##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission file number: 001-32329
 
 Copano Energy, L.L.C.
 (Exact Name of Registrant as Specified in Its Charter)
 Delaware
    
    51-0411678(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)
 2727 Allen Parkway, Suite 1200
Houston, Texas 77019
 (Address of Principal Executive Offices)
 (713) 621-9547
 (Registrants Telephone Number, Including Area Code)
 þ o
 o o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




---



##### 



TABLE OF
    CONTENTS
   
 PagePART I  FINANCIAL INFORMATIONItem 1.


Financial Statements


3Unaudited Consolidated Balance Sheets as of
    March 31, 2009 and December 31, 2008


3Unaudited Consolidated Statements of Operations
    for the Three Months Ended March 31, 2009 and 2008


4Unaudited Consolidated Statements of Cash Flows
    for the Three Months Ended March 31, 2009 and 2008


5Unaudited Consolidated Statement of Members
    Capital and Comprehensive Income (Loss) for the Three Months
    Ended March 31, 2009


6Notes to Unaudited Consolidated Financial
    Statements


7Item 2.


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


33Item 3.


Quantitative and Qualitative Disclosures About
    Market Risk


50Item 4.


Controls and Procedures


54PART II  OTHER
    INFORMATIONItem 1.


Legal Proceedings


55Item 1A.


Risk Factors


55Item 6.


Exhibits


55EX-31.1EX-31.2EX-32.1EX-32.2   2




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##### Table of Contents



Item 1.
    Financial
    Statements.  COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  UNAUDITED
    CONSOLIDATED BALANCE SHEETS
  March 31,


December 31,2009


2008(In thousands, except unit information)ASSETSCurrent assets:Cash and cash equivalents

$
84,293


$
63,684Accounts receivable, net


67,910



96,028Risk management assets


75,419



76,440Prepayments and other current assets


3,944



5,004Total current assets


231,566



241,156Property, plant and equipment, net


826,043



823,574Intangible assets, net


196,641



198,974Investment in unconsolidated affiliates


635,057



640,598Escrow cash


1,858



1,858Risk management assets


65,113



82,892Other assets, net


23,421



24,613Total assets

$
1,979,699


$
2,013,665LIABILITIES AND MEMBERS CAPITALCurrent liabilities:Accounts payable

$
78,149


$
103,849Accrued interest


9,588



11,904Accrued tax liability


936



784Risk management liabilities


6,572



6,272Other current liabilities


10,581



16,787Total current liabilities


105,826



139,596Long-term debt (includes $685 and $704 bond premium as of
    March 31, 2009 and December 31, 2008, respectively)


852,875



821,119Deferred tax provision


1,730



1,718Risk management and other noncurrent liabilities


11,389



13,274Commitments and contingencies (Note 9)Members capital:Common units, no par value, 54,068,991 units and
    53,965,288 units issued and outstanding as of
    March 31, 2009 and December 31, 2008, respectively


865,348



865,343Class C units, no par value, 394,853 units issued and
    outstanding as of March 31, 2009 and December 31, 2008


13,497



13,497Class D units, no par value, 3,245,817 units issued
    and outstanding as of March 31, 2009 and December 31,
    2008


112,454



112,454Paid-in capital


36,890



33,734Accumulated deficit


(80,253
)


(54,696
)Accumulated other comprehensive income


59,943



67,6261,007,879



1,037,958Total liabilities and members capital

$
1,979,699


$
2,013,665    3




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##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES



UNAUDITED
    CONSOLIDATED STATEMENTS OF OPERATIONS  Three Months Ended March 31,2009


2008(In thousands, except per unit information)Revenue:Natural gas sales

$
94,979


$
180,887Natural gas liquids sales


80,831



154,081Crude oil sales


15,338



41,182Transportation, compression and processing fees


14,999



12,682Condensate and other


10,269



12,916Total revenue


216,416



401,748Costs and expenses:Cost of natural gas and natural gas
    liquids(1)


143,458



297,468Cost of crude oil
    purchases(1)


14,428



39,842Transportation(1)


5,984



3,121Operations and maintenance


12,822



11,830Depreciation and amortization


13,165



11,570General and administrative


10,725



11,850Taxes other than income


786



741Equity in earnings from unconsolidated affiliates


(1,484
)


(396
)Total costs and expenses


199,884



376,026Operating income


16,532



25,722Other income (expense):Interest and other income


46



456Gain on retirement of unsecured debt


3,939



Interest and other financing costs


(14,448
)


(11,392
)Income before income taxes


6,069



14,786Provision for income taxes


(164
)


(284
)Net income

$
5,905


$
14,502Basic net income per common unit:Net income per common unit

$
0.11


$
0.31Weighted average number of common units


54,012



47,377Diluted net income per common unit:Net income per common unit

$
0.10


$
0.25Weighted average number of common units


57,814



57,880     (1)
    
    Exclusive of operations and maintenance and depreciation and
    amortization shown separately below.   4




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##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  UNAUDITED
    CONSOLIDATED STATEMENTS OF CASH FLOWS
  Three Months Ended March 31,2009


2008(In thousands)Cash Flows From Operating Activities:Net income

$
5,905


$
14,502Adjustments to reconcile net income to net cash provided by
    operating activities:Depreciation and amortization


13,165



11,570Amortization of debt issue costs


1,270



768Equity in earnings from unconsolidated affiliates


(1,484
)


(396
)Distributions from unconsolidated affiliates


5,371



4,276Gain on retirement of unsecured debt (Note 5)


(3,939
)


Noncash (gain) loss on risk management activities, net


(239
)


4,472Equity-based compensation


1,705



969Deferred tax provision


12



106Other noncash items


332



(39
)Changes in assets and liabilities:Accounts receivable


28,277



(20,065
)Prepayments and other current assets


1,060



258Risk management activities


9,188



(18,174
)Accounts payable


(22,925
)


31,733Other current liabilities


(2,300
)


(10,802
)Net cash provided by operating activities


35,398



19,178Cash Flows From Investing Activities:Additions to property, plant and equipment


(19,423
)


(27,642
)Additions to intangible assets


(417
)


(965
)Acquisitions






(77
)Investment in unconsolidated affiliates


(632
)


(3,336
)Distributions from unconsolidated affiliates


1,560



776Other


(539
)


(354
)Net cash used in investing activities


(19,451
)


(31,598
)Cash Flows From Financing Activities:Proceeds from long-term debt


50,000



20,000Retirement of unsecured debt


(14,286
)


Deferred financing costs






(61
)Distributions to unitholders


(31,057
)


(24,201
)Capital contributions from Pre-IPO Investors






4,103Equity offering costs






(47
)Proceeds from option exercises


5



183Net cash provided by (used in) financing activities


4,662



(23
)Net increase (decrease) in cash and cash equivalents


20,609



(12,443
)Cash and cash equivalents, beginning of year


63,684



72,665Cash and cash equivalents, end of period

$
84,293


$
60,222    5




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##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES



UNAUDITED
    CONSOLIDATED STATEMENT OF MEMBERS CAPITAL AND
    COMPREHENSIVE INCOME (LOSS)  AccumulatedCommon


Class C


Class D





Accumulated


Other





TotalNumber


Common


Number


Class C


Number


Class D


Paid-in


Earnings


Comprehensive





Comprehensiveof Units


Units


of Units


Units


of Units


Units


Capital


(Deficit)


Income (Loss)


Total


Income (Loss)(In thousands)Balance, December 31, 2008


53,965


$
865,343



395


$
13,497



3,246


$
112,454


$
33,734


$
(54,696
)

$
67,626


$
1,037,958Distributions to unitholders






























(31,462
)






(31,462
)

$
Option exercises






5































5



Equity-based compensation


























1,705











1,705



Vested restricted units


4







































Vested phantom units


1







































Vested unit awards


99























1,451











1,451



Net income






























5,905







5,905



5,905Derivative settlements reclassified to income


































(14,696
)


(14,696
)


(14,696
)Unrealized loss-change in fair value of derivatives


































7,013



7,013



7,013Comprehensive loss









































$
(1,778
)Balance, March 31, 2009


54,069


$
865,348



395


$
13,497



3,246


$
112,454


$
36,890


$
(80,253
)

$
59,943


$
1,007,879    6




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##### Table of Contents





COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES



NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  Note 1 
    Organization and Basis of Presentation
  Organization
  Unless the context
    requires otherwise, references to Copano,
    we, our, us or like terms
    refer to Copano Energy, L.L.C., its subsidiaries and entities it
    manages or operates
    Basis
    of Presentation and Principles of Consolidation
         7




