##### 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 1934For the quarterly period ended
    June 30,
    2009ORo

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
    Incorporation or Organization)

(I.R.S. Employer
    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
  Regulation S-T o o
  12b-2
  Large
    accelerated
    filer þ
    Accelerated
    filer o
    Non-accelerated
    filer o
    Smaller
    reporting
    company o   Rule 12b-2 o þ




---



##### 





TABLE OF
    CONTENTS
   
 PagePART I  FINANCIAL INFORMATIONItem 1.


Financial Statements


3Unaudited Consolidated Balance Sheets as of June
    30, 2009 and December 31, 2008


3Unaudited Consolidated Statements of Operations
    for the Three and Six Months Ended June 30, 2009 and 2008


4Unaudited Consolidated Statements of Cash Flows
    for the Six Months Ended June 30, 2009 and 2008


5Unaudited Consolidated Statement of Members
    Capital and Comprehensive Income (Loss) for the Six Months Ended
    June 30, 2009 and 2008


6Notes to Unaudited Consolidated Financial
    Statements


7Item 2.


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


38Item 3.


Quantitative and Qualitative Disclosures About
    Market Risk


58Item 4.


Controls and Procedures


62PART II  OTHER
    INFORMATIONItem 1.


Legal Proceedings


63Item 1A.


Risk Factors


63Item 4.


Submission of Matters to a Vote of Security
    Holders


65Item 6.


Exhibits


66EX-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
  June 30,


December 31,2009


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

$
74,683


$
63,684Accounts receivable, net


71,644



96,028Risk management assets


44,270



76,440Prepayments and other current assets


2,924



5,004Total current assets


193,521



241,156Property, plant and equipment, net


833,198



823,574Intangible assets, net


193,779



198,974Investment in unconsolidated affiliates


631,741



640,598Escrow cash


1,858



1,858Risk management assets


37,138



82,892Other assets, net


23,004



24,613Total assets

$
1,914,239


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

$
88,092


$
103,849Accrued interest


11,380



11,904Accrued tax liability


356



784Risk management liabilities


7,774



6,272Other current liabilities


8,479



16,787Total current liabilities


116,081



139,596Long-term debt (includes $666 and $704 bond premium as of
    June 30, 2009 and December 31, 2008, respectively)


852,856



821,119Deferred tax provision


2,091



1,718Risk management and other noncurrent liabilities


12,882



13,274Commitments and contingencies (Note 9)Members capital:Common units, no par value, 54,520,170 units and
    53,965,288 units issued and outstanding as of June 30,
    2009 and December 31, 2008, respectively


878,901



865,343Class C units, no par value, 0 units and
    394,853 units issued and outstanding as of June 30,
    2009 and December 31, 2008






13,497Class D units, no par value, 3,245,817 units issued
    and outstanding as of June 30, 2009 and December 31,
    2008


112,454



112,454Paid-in capital


38,907



33,734Accumulated deficit


(105,900
)


(54,696
)Accumulated other comprehensive income


5,967



67,626930,329



1,037,958Total liabilities and members capital

$
1,914,239


$
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


Six Months EndedJune 30,


June 30,2009


2008


2009


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

$
64,517


$
235,000


$
159,496


$
415,887Natural gas liquids sales


91,463



179,031



172,294



333,112Crude oil sales


22,730



57,183



38,068



98,365Transportation, compression and processing fees


13,913



16,442



28,912



29,124Condensate and other


10,290



13,622



20,559



26,538Total revenue


202,913



501,278



419,329



903,026Costs and expenses:Cost of natural gas and natural gas
    liquids(1)


122,415



369,766



265,873



667,234Cost of crude oil
    purchases(1)


21,340



56,021



35,768



95,863Transportation(1)


5,744



3,416



11,728



6,537Operations and maintenance


13,028



13,065



25,850



24,895Depreciation and amortization


13,835



12,767



27,000



24,337General and administrative


9,321



10,936



20,046



22,786Taxes other than income


727



729



1,513



1,470Equity in earnings from unconsolidated affiliates


(2,099
)


(4,788
)


(3,583
)


(5,184
)Total costs and expenses


184,311



461,912



384,195



837,938Operating income


18,602



39,366



35,134



65,088Other income (expense):Interest and other income


8



278



54



734Gain on retirement of unsecured debt










3,939



Interest and other financing costs


(12,001
)


(16,077
)


(26,449
)


(27,469
)Income before income taxes


6,609



23,567



12,678



38,353Provision for income taxes


(571
)


(365
)


(735
)


(649
)Net income

$
6,038


$
23,202


$
11,943


$
37,704Basic net income per common unit:Net income per common unit

$
0.11


$
0.49


$
0.22


$
0.79Weighted average number of common units


54,356



47,672



54,185



47,524Diluted net income per common unit:Net income per common unit

$
0.10


$
0.40


$
0.21


$
0.65Weighted average number of common units


57,946



58,010



57,933



57,967     (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
  Six Months EndedJune 30,2009


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

$
11,943


$
37,704Adjustments to reconcile net income to net cash provided by
    operating activities:Depreciation and amortization


