.2*

Section 1350 Certification (Principal Financial Officer).     *
    
    Filed herewith.+
    
    Management contract or compensatory plan, contract, or
    arrangement. 140




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  SIGNATURES        By:
    /s/  Jon
    S. Brumley          Signature

Title or Capacity

Date/s/  I.
    Jon BrumleyI.
    Jon Brumley

Chairman of the Board and Director

February 24, 2009/s/  Jon
    S. BrumleyJon
    S. Brumley

Chief Executive Officer, President, and Director
    (Principal Executive Officer)

February 24, 2009/s/  Robert
    C. ReevesRobert
    C. Reeves

Senior Vice President, Chief Financial Officer, Treasurer, and
    Corporate Secretary (Principal Financial Officer)

February 24, 2009/s/  Andrea
    HunterAndrea
    Hunter

Vice President, Controller, and Principal
    Accounting Officer

February 24, 2009/s/  John
    A. BaileyJohn
    A. Bailey

Director

February 24, 2009/s/  Martin
    C. BowenMartin
    C. Bowen

Director

February 24, 2009/s/  Ted
    Collins, Jr.Ted
    Collins, Jr.

Director

February 24, 2009/s/  Ted
    A. GardnerTed
    A. Gardner

Director

February 24, 2009 141




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##### Table of Contents



ENCORE
    ACQUISITION COMPANY
  Signature

Title or Capacity

Date/s/  John
    V. GenovaJohn
    V. Genova

Director

February 24, 2009/s/  James
    A. Winne IIIJames
    A. Winne III

Director

February 24, 2009  142