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##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 1 
    Organization and Basis of Presentation (Continued)
  Form 10-K
  Note 2 
    New Accounting Pronouncements
  Business
    Combinations
  Business Combinations
  Disclosures
    about Derivative Instruments and Hedging Activities 
    an amendment of FASB Statement No. 133
  Disclosures about Derivative Instruments and Hedging
    Activities  an amendment of FASB Statement
    No. 133. Accounting for Derivative
    Instruments and Hedging Activities,
  Useful
    Life of Intangible Assets
  No. 142-3, Determination of the Useful Life of Intangible
    Assets, Goodwill and Other
    Intangible Assets. No. 142-3
  Note 3 
    Intangible Assets
  rights-of-way, No. 142-3, 2009  2010  2011 2012 2013 2014 
 8




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##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 3 
    Intangible Assets (Continued)
    March 31,


December 31,2009


2008Rights-of-way
    and easements, at cost

$
113,726


$
113,309Less accumulated amortization for
    rights-of-way
    and easements


(14,538
)


(11,926
)Contracts


107,916



107,916Less accumulated amortization for contracts


(14,954
)


(14,901
)Customer relationships


5,318



5,318Less accumulated amortization for customer relationships


(827
)


(742
)Intangible assets, net

$
196,641


$
198,974   rights-of-way rights-of-way
  Note 4 
    Investment in Unconsolidated Affiliates
      Bighorn


Fort Union


Southern Dome


Webb DuvalOperating revenue

$
8,900


$
15,121


$
3,247


$
498Operating expenses


(3,315
)


(1,439
)


(2,808
)


(395
)Depreciation and amortization


(1,142
)


(1,948
)


(187
)


(197
)Interest income (expense) and other






(1,365
)


2



Net income


4,443



10,369



254



(94
)Ownership %


51
%


37.04
%


69.5
%


62.5
%2,266



3,841



176



(59
)Priority allocation of earnings and other


148



(225
)






Copanos share of management fees charged


60



21



43



34Amortization of difference between the carried investment and
    the underlying equity in net assets


(3,215
)


(1,606
)


(2
)


5Equity in (loss) earnings from unconsolidated affiliates

$
(741
)

$
2,031


$
217


$
(20
)Distributions

$
3,209


$
2,778


$
626


$
281Current assets

$
9,037


$
15,086


$
2,372


$
627Noncurrent assets


97,145



213,672



16,190



6,756Current liabilities


(2,091
)


(20,243
)


(3,107
)


(471
)Noncurrent liabilities






(99,708
)






(55
)Net assets

$
104,091


$
108,807


$
15,455


$
6,857  9




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##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 4 
    Investment in Unconsolidated Affiliates (Continued)
    Bighorn


Fort Union


Southern Dome


Webb DuvalOperating revenue

$
8,774


$
10,553


$
8,686


$
604Operating expenses


(3,226
)


(912
)


(6,979
)


(76
)Depreciation and amortization


(1,004
)


(1,373
)


(183
)


(193
)Interest income (expense) and other


34



(5,776
)


1



14Net income


4,578



2,492



1,525



349Ownership %


51
%


37.04
%


69.5
%


62.5
%2,335



923



1,060



218Priority allocation of earnings and other


281











Copanos share of management fees charged


58



10



43



33Amortization of difference between the carried investment and
    the underlying equity in net assets


(2,997
)


(1,606
)


(2
)


5Equity in (loss) earnings from unconsolidated affiliates

$
(323
)

$
(673
)

$
1,101


$
256Distributions

$
2,614


$
1,667


$
521


$
250Current assets

$
9,357


$
15,004


$
5,900


$
2,052Noncurrent assets


98,658



157,008



16,798



7,278Current liabilities


(1,985
)


(19,291
)


(5,160
)


(814
)Noncurrent liabilities






(110,739
)






(52
)Net assets

$
106,030


$
41,982


$
17,538


$
8,464   Note 5 
    Long-Term Debt
    March 31,


December 31,2009


2008Long-term debt:Credit Facility

$
270,000


$
220,000Senior Notes:8.125% senior notes due 2016


332,665



332,665Unamortized bond premium


685



7047.75% senior notes due 2018


249,525



267,750Total Senior Notes


582,875



601,119Total

$
852,875


$
821,119  10




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##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 5 
    Long-Term Debt (Continued)
  Senior
    Secured Revolving Credit Facility
          
    a minimum EBITDA to interest expense ratio (using four
    quarters EBITDA as defined under the Credit Facility) of
    2.5 to 1.0;
    a maximum total debt to EBITDA ratio of 5.0 to 1.0 (with no
    future reductions) with the option to increase the total debt to
    EBITDA ratio to not more than 5.5 to 1.0 for a period of up to
    nine months following an acquisition or a series of acquisitions
    totaling $50 million in a
    12-month
    period (subject to an increased applicable interest rate margin
    and commitment fee rate).     11




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##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 5 
    Long-Term Debt (Continued)
    Senior
    Notes
  8.125% Senior Notes Due 2016.
    7.75% Senior Notes Due 2018.
    General.
         12




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##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONDENSED
    CONSOLIDATING BALANCE SHEETS
  March 31, 2009


December 31, 2008Investment in

















Investment inGuarantor


Non-Guarantor














Guarantor


Non-GuarantorParent


Co-Issuer


Subsidiaries


Subsidiaries


Eliminations


Total


Parent


Co-Issuer


Subsidiaries


Subsidiaries


Eliminations


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

$
39,726


$



$
44,567


$



$



$
84,293


$
20,417


$



$
43,267


$



$



$
63,684Accounts receivable, net


1







67,909











67,910



1







96,027











96,028Intercompany receivable


83,373



(1
)


(83,372
)














110,551







(110,551
)










Risk management assets










75,419











75,419











76,440











76,440Prepayments and other current assets


669







3,275











3,944



911







4,093











5,004Total current assets


123,769



(1
)


107,798











231,566



131,880







109,276











241,156Property, plant and equipment, net


126







825,917











826,043



136







823,438











823,574Intangible assets, net










196,641











196,641











198,974











198,974Investment in unconsolidated affiliates










635,057



635,057



(635,057
)


635,057











640,598



640,598



(640,598
)


640,598Investment in consolidated subsidiaries


1,732,432















(1,732,432
)






1,723,814















(1,723,814
)


Escrow cash










1,858











1,858











1,858











1,858Risk management assets










65,113











65,113











82,892











82,892Other assets, net


18,540







4,881











23,421



19,809







4,804











24,613Total assets

$
1,874,867


$
(1
)

$
1,837,265


$
635,057


$
(2,367,489
)

$
1,979,699


$
1,875,639


$



$
1,861,840


$
640,598


$
(2,364,412
)

$
2,013,665LIABILITIES AND MEMBERS/PARTNERS CAPITALCurrent liabilities:Accounts payable

$



$



$
78,149


$



$



$
78,149


$
2


$



$
103,847


$



$



$
103,849Accrued interest


9,004







584











9,588



11,878







26











11,904Accrued tax liability


936



















936



784



















784Risk management liabilities










6,572











6,572











6,272











6,272Other current liabilities


2,027







8,554











10,581



1,731







15,056











16,787Total current liabilities


11,967







93,859











105,826



14,395







125,201











139,596Long-term debt


852,875



















852,875



821,119



















821,119Deferred tax provision


1,730



















1,730



1,718



















1,718Risk management and other noncurrent liabilities


416







10,973











11,389



449







12,825











13,274Members/Partners capital:Common units


865,348



















865,348



865,343



















865,343Class C units


13,497



















13,497



13,497



















13,497Class D units


112,454



















112,454



112,454



















112,454Paid-in capital


36,890



1



1,544,283



615,445



(2,159,729
)


36,890



33,734



1



1,544,237



629,359



(2,173,597
)


33,734Accumulated (deficit) earnings


(80,253
)


(2
)


128,207



19,612



(147,817
)


(80,253
)


(54,696
)


(1
)


111,951



11,239



(123,189
)


(54,696
)Accumulated other comprehensive income (loss)


59,943







59,943







(59,943
)


59,943



67,626







67,626







(67,626
)


67,6261,007,879



(1
)


1,732,433



635,057



(2,367,489
)


1,007,879



1,037,958







1,723,814



640,598



(2,364,412
)


1,037,958Total liabilities and members/partners capital

$
1,874,867


$
(1
)

$
1,837,265


$
635,057


$
(2,367,489
)