27,000



24,337Amortization of debt issue costs


2,165



1,619Equity in earnings from unconsolidated affiliates


(3,583
)


(5,184
)Distributions from unconsolidated affiliates


11,439



11,718Gain on retirement of unsecured debt (Note 5)


(3,939
)


Non-cash (gain) loss on risk management activities, net


(1,636
)


10,000Equity-based compensation


4,317



1,808Deferred tax provision


373



253Other non-cash items


296



(85
)Changes in assets and liabilities:Accounts receivable


24,805



(44,258
)Prepayments and other current assets


2,080



753Risk management activities


18,479



(26,320
)Accounts payable


(12,338
)


62,605Other current liabilities


(1,773
)


3,035Net cash provided by operating activities


79,628



77,985Cash Flows From Investing Activities:Additions to property, plant and equipment


(37,380
)


(76,995
)Additions to intangible assets


(698
)


(3,849
)Acquisitions


(2,840
)


(77
)Investment in unconsolidated affiliates


(2,774
)


(18,809
)Distributions from unconsolidated affiliates


2,788



877Other


(995
)


(2,701
)Net cash used in investing activities


(41,899
)


(101,554
)Cash Flows From Financing Activities:Proceeds from long-term debt


50,000



364,000Repayment of long-term debt






(314,000
)Retirement of unsecured debt


(14,286
)


Deferred financing costs






(6,350
)Distributions to unitholders


(62,505
)


(49,585
)Capital contributions from pre-IPO investors






4,103Equity offering costs






(47
)Proceeds from option exercises


61



524Net cash used in financing activities


(26,730
)


(1,355
)Net increase (decrease) in cash and cash equivalents


10,999



(24,924
)Cash and cash equivalents, beginning of year


63,684



72,665Cash and cash equivalents, end of period

$
74,683


$
47,741    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


Class E





Accumulated


Other





TotalNumber


Common


Number


Class C


Number


Class D


Number


Class E


Paid-in


Earnings


Comprehensive





Comprehensiveof Units


Units


of 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


$
1,037,958Conversion of Class C Units into common unitss


395



13,497



(395
)


(13,497
)

































$
Distributions to unitholders






































(63,147
)






(63,147
)


Option exercises


6



61







































61Equity-based compensation


































3,722











3,722



Vested restricted units


6















































Vested phantom units


26















































Vested unit awards


122































1,451











1,451



Net income






































11,943







11,943



11,943Derivative settlements reclassified to income










































(25,507
)


(25,507
)


(25,507
)Unrealized loss-change in fair value of derivatives










































(36,152
)


(36,152
)


(36,152
)Comprehensive loss

















































$
(49,716
)Balance, June 30, 2009


54,520


$
878,901






$




3,246


$
112,454






$



$
38,907


$
(105,900
)

$
5,967


$
930,329Balance, December 31, 2007


47,366


$
661,585



1,184


$
40,492



3,246


$
112,454



5,599


$
175,634


$
23,773


$
(7,867
)

$
(111,935
)

$
894,136Capital contributions from Pre-IPO Investors


































4,103











4,103


$
Conversion of Class C units into common units


394



13,497



(394
)


(13,497
)


































Distributions to unitholders






































(49,840
)






(49,840
)


Option exercises


32



524







































524



Equity-based compensation


































1,808











1,808



Vested restricted units


16















































Vested phantom units


12















































Net income






































37,704







37,704



37,704Derivative settlements reclassified to income










































23,915



23,915



23,915Unrealized loss-change in fair value of derivatives










































(44,314
)


(44,314
)


(44,314
)Comprehensive income

















































$
17,305Balance, June 30, 2008


47,820


$
675,606



790


$
26,995



3,246


$
112,454



5,599


$
175,634


$
29,684


$
(20,003
)

$
(132,334
)

$
868,036




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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  GAAP Codification
  Accounting
    Standards Codification (ASC) and the Hierarchy of
    Generally Accepted Accounting Principles
    (GAAP),
  Subsequent
    Events
  Subsequent Events
  Interim
    Disclosures about Fair Value of Financial
    Instruments
  107-1 28-1, Interim Disclosures about Fair Value of Financial
    Instruments
  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 815-10).
 8




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##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 2 
    New
    Accounting Pronouncements (Continued)  Accounting for Derivative
    Instruments and Hedging Activities,
  Useful
    Life of Intangible Assets
  No. 142-3, Determination of the Useful Life of Intangible
    Assets 350-30), Goodwill and Other Intangible
    Assets, No. 142-3
  Note 3 
    Intangible
    Assets  rights-of-way, FSP No. 142-3 350-30), 2009  2010  2011 2012 2013 2014 
    June 30,


December 31,2009


2008Rights-of-way
    and easements, at cost

$
114,007


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


(15,753
)


(11,926
)Contracts


107,916



107,916Less accumulated amortization for contracts


(16,410
)


(14,901
)Customer relationships


4,864



5,318Less accumulated amortization for customer relationships


(845
)


(742
)Intangible assets, net

$
193,779


$
198,974  9




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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)  rights-of-way rights-of-way
  Note 4 
    Investment
    in Unconsolidated Affiliates      Bighorn


Fort Union


Southern Dome


Webb DuvalOperating revenue

$
17,287


$
30,501


$
8,237


$
1,025Operating expenses


(6,863
)


(3,184
)


(6,853
)


(823
)Depreciation and amortization


(2,640
)


(3,996
)


(374
)


(394
)Interest income (expense) and other


3



(1,283
)


4



Net income (loss)


7,787



22,038



1,014



(192
)Ownership %


51
%


37.04
%


69.5
%


62.5
%3,971



8,163



705



(120
)Priority allocation of earnings and other


320



(286
)






Copanos share of management fees charged


222



42



87



69Amortization of difference between the carried investment and
    the underlying equity in net assets


(6,396
)


(3,212
)


(5
)


10Equity in (loss) earnings from unconsolidated affiliates

$
(1,883
)

$
4,707


$
787


$
(41
)Distributions

$
5,855


$
6,426


$
1,321


$
563Current assets

$
7,952


$
13,727


$
3,452


$
586Noncurrent assets


99,915



213,886



16,038



6,577Current liabilities


(1,396
)


(18,219
)


(4,275
)


(797
)Noncurrent liabilities






(96,986
)






(56
)Net assets

$
106,471


$
112,408


$
15,215


$
6,310  10




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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

$
17,303


$
24,023


$
17,959


$
1,759Operating expenses


(6,544
)


(2,133
)


(14,475
)


(300
)Depreciation and amortization


(2,056
)


(2,814
)


(367
)


(387
)Interest income (expense) and other


63



(3,174
)


3



17Net income


8,766



15,902



3,120



1,089Ownership %


51
%


37.04
%


69.5
%


62.5
%4,471



5,890



2,168



681Priority allocation of earnings and other


701



225







Copanos share of management fees charged


117



18



88



67Amortization of difference between the carried investment and
    the underlying equity in net assets


(5,995
)


(3,212
)


(5
)


10Equity in (loss) earnings from unconsolidated affiliates

$
(706
)

$
2,921


$
2,251


$
758Distributions

$
5,867


$
3,778


$
2,189


$
688   Note 5 
    Long-Term
    Debt    June 30,


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-senior notes due 2016


666



7047.75% senior notes due 2018


249,525



267,750Total Senior Notes


582,856



601,119Total

$
852,856


$
821,119  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
    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).      Senior
    Notes
  8.125% Senior Notes Due 2016.
    7.75% Senior Notes Due 2018.
 12




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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)    General.
     13




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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)
  CONDENSED
    CONSOLIDATING BALANCE SHEETS
  June 30, 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

$
29,235


$



$
45,448


$



$



$
74,683


$
20,417


$



$
43,267


$



$



$
63,684Accounts receivable, net


1







71,643











71,644



1







96,027











96,028Intercompany receivable


56,338



(1
)


(56,337
)














110,551







(110,551
)










Risk management assets










44,270











44,270











76,440











76,440Prepayments and other current assets


428







2,496











2,924



911







4,093











5,004Total current assets


86,002



(1
)


107,520











193,521



131,880







109,276











241,156Property, plant and equipment, net


116







833,082











833,198



136







823,438











823,574Intangible assets, net










193,779











193,779











198,974











198,974Investment in unconsolidated affiliates










631,741



631,741



(631,741
)


631,741











640,598



640,598



(640,598
)


640,598Investment in consolidated subsidiaries


1,695,289















(1,695,289
)






1,723,814















(1,723,814
)


Escrow cash










1,858











1,858











1,858











1,858Risk management assets










37,138











37,138











82,892











82,892Other assets, net


17,644







5,360











23,004



19,809







4,804











24,613Total assets

$
1,799,051


$
(1
)

$
1,810,478


$
631,741


$
(2,327,030
)

$
1,914,239


$
1,875,639


$



$
1,861,840


$
640,598


$
(2,364,412
)

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

$



$



$
88,092


$



$



$
88,092


$
2


$



$
103,847


$



$



$
103,849Accrued interest


10,781







599











11,380



11,878







26











11,904Accrued tax liability


356



















356



784



















784Risk management liabilities










7,774











7,774











6,272











6,272Other current liabilities


2,255







6,224











8,479



1,731







15,056











16,787Total current liabilities


13,392







102,689











116,081



14,395







125,201











139,596Long-term debt


852,856



















852,856



821,119



















821,119Deferred tax provision


2,091



















2,091



1,718



















1,718Risk management and other noncurrent liabilities


383







12,499











12,882



449







12,825











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


878,901



















878,901



865,343



















865,343Class C units


























13,497



















13,497Class D units


112,454



















112,454



112,454



















112,454Paid-in capital


38,907



1



1,544,059



610,030



(2,154,090
)


38,907



33,734



1



1,544,237



629,359



(2,173,597
)


33,734Accumulated (deficit) earnings


(105,900
)


(2
)


145,264



21,711



(166,973
)


(105,900
)


(54,696
)


(1
)


111,951



11,239



(123,189
)


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


5,967







5,967







(5,967
)


5,967



67,626







67,626







(67,626
)


67,626930,329



(1
)


1,695,290



631,741



(2,327,030
)


930,329



1,037,958







1,723,814



640,598



(2,364,412
)