$
1,979,699


$
1,875,639


$



$
1,861,840


$
640,598


$
(2,364,412
)

$
2,013,665  13




---



##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONDENSED
    CONSOLIDATING STATEMENTS OF OPERATIONS
  Three Months Ended March 31,2009


2008Investment in

















Investment inGuarantor


Non-Guarantor














Guarantor


Non-GuarantorParent


Co-Issuer


Subsidiaries


Subsidiaries


Eliminations


Total


Parent


Co-Issuer


Subsidiaries


Subsidiaries


Eliminations


Total(In thousands)Revenue:Natural gas sales

$



$



$
94,979


$



$



$
94,979


$



$



$
180,887


$



$



$
180,887Natural gas liquids sales










80,831











80,831











154,081











154,081Crude oil sales










15,338











15,338











41,182











41,182Transportation, compression and processing fees










14,999











14,999











12,682











12,682Condensate and other










10,269











10,269











12,916











12,916Total revenue










216,416











216,416











401,748











401,748Costs and expenses:Cost of natural gas and natural gas liquids










143,458











143,458











297,468











297,468Cost of crude oil










14,428











14,428











39,842











39,842Transportation










5,984











5,984











3,121











3,121Operations and maintenance


270







12,552











12,822



511







11,319











11,830Depreciation and amortization


10







13,155











13,165



11







11,559











11,570General and administrative


6,451







4,274











10,725



7,461







4,389











11,850Taxes other than income










786











786











741











741Equity in (earnings) loss from unconsolidated affiliates










(1,484
)


(1,484
)


1,484



(1,484
)










(396
)


(396
)


396



(396
)Total costs and expenses


6,731







193,153



(1,484
)


1,484



199,884



7,983







368,043



(396
)


396



376,026Operating (loss) income


(6,731
)






23,263



1,484



(1,484
)


16,532



(7,983
)






33,705



396



(396
)


25,722Interest and other income










46











46



21







435











456Gain on retirement of unsecured debt


3,939



















3,939























Interest and other financing costs


(13,417
)






(1,031
)










(14,448
)


(11,174
)






(218
)










(11,392
)(Loss) income before income taxes and equity in earnings from
    consolidated subsidiaries


(16,209
)






22,278



1,484



(1,484
)


6,069



(19,136
)






33,922



396



(396
)


14,786Provision for income taxes


(164
)


















(164
)


(284
)


















(284
)(Loss) income before equity in earnings from consolidated
    subsidiaries


(16,373
)






22,278



1,484



(1,484
)


5,905



(19,420
)






33,922



396



(396
)


14,502Equity in earnings (loss) from consolidated subsidiaries


22,278















(22,278
)






33,922















(33,922
)


Net income (loss)

$
5,905


$



$
22,278


$
1,484


$
(23,762
)

$
5,905


$
14,502


$



$
33,922


$
396


$
(34,318
)

$
14,502  14




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##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONDENSED
    CONSOLIDATING STATEMENTS OF CASH FLOWS
  Three Months Ended March 31,2009


2008Investment in

















Investment inGuarantor


Non-Guarantor














Guarantor


Non-GuarantorParent


Co-Issuer


Subsidiaries


Subsidiaries


Eliminations


Total


Parent


Co-Issuer


Subsidiaries


Subsidiaries


Eliminations


Total(In thousands)Cash Flows From Operating Activities:Net cash provided by (used in) operating activities

$
8,667






$
26,731


$
5,371


$
(5,371
)

$
35,398


$
(36,140
)

$



$
55,318


$
4,276


$
(4,276
)

$
19,178Cash Flows From Investing Activities:Net cash provided by (used in) investing activities


5,975







(19,451
)


928



(6,903
)


(19,451
)


28,923







(31,598
)


(2,560
)


(26,363
)


(31,598
)Cash Flows From Financing Activities:Net cash provided by (used in) financing activities


4,667







(5,980
)


632



5,343



4,662



(23
)






(28,923
)


3,336



25,587



(23
)Net increase (decrease) in cash and cash equivalents


19,309







1,300



6,931



(6,931
)


20,609



(7,240
)






(5,203
)


5,052



(5,052
)


(12,443
)Cash and cash equivalents, beginning of year


20,417







43,267



30,212



(30,212
)


63,684



10,018







62,647



4,382



(4,382
)


72,665Cash and cash equivalents, end of period

$
39,726






$
44,567


$
37,143


$
(37,143
)

$
84,293


$
2,778


$



$
57,444


$
9,434


$
(9,434
)

$
60,222   15




---



##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 6 
    Members Capital and Distributions
  Class C
    Units
    Class D
    Units
    Distributions
    DistributionQuarter Ending

Per unit

Date Declared

Record Date

Payment Date

AmountDecember 31, 2008

$0.5750

January 14, 2009

February 2, 2009

February 13, 2009

$31,466,000March 31, 2009

$0.5750

April 15, 2009

May 1, 2009

May 15, 2009

$31,748,000   Accounting
    for Equity-Based Compensation
    Restricted Common Units.
    WeightedNumber of


AverageRestricted


Grant-DateUnits


Fair ValueOutstanding at beginning of year


169,769


$
22.35Vested


(3,750
)


14.69Forfeited


(330
)


21.34Outstanding at end of period


165,689


$
22.53    16




---



##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 6 
    Members Capital and Distributions  (Continued)
  Phantom Units.
    WeightedNumber of


AveragePhantom


Grant-DateUnits


Fair ValueOutstanding at beginning of year


588,910


$
34.18Vested


(1,150
)


34.94Forfeited


(1,050
)


38.01Outstanding at end of period


586,710


$
34.18     Unit Options.
    Number ofUnits


WeightedUnderlying


AverageOptions


Exercise PriceOutstanding at beginning of year


1,411,006


$
23.78Granted


19,000



14.15Exercised


(480
)


10.00Cancelled


(1,200
)


36.52Forfeited


(12,992
)


26.47Outstanding at end of period


1,415,334


$
23.62     17




---



##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 6 
    Members Capital and Distributions  (Continued)
  Three MonthsEnded March 31,2009


2008Weighted average exercise price

$
14.15


$
34.76Expected volatility


29.76%-32.25
%


20.27%-20.72
%Distribution yield


6.68%-6.77
%


6.18
%Risk-free interest rate


1.71%-2.64
%


2.71%-3.46
%Expected term (in years)


6.5



6.5Weighted average grant-date fair value of options granted

$
1.95


$
3.19Total intrinsic value of options exercised

$
3,000


$
285,000     Liability Awards. Accounting for Certain Financial Instruments With
    Characteristics of Both Liabilities and Equity,
    2009WeightedAverageNumber of


Grant-DateUnits Awards


Fair ValueOutstanding at beginning of year





$
Granted


154,337



14.71Vested


(154,337
)


14.71Outstanding at end of period





$
     Note 7 
    Net Income Per Unit
   18




---



##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 7 
    Net Income Per Unit (Continued)
      Three Months Ended March 31,2009


2008Net income available  basic and diluted

$
5,905


$
14,502Basic weighted average units


54,012



47,377Dilutive weighted average
    units(1)(2)


57,814



57,880Basic net income per unit

$
0.11


$
0.31Diluted net income per
    unit(1)(2)

$
0.10


$
0.25     (1)
    
    Our potentially dilutive common equity includes the following:  Three Months Ended March 31,2009


2008(In thousands)Employee options


76



489Restricted units


16



118Phantom units


11



Contingent incentive plan unit awards


59



Class C units


395



1,051Class D units


3,246



3,246Class E units






5,599   (2)
    
    The following potentially dilutive common equity was excluded
    from the dilutive net income per unit calculation because to
    include these equity securities would have been anti-dilutive:  Three MonthsEnded March 31,2009


2008(In thousands)Employee options


1,339



1,001Restricted units


149



112Phantom units


576



106   Note 8 
    Related Party Transactions
  Operations
    Services
   19




---



##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 8 
    Related Party Transactions (Continued)
      Natural
    Gas and Related Transactions
    Three Months Ended March 31,2009


2008Affiliates of Mr. Eckel:Natural gas
    sales(1)

$



$
23Gathering and compression
    services(2)


6



7Natural gas
    purchases(3)


350



392Webb Duval:Natural gas
    sales(1)


368



Natural gas
    purchases(3)


214



548Transportation
    costs(4)


101



101Bighorn:Gathering
    costs(4)


107



228Fort Union:Gathering
    costs(4)


2,009



1,876Treating
    costs(3)


184



53Other:Natural gas
    sales(1)


38



59     (1)
    