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

$
1,799,051


$
(1
)

$
1,810,478


$
631,741


$
(2,327,030
)

$
1,914,239


$
1,875,639


$



$
1,861,840


$
640,598


$
(2,364,412
)

$
2,013,665




---



##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note
    5  Long-Term Debt (continued)
  CONDENSED
    CONSOLIDATING STATEMENTS OF OPERATIONS
  Three Months Ended June 30,2009


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

$



$



$
64,517


$



$



$
64,517


$



$



$
235,000


$



$



$
235,000Natural gas liquids sales










91,463











91,463











179,031











179,031Crude oil sales










22,730











22,730











57,183











57,183Transportation, compression and processing fees










13,913











13,913











16,442











16,442Condensate and other










10,290











10,290











13,622











13,622Total revenue










202,913











202,913











501,278











501,278Costs and expenses:Cost of natural gas and natural gas liquids










122,415











122,415











369,766











369,766Cost of crude oil










21,340











21,340











56,021











56,021Transportation










5,744











5,744











3,416











3,416Operations and maintenance










13,028











13,028



553







12,512











13,065Depreciation and amortization


10







13,825











13,835



11







12,756











12,767General and administrative


4,261







5,060











9,321



5,961







4,975











10,936Taxes other than income










727











727











729











729Equity in (earnings) loss from unconsolidated affiliates










(2,099
)


(2,099
)


2,099



(2,099
)










(4,788
)


(4,788
)


4,788



(4,788
)Total costs and expenses


4,271







180,040



(2,099
)


2,099



184,311



6,525







455,387



(4,788
)


4,788



461,912Operating (loss) income


(4,271
)






22,873



2,099



(2,099
)


18,602



(6,525
)






45,891



4,788



(4,788
)


39,366Interest and other income










8











8



3







275











278Interest and other financing costs


(12,802
)






801











(12,001
)


(12,200
)






(3,877
)










(16,077
)(Loss) income before income taxes and equity in earnings from
    consolidated subsidiaries


(17,073
)






23,682



2,099



(2,099
)


6,609



(18,722
)






42,289



4,788



(4,788
)


23,567Provision for income taxes


(571
)


















(571
)


(365
)


















(365
)(Loss) income before equity in earnings from consolidated
    subsidiaries


(17,644
)






23,682



2,099



(2,099
)


6,038



(19,087
)






42,289



4,788



(4,788
)


23,202Equity in earnings (loss) from consolidated subsidiaries


22,475















(22,475
)






42,289















(42,289
)


Net income (loss)

$
4,831


$



$
23,682


$
2,099


$
(24,574
)

$
6,038


$
23,202


$



$
42,289


$
4,788


$
(47,077
)

$
23,202




---



##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note
    5  Long-Term Debt (continued)
  Six Months Ended June 30,2009


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

$



$



$
159,496


$



$



$
159,496


$



$



$
415,887


$



$



$
415,887Natural gas liquids sales










172,294











172,294











333,112











333,112Crude oil sales










38,068











38,068











98,365











98,365Transportation, compression and processing fees










28,912











28,912











29,124











29,124Condensate and other










20,559











20,559











26,538











26,538Total revenue










419,329











419,329











903,026











903,026Costs and expenses:Cost of natural gas and natural gas liquids










265,873











265,873











667,234











667,234Cost of crude oil










35,768











35,768











95,863











95,863Transportation










11,728











11,728











6,537











6,537Operations and maintenance










25,850











25,850



1,064







23,831











24,895Depreciation and amortization


20







26,980











27,000



23







24,314











24,337General and administrative


9,919







10,127











20,046



13,423







9,363











22,786Taxes other than income










1,513











1,513











1,470











1,470Equity in (earnings) loss from unconsolidated affiliates










(3,583
)


(3,583
)


3,583



(3,583
)










(5,184
)


(5,184
)


5,184



(5,184
)Total costs and expenses


9,939







374,256



(3,583
)


3,583



384,195



14,510







823,428



(5,184
)


5,184



837,938Operating (loss) income


(9,939
)






45,073



3,583



(3,583
)


35,134



(14,510
)






79,598



5,184



(5,184
)


65,088Interest and other income










54











54



25







709











734Gain on retirement of unsecured debt


3,939



















3,939























Interest and other financing costs


(26,220
)






(229
)










(26,449
)


(23,373
)






(4,096
)










(27,469
)(Loss) income before income taxes and equity in earnings from
    consolidated subsidiaries


(32,220
)






44,898



3,583



(3,583
)


12,678



(37,858
)






76,211



5,184



(5,184
)


38,353Provision for income taxes


(735
)


















(735
)


(649
)


















(649
)(Loss) income before equity in earnings from consolidated
    subsidiaries


(32,955
)






44,898



3,583



(3,583
)


11,943



(38,507
)






76,211



5,184



(5,184
)


37,704Equity in earnings (loss) from consolidated subsidiaries


44,898















(44,898
)






76,211















(76,211
)


Net income (loss)

$
11,943


$



$
44,898


$
3,583


$
(48,481
)

$
11,943


$
37,704


$



$
76,211


$
5,184


$
(81,395
)