    Revenues included in natural gas
    sales on our consolidated statements of operations.(2)
    
    Revenues included in
    transportation, compression and processing fees on our
    consolidated statements of operations.(3)
    
    Included in costs of natural gas
    and natural gas liquids on our consolidated statements of
    operations.(4)
    
    Costs included in transportation on
    our consolidated statements of operations.     20




---



##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 8 
    Related Party Transactions (Continued)
            Other
    Note 9 
    Commitments and Contingencies
  Commitments
     21




---



##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 9 
    Commitments and Contingencies (Continued)
        Regulatory
    Compliance
    Litigation
     22




---



##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 9 
    Commitments and Contingencies (Continued)
      Definitive
    Purchase Agreement
  151-mile, 24-inch 09-38-000).
  Note 10 
    Supplemental Disclosures to the Statements of Cash
    Flows
  Three MonthsEnded March 31,2009

2008(In thousands)Cash payments for interest, net of $1,163,000 and $527,000
    capitalized in 2009 and 2008, respectively

$
15,061


$
17,582Cash payments for federal and state income taxes

$



$
     Note 11 
    Financial Instruments
  Commodity
    Risk Hedging Program
   23




---



##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 11 
    Financial Instruments (Continued)
            Purchased
    CenterPoint East Natural Gas Puts
  PutPut Strike

Put Volumes(Per MMBtu)

(MMBtu/d)2009

$
6.95



5,000   Purchased
    Houston Ship Channel Index Natural Gas Options
  Call Spread


CallCall Strike(Per MMBtu)


Call Volumes


Strike


VolumeBought


Sold


(MMBtu/d)


(Per MMBtu)


(MMBtu/d)2009

$
7.75


$
10.00



8,000


$
10.00



10,0002010

$
7.35


$
10.00



7,100


$
10.00



10,0002011

$
6.95


$
10.00



7,100


$
10.00



10,000  24




---



##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 11 
    Financial Instruments (Continued)
  Purchased
    Mt. Belvieu Purity Ethane Puts and Entered into Swaps
  Put


SwapStrike


Volumes


Price


Volumes(Per gallon)


(Bbls/d)


(Per gallon)


(Bbls/d)2009

$
0.5900



2,200


$
0.6025



1,1002010

$
0.5550



1,600


$
0.5700



5002011

$
0.5300



1,700


$
0.5450



500   Purchased
    Mt. Belvieu Purity Ethane Put Spread Options
  Put SpreadStrike(Per gallon)


VolumesBought


Sold


(Bbls/d)2009

$
0.83


$
0.590



1,1002009

$
0.79


$
0.590



1,100   Purchased
    Mt. Belvieu TET Propane Puts and Entered into Swaps
  Put


SwapStrike


Volumes


Price


Volumes(Per gallon)


(Bbls/d)


(Per gallon)


(Bbls/d)2009

$
0.8725



2,200







2009

$
0.9650



1,000


$
1.0275



1,000
(1)2010

$
0.8500



1,100







2010

$
0.9460



700


$
0.9925



7002011

$
0.8265



1,100







2011

$
0.9340



700


$
0.9750



7002011

$
1.3300



900







     (1)
    
    Includes 423Bbls/d that are not designated as a cash flow hedge
    under hedge accounting.  Purchased
    Mt. Belvieu TET Propane Put Spread Options
  Put SpreadStrike(Per gallon)


VolumesBought


Sold


(Bbls/d)2009

$
1.33


$
0.8725



1,6002009

$
1.33


$
0.8725



6002009

$
1.33


$
0.9650



1002010

$
1.49


$
0.8500



1,1002010

$
1.49


$
0.9460



700  25




---



##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 11 
    Financial Instruments (Continued)
  Purchased
    Mt. Belvieu Non-TET Isobutane Puts and Entered into
    Swaps
  Put


SwapStrike


Volumes


Price


Volumes(Per gallon)


(Bbls/d)


(Per gallon)


(Bbls/d)2009

$
1.0600



450







2009

$
1.1600



100


$
1.2425



1002010

$
1.0350



300







2010

$
1.1145



100


$
1.2025



1002011

$
1.0205



300







2011

$
1.1100



100


$
1.1800



1002011

$
1.7100



200







   Purchased
    Mt. Belvieu Non-TET Isobutane Put Spread Options
  Put SpreadStrike(Per gallon)


VolumesBought


Sold


(Bbls/d)2009

$
1.62


$
1.0600



1752009

$
1.57


$
1.0600



2752009

$
1.62


$
1.1600



1002010

$
1.89


$
1.1145



1002010

$
1.89


$
1.0350



300   Purchased
    Mt. Belvieu Non-TET Normal Butane Puts and Entered into
    Swaps
  Put


SwapStrike


Volumes


Price


Volumes(Per gallon)


(Bbls/d)


(Per gallon)


(Bbls/d)2009

$
1.0525



700







2009

$
1.1400



400


$
1.2275



400
(2)2009









$
(1.7025
)


(320
)(3)2010

$
1.0300



300







2010

$
1.1000



200


$
1.1850



2002011

$
1.0205



300







2011

$
1.0850



200


$
1.1700



2002011

$
1.7100



350







   (2)
    
    Includes 395 Bbls/d that are not designated as a cash flow
    hedge under hedge accounting.(3)
    
    Instrument is not designated as a cash flow hedge under hedge
    accounting. 26




---



##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 11 
    Financial Instruments (Continued)
   Purchased
    Mt. Belvieu Non-TET Normal Butane Put Spread Options
  Put SpreadStrike(Per gallon)


VolumesBought


Sold


(Bbls/d)2009

$
1.58


$
1.0525



1502009

$
1.54


$
1.0525



5502009

$
1.58


$
1.1400



2002010

$
1.88


$
1.1000



2002010

$
1.88


$
1.0300



300   Purchased
    Mt. Belvieu Non-TET Natural Gasoline Puts and Entered into
    Swaps
  Put


SwapStrike


Volumes


Price


Volumes(Per gallon)


(Bbls/d)


(Per gallon)


(Bbls/d)2009

$
1.440



200


$
1.540



2002010

$
1.408



300







2011

$
1.410



300







   Purchased
    Mt. Belvieu Non-TET Natural Gasoline Put Spread
    Options
  Put SpreadStrike(Per gallon)


VolumesBought


Sold


(Bbls/d)2009

$
1.98


$
1.440



1202010

$
2.54


$
1.408



300   Purchased
    WTI Crude Oil Puts
  PutStrike


Volumes(Per barrel)


(Bbls/d)2009

$
55.00



1,0002009

$
60.00



5002010

$
55.00



1,0002010

$
60.00



4002011

$
55.00



1,0002011

$
60.00



400  27




---



##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 11 
    Financial Instruments (Continued)
  Purchased
    WTI Crude Oil Put Spread Options
  Put SpreadStrike(Per barrel)


VolumesBought


Sold


(Bbls/d)2009

$
86.50


$
55.00



7502009

$
92.00


$
55.00



2502009

$
92.00


$
60.00



5002010

$
118.00


$
55.00



1,0002010

$
118.00


$
60.00



400   Interest
    Rate Risk Hedging Program
      SFAS No. 157
    Fair Value Measurement and SFAS No. 161 Disclosures
    about Derivative Instruments and Hedging
    Activities
    
    Level 1  Unadjusted quoted prices in active
    markets that are accessible at the measurement date for
    identical, unrestricted assets or liabilities;
    Level 2  Quoted prices in markets that are not
    considered to be active or financial instruments for which all
    significant inputs are observable, either directly or
    indirectly; and
    Level 3  Prices or valuations that require
    inputs that are both significant to the fair value measurement
    and unobservable. These inputs may be used with internally
    developed methodologies that result in managements best
    estimate of fair value.   28




---



##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 11 
    Financial Instruments (Continued)
    Fair Value Measurements on Hedging
    Instruments(a)March 31, 2009


December 31, 2008Level 1


Level 2


Level 3


Total


Level 1


Level 2


Level 3


Total(In thousands)


(In thousands)AssetsCommodity derivatives:Short-term 
    Designated(b)

$



$



$
75,215


$
75,215


$



$



$
76,440


$
76,440Short-term  Not
    designated(b)










204



204















Long-term 
    Designated(c)










64,124



64,124











81,192



81,192Long-term  Not
    designated(c)










989



989











1,700



1,700Total

$



$



$
140,532


$
140,532


$



$



$
159,332


$
159,332LiabilitiesCommodity derivatives:Short-term  Not
    designated(d)

$



$



$
1,744


$
1,744


$



$



$
2,308


$
2,308Long-term 
    Designated(e)










2,636



2,636











4,347



4,347Interest rate derivatives:Short-term 
    Designated(d)






525







525







302







302Short-term  Not
    designated(d)






4,303







4,303







3,662







3,662Long-term 
    Designated(e)






812







812







854







854Long-term  Not
    designated(e)






5,572







5,572







6,288







6,288Total

$



$
11,212


$
4,380


$
15,592


$



$
11,106


$
6,655


$
17,761Total Designated

$



$
(1,337
)

$
136,703


$
135,366


$



$
(1,156
)

$
153,285


$
152,129Total Not designated

$



$
(9,875
)

$
(551
)

$
(10,426
)

$



$
(9,950
)

$
(608
)

$
(10,558
)     (a)
    
    Instruments re-measured on a recurring basis.(b)
    
    Included on the consolidated balance sheets as a current assets
    under the heading of Risk management assets.(c)
    
    Included on the consolidated balance sheets as a noncurrent
    asset under the heading of Risk management assets.(d)
    
    Included on the consolidated balance sheets as a current
    liabilities under the heading of Risk management
    liabilities.(e)
    
    Included on the consolidated balance sheets as a noncurrent
    liability under the heading of Risk management and other
    noncurrent liabilities.   29




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##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 11 
    Financial Instruments (Continued)
    Three Months Ended March 31,2009


2008Balance, beginning of period

$
152,677


$
(48,194
)Total gains or losses:Included in earnings


56



(8,246
)Included in accumulated other comprehensive loss


(7,393
)


(4,523
)Purchases, issuances and settlements


(9,188
)


25,759Transfers in and/or out of Level 3






Balance, end of period

$
136,152


$
(35,204
)Change in unrealized losses relating to instruments still held
    as of end of period

$
164


$
4,484     and/or
      The
    Effect of Derivative Instruments on the Statements of
    Operations
    Three Months Ended March 31, 2009 (In
    thousands)
  Amount of Gain or(Loss) Recognizedin Income onDerivativeAmount of Gain or


Amount of Gain or


(IneffectiveDerivatives in

(Loss) Recognized


(Loss) Reclassified


Portion and AmountSFAS 133 Cash

in OCI on


from Accumulated


Excluded fromFlow Hedging

Derivatives


OCI into Income


Effectiveness


Statement of OperationsRelationships

(Effective Portion)


(Effective Portion)


Testing)


LocationNatural gas

$
255


$
(766
)

$



Natural gas salesNatural gas liquids


(3,534
)


11,494



(16
)

Natural gas liquids salesCrude oil


(4,223
)


4,049



123


Condensate and otherInterest rate swaps


(181
)


(81
)





Interest and other financing costsTotal

$
(7,683
)

$
14,696


$
107  30




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##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 11 
    Financial Instruments (Continued)
    The
    Effect of Derivative Instruments on the Statements of
    Operations
    Three Months Ended March 31, 2009
  Amount of Gain orDerivatives Not Designated as Hedging Instruments

(Loss) Recognized in


Statement of OperationsUnder Statement 133

Income on Derivative


LocationNatural gas liquids

$
56


Natural gas liquids salesInterest rate


75


Interest and other financing costsTotal

$
131   Note 12 
    Segment Information
    
    Oklahoma, which includes natural gas midstream services in
    central and east Oklahoma, including natural gas gathering and
    related services, natural gas processing and a crude oil
    pipeline located in south Oklahoma and north Texas. Our Oklahoma
    segment includes our equity investment in Southern Dome.
    Texas, which provides natural gas gathering and transmission and
    related services and natural gas processing, treating,
    conditioning, NGL fractionation and related NGL transportation
    operations in Texas and Louisiana. Our Texas segment includes
    our Louisiana processing assets and our equity investment in
    Webb Duval.
    Rocky Mountains, which includes natural gas gathering and
    related operations in Wyoming. Our Rocky Mountains segment
    includes our equity investments in Bighorn and Fort Union,
    two firm gathering agreements with Fort Union and two firm
    transportation agreements with WIC.     31




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##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 12 
    Segment Information (Continued)
    Rocky


Total


CorporateOklahoma


Texas


Mountains


Segments


and Other


ConsolidatedThree Months Ended March 31, 2009:Total segment gross margin

$
15,071


$
20,580


$
799


$
36,450


$
16,096


$
52,546Operations and maintenance expenses


5,766



7,054



2



12,822







12,822Depreciation and amortization


7,814



4,347



671



12,832



333



13,165General and administrative expenses


1,971



2,251



749



4,971



5,754



10,725Taxes other than income


404



380



2



786







786Equity in earnings from unconsolidated affiliates


(217
)


24



(1,291
)


(1,484
)






(1,484
)Operating (loss) income

$
(667
)

$
6,524


$
666


$
6,523


$
10,009


$
16,532Sales to external customers

$
95,608


$
96,358


$
8,354


$
200,320


$
16,096


$
216,416Intersegment sales


(290
)


290















Interest and other financing costs


















14,448



14,448Net income (loss)


(287
)


6,795



853



7,361



(1,456
)


5,905Segment assets


714,544



384,330



710,005



1,808,879



170,820



1,979,699Three Months Ended March 31, 2008:Total segment gross margin

$
36,570


$
41,576


$
963


$
79,109


$
(17,792
)

$
61,317Operations and maintenance expenses


5,926



5,852



52



11,830







11,830Depreciation and amortization


7,109



3,565



670



11,344



226



11,570General and administrative expenses


1,694



1,901



718



4,313



7,537



11,850Taxes other than income


416



325







741







741Equity in (earnings) loss from unconsolidated affiliates


(1,101
)


(291
)


996



(396
)






(396
)Operating income (loss)

$
22,526


$
30,224


$
(1,473
)

$
51,277


$
(25,555
)

$
25,722Sales to external customers

$
216,964


$
191,358


$
11,218


$
419,540


$
(17,792
)

$
401,748Intersegment sales


(518
)


518















Interest and other financing costs


















11,392



11,392Net income (loss)


22,740



30,391



(1,433
)


51,698



(37,196
)


14,502  32




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##### Table of Contents



Item 2.  Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations.  You should read the following discussion of our financial
    condition and results of operations in conjunction with the
    unaudited consolidated financial statements and notes thereto
    included elsewhere in this report.
  As generally used in the energy industry and in this report,
    the following terms have the following meanings:
  /d:

Per dayBcf:

One billion cubic feetBtu:

One British thermal unitMMBtu:

One million British thermal unitsMcf:

One thousand cubic feetMMcf:

One million cubic feetNGLs:

Natural gas liquids, which consist primarily of ethane,
    propane, isobutane, normal butane, natural gasoline and
    stabilized condensateResidue gas:

The pipeline quality natural gas remaining after natural gas
    is processedThroughput:

The volume of products transported or passing through a
    pipeline, plant, terminal or other facility   Overview
      
    Our Oklahoma segment provides midstream natural gas services in
    central and east Oklahoma, including gathering and related
    compression, dehydration, treating and nitrogen rejection
    services and natural gas processing. This segment also includes
    a crude oil pipeline located in south Oklahoma and north Texas.
    For the three months ended March 31, 2009 and 2008, this
    segment generated approximately 29% and 60%, respectively, of
    our total segment gross margin, which is defined below under
     How We Evaluate Our Operations.
    Our Texas segment provides midstream natural gas services in
    south and north Texas, including gathering and intrastate
    transmission of natural gas, and related services such as
    compression, dehydration and marketing. Our Texas segment also
    provides natural gas processing, conditioning and treating and
    NGL fractionation and transportation through our Houston Central
    plant and our NGL pipelines. In addition, we are constructing a
    cryogenic processing plant in Montague County, Texas, and our
    Texas segment owns a processing plant located in southwest
    Louisiana. For the three months ended March 31, 2009 and
    2008, this segment generated approximately 39% and 68%,
    respectively, of our total segment gross margin.
    Our Rocky Mountains segment provides midstream natural gas
    services in the Powder River Basin of Wyoming, including
    gathering and treating of natural gas. The gross margin
    generated by this segment is derived from the services we
    provide to our Rocky Mountains producers and does not include
    results associated with our interests in Bighorn or
    Fort Union, which are reported as equity in earnings from
    unconsolidated affiliates. For each of the three month periods
    ended March 31, 2009 and 2008, this segment generated
    approximately 1% of our total segment gross margin.   33




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##### Table of Contents



Trends
    and Uncertainties
    Market
    and Industry Trends
  Commodity Prices and Producer Activity.
    