$
37,704




---



##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note
    5  Long-Term Debt (continued)
  CONDENSED
    CONSOLIDATING STATEMENTS OF CASH FLOWS
  Six Months Ended June 30,2009


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

$
23,787


$



$
55,841


$
11,438


$
(11,438
)

$
79,628


$
(46,127
)

$



$
124,112


$
11,718


$
(11,718
)

$
77,985Cash Flows From Investing Activities:Net cash provided by (used in) investing activities


11,760







(41,899
)


16



(11,776
)


(41,899
)


38,859







(101,554
)


(17,932
)


(20,927
)


(101,554
)Cash Flows From Financing Activities:Net cash provided by (used in) financing activities


(26,730
)






(11,760
)


2,774



8,986



(26,730
)


(1,355
)






(38,859
)


18,809



20,050



(1,355
)Net increase (decrease) in cash and cash equivalents


8,817







2,182



14,228



(14,228
)


10,999



(8,623
)






(16,301
)


12,595



(12,595
)


(24,924
)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

$
29,234


$



$
45,449


$
44,440


$
(44,440
)

$
74,683


$
1,395


$



$
46,346


$
16,977


$
(16,977
)

$
47,741




---



##### 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
  one-for-one
  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

$31,748,000June 30, 2009

$0.5750

July 15, 2009

August 3, 2009

August 13, 2009

$31,871,000   Accounting
    for Equity-Based Compensation
    Restricted Common Units.
    WeightedNumber of


AverageRestricted


Grant-DateUnits


Fair ValueOutstanding at beginning of year


169,769


$
22.35Vested


(5,945
)


16.57Forfeited


(3,726
)


29.75Outstanding at end of period


160,098


$
22.39    18




---



##### 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


$
34.18Granted


212,700



15.09Vested


(38,424
)


38.67Forfeited


(19,821
)


24.12Outstanding at end of period


743,365


$
28.76     Unit Options.
    Number ofUnits


WeightedUnderlying


AverageOptions


Exercise PriceOutstanding at beginning of year


1,411,006


$
23.78Granted


29,000



14.72Exercised


(6,160
)


10.00Cancelled


(3,676
)


29.84Forfeited


(27,384
)


31.82Outstanding at end of period


1,402,786


$
23.48     Six MonthsEnded June 30,2009


2008Weighted average exercise price


$14.72



$35.17Expected volatility


29.8%-32.3
%


20.1%-20.7
%Distribution yield


6.7%-6.9
%


6.18%-6.24
%Risk-free interest rate


1.7%-3.3
%


2.7%-3.9
%Expected term (in years)


6.5



6.5Weighted average grant-date fair value of options granted


$2.04



$3.22Total intrinsic value of options exercised


$34,000



$613,000  19




---



##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 6 
    Members
    Capital and Distributions (Continued)    Unit Appreciation Rights.
    Number ofUnits


WeightedUnderlying


AverageUARs


Exercise PriceOutstanding at beginning of year





$
Granted


296,000



15.09Outstanding at end of period


296,000


$
15.09     Six Months EndedJune 30, 2009Weighted average exercise price


$15.09Expected volatility


31.68%-64.76
%Distribution yield


6.76%-8.47
%Risk-free interest rate


0.90%-2.35
%Expected term (in years)


1.8 - 5.8Weighted average grant-date fair value of appreciation rights
    granted


$3.04Total intrinsic value of appreciation rights exercised


$     Liability Awards. Accounting for Certain Financial Instruments
    With Characteristics of Both Liabilities and Equity
   20




---



##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 6 
    Members
    Capital and Distributions (Continued)    Note 7 
    Net
    Income Per Unit  Earnings Per Share
    Three Months Ended June 30,


Six Months Ended June 30,2009


2008


2009


2008Net income available  basic and diluted

$
6,038


$
23,202


$
11,943


$
37,704Basic weighted average units


54,356



47,672



54,185



47,524Dilutive weighted average
    units(1)(2)


57,946



58,010



57,933



57,967Basic net income per unit

$
0.11


$
0.49


$
0.22


$
0.79Diluted net income per
    unit(1)(2)

$
0.10


$
0.40


$
0.21


$
0.65     (1)
    
    Our potentially dilutive common equity includes the following:  Three Months


Six MonthsEnded June 30,


Ended June 30,2009


2008


2009


2008(In thousands)Employee options


97



492



86



512Unit appreciation rights














Restricted units


34



126



24



121Phantom units


17







67



Contingent incentive plan unit awards


61







61



Class C units


135



876



264



963Class D units


3,246



3,246



3,246



3,246Class E units






5,599







5,599  21




---



##### Table of Contents



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


Six MonthsEnded June 30,


Ended June 30,2009


2008


2009


2008(In thousands)Employee options


1,306



952



1,317



931Unit appreciation rights


296







296



Restricted units


126



98



136



103Phantom units


726



231



676



231   Note 8 
    Related
    Party Transactions  Operations
    Services
     22




---



##### 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


Six MonthsEnded June 30,


Ended June 30,2009


2008


2009


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

$
1


$
51


$
1


$
74Gathering and compression
    services(2)


5



7



10



14Natural gas
    purchases(3)