   (1)  Year Ended December 31,



Quarterly Data for:2008



20092007


2008



Q1 2008


Q2 2008


Q3 2008


Q4 2008



Q1 2009OklahomaIndices:CenterPoint East ($/MMBtu)

$
6.07


$
7.11



$
7.20


$
9.26


$
8.41


$
3.58



$
3.37Conway ($/barrel)

$
45.93


$
51.28



$
56.33


$
62.27


$
59.42


$
27.36



$
24.13Service Throughput (MMBtu/d)


199,906



238,836




222,006



228,941



243,000



261,107




271,222Segment Gross Margin (in thousands)

$
115,099


$
136,378



$
36,570


$
47,852


$
33,536


$
18,420



$
15,071TexasIndices:Houston Ship Channel ($/MMBtu)

$
6.58


$
8.67



$
7.73


$
10.58


$
9.98


$
6.37



$
4.21Mt. Belvieu ($/barrel)

$
47.58


$
57.24



$
61.01


$
67.81


$
67.54


$
30.06



$
25.89Service Throughput (MMBtu/d)


642,528



686,791




696,658



700,545



666,686



679,142




644,752Segment Gross Margin (in thousands)

$
121,935


$
142,723



$
41,576


$
40,499


$
41,392


$
19,256



$
20,580  34




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##### Table of Contents



Credit and Capital Market
    Disruptions.
  Factors
    Affecting First Quarter Operating Results and Financial
    Condition
   35




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##### Table of Contents



How We
    Evaluate Our Operations
    Throughput Volumes.
  service throughput
  
    the volume of natural gas transported or gathered through our
    pipelines, which we call pipeline throughput; and
    the volume of natural gas delivered to our wholly owned
    processing plants by third-party pipelines, excluding any
    volumes already included in our pipeline throughput.    producer services
    throughput
  Segment Gross Margin and Total Segment Gross
    Margin.
   36




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##### Table of Contents



Operations and Maintenance Expenses.
  General and Administrative Expenses.
  EBITDA and Adjusted EBITDA.
 37




---



##### Table of Contents




    the financial performance of our assets without regard to
    financing methods, capital structure or historical cost basis;
    the ability of our assets to generate cash sufficient to pay
    interest costs and support our indebtedness;
    our operating performance and return on capital as compared to
    those of other companies in the midstream energy sector, without
    regard to financing or capital structure; and
    the viability of acquisitions and capital expenditure projects
    and the overall rates of return on alternative investment
    opportunities.    Total Distributable Cash Flow.
      Non-GAAP Financial Measures.
 38




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##### Table of Contents



Three Months Ended March 31,2009


2008(In thousands)Reconciliation of total segment gross margin to operating income:Operating income

$
16,532


$
25,722Add: Operations and maintenance expenses


12,822



11,830Depreciation and amortization


13,165



11,570General and administrative expenses


10,725



11,850Taxes other than income


786



741Equity in earnings from unconsolidated affiliates


(1,484
)


(396
)Total segment gross margin

$
52,546


$
61,317Reconciliation of EBITDA and adjusted EBITDA to net income:Net income

$
5,905


$
14,502Add: Depreciation and amortization


13,165



11,570Interest and other financing costs


14,448



11,392Provision for income taxes


164



284EBITDA


33,682



37,748Add: Amortization of difference between the carried investment
    and the underlying equity in net assets of equity investments


4,818



4,599Copanos share of depreciation and amortization included in
    equity in earnings from unconsolidated affiliates


1,557



1,269Copanos share of interest and other financing costs
    incurred by our equity method investments


508



2,170Adjusted EBITDA

$
40,565


$
45,786Reconciliation of EBITDA and adjusted EBITDA to cash flows from
    operating activities:Cash flow provided by operating activities

$
35,398


$
19,178Add: Cash paid for interest and other financing costs


13,178



10,624Equity in earnings from unconsolidated affiliates


1,484



396Distributions from unconsolidated affiliates


(5,371
)


(4,276
)Risk management activities


(9,188
)


17,240Decrease in working capital and other


(1,819
)


(5,414
)EBITDA


33,682



37,748Add: Amortization of difference between the carried investment
    and the underlying equity in net assets of equity investments


4,818



4,599Copanos share of depreciation and amortization included in
    equity in earnings from unconsolidated affiliates


1,557



1,269Copanos share of interest and other financing costs
    incurred by our equity method investments


508



2,170Adjusted EBITDA

$
40,565


$
45,786Reconciliation of net income to total distributable cash flow:Net income

$
5,905


$
14,502Add: Depreciation and amortization


13,165



11,570Amortization of commodity derivative options


9,188



7,562Amortization of debt issue costs


1,270



768Equity-based compensation


1,959



969Distributions from unconsolidated affiliates


6,931



5,052Unrealized losses associated with line fill contributions and
    gas imbalances(1)


166



75Unrealized losses on derivatives


(239
)


4,473Deferred taxes and other


346



68Less: Equity in earnings from unconsolidated affiliates


(1,484
)


(396
)Maintenance capital expenditures


(2,151
)


(3,059
)Total distributable cash
    flow(1)

$
35,056


$
41,584     (1)
    
    Beginning with the third quarter of 2008, unrealized non-cash
    losses (gains) associated with line fill contributions and gas
    imbalances have been added back in the determination of total
    distributable cash flow. Prior periods have been adjusted to
    reflect this change.  How We
    Manage Our Operations
   39




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##### Table of Contents



Economic Models and Standardized Processing
    Margin.
    Flow and Transaction Monitoring Systems.
  Producer Activity Evaluation and Reporting.
  Imbalance Monitoring and Control.
  Our
    Long-Term Growth Strategy
   40




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##### Table of Contents



Acquisition Analysis.
  Capital Expenditure Analysis.
  Forward-Looking
    Statements
    
    our ability to successfully integrate any acquired assets or
    operations;
    the volatility of prices and market demand for natural gas and
    NGLs;
    our ability to continue to obtain new sources of natural gas
    supply;
    the ability of key producers to continue to drill and
    successfully complete and attach new natural gas supplies;
    our ability to retain key customers;
    the availability of local, intrastate and interstate
    transportation systems and other facilities for natural gas and
    NGLs;
    our ability to access our revolving credit facility and to
    obtain additional financing on acceptable terms; 41




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##### Table of Contents




    the effectiveness of our hedging program;
    general economic conditions;
    the effects of government regulations and policies; and
    other financial, operational and legal risks and uncertainties
    detailed from time to time in our filings with the SEC.  Form 10-K
 42




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##### Table of Contents



Our
    Results of Operations
  Three Months Ended March 31,2009


2008($ in thousands)Total segment gross
    margin(1)

$
52,546


$
61,317Operations and maintenance expenses


12,822



11,830Depreciation and amortization


13,165



11,570General and administrative expenses


10,725



11,850Taxes other than income


786



741Equity in earnings from unconsolidated affiliates


(1,484
)


(396
)Operating income


16,532



25,722Gain on retirement of unsecured debt


3,939



Interest and other financing costs, net


(14,402
)


(10,936
)Provision for income taxes


(164
)


(284
)Net income

$
5,905


$
14,502Segment gross margin:Oklahoma

$
15,071


$
36,570Texas


20,580



41,576Rocky Mountains


799



963Segment gross margin


36,450



79,109Corporate and
    other(2)


16,096



(17,792
)Total segment gross
    margin(1)

$
52,546


$
61,317Segment gross margin per unit:Oklahoma:Service throughput
    ($/MMBtu)(3)

$
0.62


$
1.81Texas:Service throughput
    ($/MMBtu)(4)

$
0.35


$
0.66Rocky Mountains:Producer services throughput
    ($/MMBtu)(5)

$
0.05


$
0.05Volumes:Oklahoma:(3)(6)Service throughput (MMBtu/d)


271,222



222,006Plant inlet volumes (MMBtu/d)


160,181



150,610NGLs produced (Bbls/d)


15,309



14,543Crude oil service volumes (Bbls/d)


4,406



3,691Texas:(4)(7)Service throughput (MMBtu/d)


644,752



696,658Pipeline throughput (MMBtu/d)


304,158



327,998Plant inlet volumes (MMBtu/d)


558,195



604,736NGLs produced (Bbls/d)


16,878



18,082Rocky Mountains:Producer services throughput
    (MMBtu/d)(5)


181,385



226,721Capital Expenditures:Maintenance capital expenditures

$
2,151


$
3,059Expansion capital expenditures


10,535



30,621Total capital expenditures

$
12,686


$
33,680Operations and maintenance expenses:Oklahoma

$
5,766


$
5,926Texas


7,054



5,852Rocky Mountains


2



52Total operations and maintenance expenses

$
12,822


$
11,830     (1)
    
    Total segment gross margin is a
    non-GAAP financial measure. See  How We
    Evaluate Our Operations for a reconciliation of total
    segment gross margin to its most directly comparable GAAP
    measure of operating income. 43




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##### Table of Contents



(2)
    
    Corporate and other includes
    results attributable to Copanos commodity risk management
    activities.(3)
    
    Excludes volumes associated with
    our interest in Southern Dome. For the three months ended
    March 31, 2009, plant inlet volumes for Southern Dome
    averaged 10,608 MMBtu/d and NGLs produced averaged
    367 Bbls/d. For the three months ended March 31, 2008,
    plant inlet volumes for Southern Dome averaged
    10,824 MMBtu/d and NGLs produced averaged 448 Bbls/d.(4)
    
    Excludes results and volumes
    associated with our interest in Webb Duval. Volumes transported
    by Webb Duval, net of intercompany volumes, were
    88,740 MMBtu/d and 81,138 MMBtu/d for the three months
    ended March 31, 2009 and 2008, respectively.(5)
    
    Producer services throughput
    consists of volumes we purchased for resale, volumes gathered
    under our firm capacity gathering agreements with
    Fort Union and volumes transported using our firm capacity
    agreements with WIC. Excludes results and volumes associated
    with our interests in Bighorn and Fort Union. Volumes
    transported by Bighorn were 201,777 MMBtu/d and
    218,025 MMBtu/d for the three months ended March 31,
    2009 and 2008, respectively. Volumes transported by
    Fort Union were 804,221 MMBtu/d and
    675,308 MMBtu/d for the three months ended March 31,
    2009 and 2008, respectively.(6)
    
    Plant inlet volumes and NGLs
    produced represent total volumes processed and produced by the
    Oklahoma segment at all plants, including our owned plants and
    plants owned by third parties. For the three months ended
    March 31, 2009, plant inlet volumes averaged
    122,902 MMBtu/d and NGLs produced averaged
    12,535 Bbls/d for plants owned by the Oklahoma segment. For
    the three months ended March 31, 2008, plant inlet volumes
    averaged 99,270 MMBtu/d and NGLs produced averaged
    9,994 Bbls/d for plants owned by the Oklahoma segment.(7)
    
    Plant inlet volumes and NGLs
    produced represent total volumes processed and produced by the
    Texas segment at all plants, including plants owned by the Texas
    segment and plants owned by third parties. Plant inlet volumes
    averaged 535,083 MMBtu/d and NGLs produced averaged
    15,049 barrels per day for the three months ended
    March 31, 2009 for plants owned by the Texas segment. Plant
    inlet volumes averaged 581,051 MMBtu/d and NGLs produced
    averaged 16,376 barrels per day for the three months ended
    March 31, 2008 for plants owned by the Texas segment.  Three
    Months Ended March 31, 2009 Compared with Three Months
    Ended March 31, 2008
    
    a decrease in total segment gross margin of $8.8 million as
    a result of a $42.7 million decrease in operating segment
    gross margins primarily reflecting average NGL price declines of
    57% in the Conway index and 58% in the Mt. Belvieu index, which
    was substantially offset by an increase of $33.9 million
    from our commodity risk management activities;
    an increase in operations, maintenance, depreciation and
    amortization expenses of $2.6 million primarily related to
    our expanded operations in north Texas;
    a decrease in general and administrative expenses of
    $1.1 million primarily related to reduced employee
    compensation and benefit expenses and third-party service
    providers costs;
    an increase of $1.1 million in equity in earnings of our
    unconsolidated affiliates primarily related to our investment in
    Fort Union;
    a gain of $3.9 million related to the repurchase and
    retirement of $18.2 million aggregate principal amount of
    our 7.75% senior unsecured notes due 2018 at market prices
    averaging 78% of the face amount of the notes;
    non-cash charges netting $0.3 million related to
    (a) $0.4 million write-off of debt issuance costs
    related to the repurchase and retirement of our senior unsecured
    notes discussed above, offset by (b) $0.1 million of
    mark-to-market gains on our undesignated interest rate swaps;
    an increase in interest expense of $2.6 million as a result
    of increased average outstanding borrowings offset by slightly
    lower average interest rates between the periods
    ($838.1 million at 7.37% in 2009 compared to
    $634.6 million at 7.42% in 2008). Average borrowings
    increased to provide additional liquidity and to finance our
    expansion activities in north Texas and contributions to Bighorn
    and Fort Union; and
    a decrease in interest income of $0.4 million as a result
    of lower interest rates.  Oklahoma Segment Gross Margin.
 44




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##### Table of Contents



Texas Segment Gross Margin.
  Rocky Mountains Segment Gross Margin.
  Corporate and Other.
  Operations and Maintenance
    Expenses.
  Depreciation and Amortization.
  General and Administrative Expenses.
 45




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##### Table of Contents



Interest and Other Financing Costs.
  Gain on Unsecured Debt Retirement.
  Cash
    Flows
    Three Months Ended March 31,2009


2008(In thousands)Net cash provided by operating activities

$
35,398


$
19,178Net cash used in investing activities


(19,451
)


(31,598
)Net cash provided by (used in) financing activities


4,662



(23
)     Operating Cash Flows.
  
    cash distributions received from our unconsolidated affiliates
    (Bighorn, Fort Union, Webb Duval and Southern Dome) were
    $1.1 million higher for the three months ended
    March 31, 2009 compared to the same period in 2008; offset
    by:
    operating income (adjusted for the timing of related cash
    receipts and disbursements) was $14.8 million lower for the
    three months ended March 31, 2009 compared with the same
    period in 2008;
    risk management activities provided $27.4 million of cash
    flow for the three months ended March 31, 2009 as compared
    to the same period in 2008, primarily because we did not
    purchase commodity derivative instruments during the first
    quarter of 2009. In 2008, we used $26.0 million to purchase
    commodity derivative instruments; and
    interest payments for the three months ended March 31, 2009
    were $2.5 million lower compared to the three months ended
    March 31, 2008. 46




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##### Table of Contents



Investing Cash Flows.
  Financing Cash Flows.
  Liquidity
    and Capital Resources
  Sources of Liquidity.
  Effects of Recent Economic Changes;
    Outlook.
     47




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and/or
  Capital Expenditures.
  
    maintenance capital expenditures, which are capital expenditures
    employed to replace partially or fully depreciated assets to
    maintain the existing operating capacity of our assets and to
    extend their useful lives, or other capital expenditures that
    are incurred in maintaining existing system volumes and related
    cash flows; and
    expansion capital expenditures, which are capital expenditures
    made to expand or increase the efficiency of the existing
    operating capacity of our assets. Expansion capital expenditures
    include expenditures that facilitate an increase in volumes
    within our operations, whether through construction or
    acquisition. Expenditures that reduce our operating costs will
    be considered expansion capital expenditures only if the
    reduction in operating expenses exceeds cost reductions
    typically resulting from routine maintenance.      Cash Distributions.
  One Quarter


Four QuartersCommon
    units(1)

$
31,748


$
126,992     (1)
    
    Includes distributions on restricted common units and phantom
    units issued under our LTIP. Distributions made on restricted
    units and phantom units issued to date are subject to the same
    vesting provisions as the restricted units and phantom units. As
    of May 1, 2009, we had 164,094 outstanding restricted units
    and 584,910 outstanding phantom units.  Our
    Indebtedness
    Credit Ratings.
 48




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Revolving Credit Facility.
        Senior Notes.
       49




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Off-Balance
    Sheet Arrangements
    Recent
    Accounting Pronouncements
    Critical
    Accounting Policies
  Impairment of Long-Lived Assets.
    
    changes in general economic conditions in which our assets are
    located;
    the availability and prices of natural gas supply;
    improvements in exploration and production technology;
    the finding and development cost for producers to exploit
    reserves in a particular area;
    our ability to negotiate favorable agreements with producers and
    customers;
    our dependence on certain significant customers, producers,
    gatherers and transporters of natural gas; and
    competition from other midstream service providers, including
    major energy companies.    Form 10-K
  Item 3.
    Quantitative
    and Qualitative Disclosures about Market Risk.   50




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Commodity
    Price Risk
    Oklahoma. agreed-upon
  Texas.
    Rocky Mountains.
  Other Commodity Price Risks.
 51