216



322



565



714Payable by us as of June 30,
    2009(4)










71Webb Duval:Natural gas
    sales(1)


226







595



Natural gas
    purchases(3)


19



555



233



1,103Transportation
    costs(5)


83



101



183



202Management
    fees(6)


55



54



110



107Reimbursable
    costs(6)


151



160



300



323Payable to us as of June 30,
    2009(7)










503Payable by us as of June 30,
    2009(4)










2Southern Dome:Management
    fees(6)


63



63



125



125Reimbursable
    costs(6)


81



91



155



186Payable to us as of June 30,
    2009(7)










363Bighorn:Gathering
    costs(5)


88



142



195



316Compressor rental
    fees(8)


165







165



Management
    fees(6)


135



68



271



137Reimbursable
    costs(6)


577



46



1,256



149Payable to us as of June 30,
    2009(7)










770Payable by us as of June 30,
    2009(4)










27Fort Union:Gathering
    costs(5)


2,031



2,230



4,040



4,106Treating
    costs(3)


152



298



336



351Management
    fees(6)


57



22



114



44Reimbursable
    costs(6)


157







167



Payable to us as of June 30,
    2009(7)










233Payable by us as of June 30,
    2009(4)










52Other:Natural gas
    sales(1)


58



118



97



177Payable to us as of June 30,
    2009(7)










346     (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. 23




---



##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 8 
    Related
    Party Transactions (Continued)   (3)
    
    Included in costs of natural gas
    and natural gas liquids on our consolidated statements of
    operations.(4)
    
    Included in accounts payable on the
    consolidated balance sheets.(5)
    
    Costs included in transportation on
    our consolidated statements of operations.(6)
    
    Management fees and reimbursable
    costs received from our unconsolidated affiliates comprise the
    total compensation paid to us by our unconsolidated affiliates
    and is included in general and administrative expense on our
    consolidated statements of operations.(7)
    
    Included in accounts receivable on
    the consolidated balance sheets.(8)
    
    Revenues included in condensate and
    other on our consolidated statements of operations.    Other
    Note 9 
    Commitments
    and Contingencies  Commitments
         24




---



##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 9 
    Commitments
    and Contingencies (Continued)    sub-contracted
  Regulatory
    Compliance
    Litigation
       25




---



##### 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  Six MonthsEnded June 30,2009


2008(In thousands)Cash payments for interest, net of $2,347,000 and $1,423,000
    capitalized in 2009 and 2008, respectively

$
26,275


$
20,503Cash payments for federal and state income taxes

$
790


$
     Note 11 
    Financial
    Instruments  Commodity
    Risk Hedging Program
     26




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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)      mark-to-market mark-to-market
    Purchased
    CenterPoint East Natural Gas Puts
  PutPut Strike


Put Volumes(Per MMBtu)


(MMBtu/d)2009

$
6.9500



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

$
7.7500


$
10.0000



8,000


$
10.0000



10,0002010

$
7.3500


$
10.0000



7,100


$
10.0000



10,0002011

$
6.9500


$
10.0000



7,100


$
10.0000



10,000   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  27




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


VolumesBought


Sold


(Bbls/d)2009

$
0.8300


$
0.5900



1,1002009

$
0.7900


$
0.5900



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)

$
1.0275



1,000
(2)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 423 Bbls/d that are not designated as a cash flow
    hedge under hedge accounting.(2)
    
    Includes 750 Bbls/d that were unwound in July 2009.  Purchased
    Mt. Belvieu TET Propane Put Spread Options
  Put SpreadStrike(Per gallon)


VolumesBought


Sold


(Bbls/d)2009

$
1.3300


$
0.8725



1,6002009

$
1.3300


$
0.8725



6002009

$
1.3300


$
0.9650



1002010

$
1.4900


$
0.8500



1,1002010

$
1.4900


$
0.9460



700   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







  28




---



##### 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 Put Spread Options
  Put SpreadStrike(Per gallon)


VolumesBought


Sold


(Bbls/d)2009

$
1.6200


$
1.0600



1752009

$
1.5700


$
1.0600



2752009

$
1.6200


$
1.1600



1002010

$
1.8900


$
1.1145



1002010

$
1.8900


$
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
(3)

$
1.2275



400
(4)2009









$
(1.7025
)


(320
)(5)2010

$
1.0300



300







2010

$
1.1000



200


$
1.1850



2002011

$
1.0205



300







2011

$
1.0850



200


$
1.1700



2002011

$
1.7100



350







     (3)
    
    Includes 145 Bbls/d that were unwound in July 2009.(4)
    
    Includes 395 Bbls/d that are not designated as a cash flow
    hedge under hedge accounting.(5)
    
    Instrument is not designated as a cash flow hedge under hedge
    accounting.  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  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)  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   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
   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)  mark-to-market mark-to-market
  SFAS No. 157
    Fair Value Measurement (FASB ASC 820) and
    SFAS No. 161 Disclosures about Derivative Instruments
    and Hedging Activities (FASB ASC 815)
    
    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.   31




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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)    Fair Value Measurements on Hedging
    Instruments(a)June 30, 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)