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Sensitivity.
  Risk
    Management Oversight
      Commodity
    Price Hedging Activities
    
    purchase put options or put spreads (purchase of a
    put and a sale of a put at a lower strike price) on WTI crude
    oil to hedge NGLs produced or condensate collected by us or an
    entity or asset to be acquired by us if a binding purchase and
    sale agreement has been executed (a Pending
    Acquisition);
    purchase put or call options, enter into collars (purchase of a
    put together with the sale of a call) or call or put
    spreads ((i) purchase of a call and a sale of a call at a
    higher strike price or (ii) purchase of a put and a sale of
    a put at a lower strike price)
    and/or sell
    fixed for floating swaps on natural gas at Henry Hub, Houston
    Ship Channel or other highly liquid points relevant to our
    operations or a Pending Acquisition;
    purchase put options, enter into collars or put
    spreads (purchase of a put and a sale of a put at a lower
    strike price)
    and/or sell
    fixed for floating swaps on NGLs to which we, or a Pending
    Acquisition, has direct price exposure, priced at Mt. Belvieu or
    Conway; and
    purchase put options and collars
    and/or sell
    fixed for floating swaps on the fractionation spread
    or the processing margin spread for any processing
    plant relevant to our operations or a Pending Acquisition.    
    Maturities with respect to the purchase of any crude oil,
    natural gas, NGLs, fractionation spread or processing margin
    spread hedge instruments must be limited to five years from the
    date of the transaction;
    Except as provided in the policy amendment described below, we
    may not (i) purchase crude oil or NGLs put options,
    (ii) purchase natural gas put or call options,
    (iii) purchase fractionation spread or processing margin
    spread put options or (iv) enter into any crude oil,
    natural gas or NGLs spread options permitted by the policy if,
    as a result of the proposed transaction, net notional hedged
    volumes with respect to the underlying hedged commodity would be
    an amount in excess of 80% of the projected requirements or
    output, as applicable, for the hedged period (a calendar year or
    any remaining portion thereof). Notwithstanding this limitation,
    we are not required to divest outstanding hedge positions except
    to the extent net notional hedged volumes with 52




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respect to an underlying hedged commodity exceed 100% of the
    projected requirements or output, as applicable, for the hedged
    period; and  
    The aggregate volumetric exposure associated with swaps, collars
    and written calls relating to any product must not exceed the
    lesser of 50% of the aggregate hedged position or 35% of the
    projected requirements or output with respect to such product.          Oklahoma Segment.
  Texas Segment.
  Rocky Mountains Segment.
 53




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Our Commodity Hedge Portfolio.
  Interest Rates.
      Counterparty Risk.
    Form 10-K
  Item 4.
    Controls
    and Procedures.     54




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PART II-OTHER
    INFORMATION  Item 1.
    Legal
    Proceedings.    Item 1A.
    Risk
    Factors.  Form 10-K
  Item 6.
    Exhibits.    Number

Description2
.1

Purchase Agreement dated as of August 31, 2007 among Copano
    Energy, L.L.C., Copano Energy/Rocky Mountains, L.L.C., and
    Cantera Resources Holdings LLC (incorporated by reference to
    Exhibit 2.1 to Current Report on
    Form 8-K
    filed October 25, 2007).2
.2

Contribution Agreement dated as of April 5, 2007 by and
    among Cimmarron Gathering GP, LLC, Taos Gathering, LP and
    Cimmarron Transportation, L.L.C. and Copano Energy, L.L.C.
    (incorporated by reference to Exhibit 2.1 to Current Report
    on
    Form 8-K
    filed April 11, 2007).3
.1

Certificate of Formation of Copano Energy Holdings, L.L.C. (now
    Copano Energy, L.L.C.) (incorporated by reference to
    Exhibit 3.1 to Registration Statement on
    Form S-1
    filed July 30, 2004).3
.2

Certificate of Amendment to Certificate of Formation of Copano
    Energy Holdings, L.L.C. (now Copano Energy, L.L.C.)
    (incorporated by reference to Exhibit 3.2 to Registration
    Statement on
    Form S-1
    filed July 30, 2004).3
.3

Third Amended and Restated Limited Liability Company Agreement
    of Copano Energy, L.L.C. (incorporated by reference to
    Exhibit 3.1 to Current Report on
    Form 8-K
    filed April 30, 2007).3
.4

Amendment No. 1 to Third Amended and Restated Limited
    Liability Company Agreement of Copano Energy, L.L.C.
    (incorporated by reference to Exhibit 3.1 to Current Report
    on
    Form 8-K
    filed May 4, 2007).3
.5

Amendment No. 2 to Third Amended and Restated Limited
    Liability Company Agreement of Copano Energy, L.L.C. dated
    October 19, 2007 (incorporated by reference to
    Exhibit 3.1 to Current Report on
    Form 8-K
    filed October 25, 2007).3
.6

Amendment No. 3 to Third Amended and Restated Limited
    Liability Company Agreement of Copano Energy, L.L.C., dated
    October 19, 2007 (incorporated by reference to
    Exhibit 3.2 to Current Report on
    Form 8-K
    filed October 25, 2007).4
.1

Indenture dated as of February 7, 2006, among Copano
    Energy, L.L.C., Copano Energy Finance Corporation, the
    Guarantors parties thereto and U.S. Bank National Association,
    as trustee (incorporated by reference to Exhibit 4.1 to
    Current Report on
    Form 8-K
    filed February 8, 2006).4
.2

Rule 144A Global Note representing $224,500,000 principal
    amount of 8.125% Senior Notes due 2016 (incorporated by
    reference to Exhibit 4.2 to Current Report on
    Form 8-K
    filed February 8, 2006).4
.3

Regulation S Global Note representing $500,000 principal
    amount of 8.125% Senior Notes due 2016 (incorporated by
    reference to Exhibit 4.3 to Current Report on
    Form 8-K
    filed February 8, 2006). 55




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Number

Description4
.4

Registration Rights Agreement dated as of May 1, 2007, by
    and among Copano Energy, L.L.C. and Cimmarron Gathering GP, LLC,
    Taos Gathering, LP and Cimmarron Transportation, LLC
    (incorporated by reference to Exhibit 4.1 to Current Report
    on
    Form 8-K
    filed May 4, 2007).4
.5

Registration Rights Agreement by and between Copano Energy,
    L.L.C. and Cantera Resources Holdings LLC, dated
    October 19, 2007 (incorporated by reference to
    Exhibit 4.1 to Current Report on
    Form 8-K
    filed October 25, 2007).4
.6

Registration Rights Agreement by and among Copano Energy, L.L.C.
    and the Purchasers, dated October 19,2007 (incorporated by
    reference to Exhibit 4.2 to Current Report on
    Form 8-K
    filed October 25, 2007).4
.7

Indenture, dated May 16, 2008, among Copano Energy, L.L.C.,
    Copano Energy Finance Corporation, the Subsidiary Guarantors
    named therein and U.S. Bank National Association, as trustee
    (incorporated by reference to Exhibit 4.1 to Current Report
    on
    Form 8-K
    filed May 19, 2008).4
.8

Form of Global Note representing 7.75% Senior Notes due
    2018 (included in 144A/Regulation S Appendix to
    Exhibit 4.7 above).4
.9

Registration Rights Agreement, dated May 16, 2008, among
    Copano Energy, L.L.C., Copano Energy Finance Corporation, the
    Subsidiary Guarantors named therein and the Initial Purchasers
    named therein (incorporated by reference to Exhibit 4.2 to
    Current Report on
    Form 8-K
    filed May 19, 2008).10
.1

Amended and Restated Long-Term Incentive Plan (incorporated by
    reference to Exhibit 99.1 to Current Report on
    Form 8-K
    filed February 24, 2009).31
.1*

Sarbanes-Oxley Section 302 certification of John R. Eckel,
    Jr. (Chief Executive Officer) for Copano Energy, L.L.C.31
.2*

Sarbanes-Oxley Section 302 certification of Matthew J.
    Assiff (Chief Financial Officer) for Copano Energy, L.L.C.32
.1*

Sarbanes-Oxley Section 906 certification of John R. Eckel,
    Jr. (Chief Executive Officer) for Copano Energy, L.L.C.32
.2*

Sarbanes-Oxley Section 906 certification of Matthew J.
    Assiff (Chief Financial Officer) for Copano Energy, L.L.C.     *
    
    Filed herewith. 56




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SIGNATURES
      By:
    /s/  John
    R. Eckel, Jr.     By:
    /s/  Matthew
    J. Assiff    57