$



$



$
44,265


$
44,265


$



$



$
76,440


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










5



5















Long-term 
    Designated(c)










36,936



36,936











81,192



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










202



202











1,700



1,700Total

$



$



$
81,408


$
81,408


$



$



$
159,332


$
159,332LiabilitiesCommodity derivatives:Short-term 
    Designated(d)

$



$



$
1,345


$
1,345


$



$



$



$
Short-term  Not
    designated(d)










1,172


$
1,172











2,308



2,308Long-term 
    Designated(e)










6,851



6,851











4,347



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






















302







302Short-term  Not
    designated(d)






5,257







5,257







3,662







3,662Long-term 
    Designated(e)






















854







854Long-term  Not
    designated(e)






3,716







3,716







6,288







6,288Total

$



$
8,973


$
9,368


$
18,341


$



$
11,106


$
6,655


$
17,761Total designated

$



$



$
73,005


$
73,005


$



$
(1,156
)

$
153,285


$
152,129Total not designated

$



$
(8,973
)

$
(965
)

$
(9,938
)

$



$
(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.   32




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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 EndedJune 30,


Six Months Ended June 30,2009


2008


2009


2008Asset (liability) balance, beginning of period

$
136,151


$
(35,204
)

$
152,677


$
(48,407
)Total gains (losses):Non-cash amortization of option premium


(9,291
)


(8,494
)


(18,479
)


(16,057
)Other amounts included in earnings


20,049



(8,999
)


45,332



(19,229
)Included in accumulated other comprehensive loss


(54,108
)


(24,648
)


(61,609
)


(25,348
)Purchases






16,640







42,590Settlements


(20,761
)


6,716



(45,881
)


12,462Transfers in and/or out of Level 3














Asset (liability) balance, end of period

$
72,040


$
(53,989
)

$
72,040


$
(53,989
)Change in unrealized losses included in earnings relating to
    instruments still held as of end of period

$
(414
)

$
(2,283
)

$
(357
)

$
(6,768
)     and/or
   33




---



##### 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
    (In thousands)
  Amount of Gain or(Loss) Recognizedin Income onDerivativeAmount of Gain or


Amount of Gain or


(Ineffective(Loss) Recognized


(Loss) Reclassified


Portion and AmountDerivatives in SFAS 133

in OCI on


from Accumulated


Excluded from(FASB ASC 815) Cash

Derivatives


OCI into Income


Effectiveness


Statement of OperationsFlow Hedging Relationships

(Effective Portion)


(Effective Portion)


Testing)


LocationThree Months Ended June 30, 2009Natural gas

$
(832
)

$
(933
)

$
68


Natural gas salesNatural gas liquids


(31,008
)


8 ,016



(22
)

Natural gas liquids salesCrude oil


(11,576
)


3,609



(345
)

Condensate and otherInterest rate swaps


250



119






Interest and other financing costsTotal

$
(43,166
)

$
10,811


$
(299
)Six Months Ended June 30, 2009Natural gas

$
(1,342
)

$
(1,699
)

$
68


Natural gas salesNatural gas liquids


(23,049
)


19,509



(37
)

Natural gas liquids salesCrude oil


(11,749
)


7,659



(222
)

Condensate and otherInterest rate swaps


(12
)


38






Interest and other financing costsTotal

$
(36,152
)

$
25,507


$
(191
)     The
    Effect of Derivative Instruments on the Statements of
    Operations
    (In thousands)
  Amount of Gain orDerivatives Not Designated as Hedging Instruments

(Loss) Recognized in


Statement of OperationsUnder Statement 133

Income on Derivative


LocationThree months ended June 30, 2009Natural gas liquids

$
(414
)

Natural gas liquids salesInterest rate


2,109


Interest and other financing costsTotal

$
1,695Six months ended June 30, 2009Natural gas liquids

$
(357
)

Natural gas liquids salesInterest rate


2,184


Interest and other financing costsTotal

$
1,827   34




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##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 12 
    Fair
    Value of Financial Instruments    June 30, 2009Carrying


EstimatedValue


Fair Value(In thousands)Cash and cash equivalents

$
74,683


$
74,683Credit Facility


270,000



258,9332016 Notes


332,665



314,3682018 Notes


249,525



225,820   Note 13 
    Segment
    Information    
    Oklahoma, which includes 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
    and our equity investment in Southern Dome.
    Texas, which includes 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. 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.     35




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##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 13 
    Segment
    Information (Continued)    Rocky


Total


CorporateOklahoma


Texas


Mountains


Segments


and Other


ConsolidatedThree Months Ended June 30, 2009:Total segment gross margin

$
18,626


$
23,320


$
711


$
42,657


$
10,757


$
53,414Operations and maintenance expenses


5,746



7,280



2



13,028







13,028Depreciation and amortization


8,355



4,419



721



13,495



340



13,835General and administrative expenses


2,093



2,285



602



4,980



4,341



9,321Taxes other than income


352



375







727







727Equity in (earnings) loss from unconsolidated affiliates


(570
)


4



(1,533
)


(2,099
)






(2,099
)Operating income (loss)

$
2,650


$
8,957


$
919


$
12,526


$
6,076


$
18,602Sales to external customers

$
104,697


$
80,673


$
6,786


$
192,156


$
10,757


$
202,913Intersegment sales


(366
)


366















Interest and other financing costs


















12,001



12,001Net income (loss)


2,651



8,965



919



12,535



(6,497
)


6,038Three Months Ended June 30, 2008:Total segment gross margin

$
47,852


$
40,499


$
1,218


$
89,569


$
(17,494
)

$
72,075Operations and maintenance expenses


6,100



7,017



(52
)


13,065







13,065Depreciation and amortization


7,911



3,783



670



12,364



403



12,767General and administrative expenses


1,986



2,084



843



4,913



6,023



10,936Taxes other than income


399



330







729







729Equity in earnings from unconsolidated affiliates


(1,023
)


(555
)


(3,210
)


(4,788
)






(4,788
)Operating income (loss)

$
32,479


$
27,840


$
2,967


$
63,286


$
(23,920
)

$
39,366Sales to external customers

$
269,163


$
237,113


$
12,496


$
518,772


$
(17,494
)

$
501,278Intersegment sales


(527
)


527















Interest and other financing costs


















16,077



16,077Net income (loss)


32,598



27,964



2,990



63,552



(40,350
)


23,202   36




---



##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 13 
    Segment
    Information (Continued)  Rocky


Total


CorporateOklahoma


Texas


Mountains


Segments


and Other


ConsolidatedSix Months Ended June 30, 2009:Total segment gross margin

$
33,697


$
43,900


$
1,510


$
79,107


$
26,853


$
105,960Operations and maintenance expenses


11,512



14,334



4



25,850







25,850Depreciation and amortization


16,169



8,766



1,392



26,327



673



27,000General and administrative expenses


4,064



4,536



1,351



9,951



10,095



20,046Taxes other than income


756



755



2



1,513







1,513Equity in (earnings) loss from unconsolidated affiliates


(787
)


28



(2,824
)


(3,583
)






(3,583
)Operating income (loss)

$
1,983


$
15,481


$
1,585


$
19,049


$
16,085


$
35,134Sales to external customers

$
200,305


$
177,031


$
15,140


$
392,476


$
26,853


$
419,329Intersegment sales


(656
)


656















Interest and other financing costs


















26,449



26,449Net income (loss)


2,018



15,500



1,585



19,103



(7,160
)


11,943Segment assets


722,712



394,851



706,955



1,824,518



89,721



1,914,239Six Months Ended June 30, 2008:Total segment gross margin

$
84,422


$
82,075


$
2,181


$
168,678


$
(35,286
)

$
133,392Operations and maintenance expenses


12,026



12,869







24,895







24,895Depreciation and amortization


15,020



7,348



1,340



23,708



629



24,337General and administrative expenses


3,680



3,984



1,562



9,226



13,560



22,786Taxes other than income


814



656







1,470







1,470Equity in earnings from unconsolidated affiliates


(2,124
)


(846
)


(2,214
)


(5,184
)






(5,184
)Operating income (loss)

$
55,006


$
58,064


$
1,493


$
114,563


$
(49,475
)

$
65,088Sales to external customers

$
486,128


$
428,471


$
23,714


$
938,313


$
(35,287
)

$
903,026Intersegment sales


(1,045
)


1,045















Interest and other financing costs


















27,469



27,469Net income (loss)


55,338



58,355



1,556



115,249



(77,545
)


37,704  37




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##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations.      /d:

Per dayBcf:

One billion cubic feetBtu:

One British thermal unitLean gas

Natural gas that is low in NGL contentMMBtu:

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 processedRich gas

Natural gas that is high in NGL contentThroughput:

The volume of natural gas or NGLs 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
    and our equity investment in Southern Dome.
    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, our Texas segment
    includes our Saint Jo cryogenic processing plant in Montague
    County, Texas, and owns a processing plant located in southwest
    Louisiana. This segment also includes our equity investment in
    Webb Duval.
    Our Rocky Mountains segment provides midstream natural gas
    services in the Powder River Basin of Wyoming, including
    gathering and treating of natural gas. This segment also
    includes our equity investments in Bighorn and Fort Union.    Trends
    and Uncertainties
   38




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##### Table of Contents



Commodity
    Prices and Producer Activity
        Pricing Trends in Texas. month-to-date
  Texas
    Average Prices for Natural Gas and
    NGLs(1)
  
 39




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##### Table of Contents



(1)
    
    NGLs prices for August are
    month-to-date
    through August 6, 2009. Average NGLs prices are calculated
    based on our weighted-average product production mix at Mt.
    Belvieu for the period indicated. Average NGLs prices for July
    and August are based on our second-quarter weighted-average
    production mix.  Quarterly Data for:Q1 2008


Q2 2008


Q3 2008


Q4 2008



Q1 2009


Q2 2009Houston Ship Channel ($/MMBtu)

$
7.73


$
10.58


$
9.98


$
6.37



$
4.21


$
3.44Mt. Belvieu ($/barrel)

$
58.89


$
69.22


$
68.65


$
32.50



$
25.90


$
30.19Texas Service Throughput (MMBtu/d)


696,658



700,545



666,686



679,142




644,752



630,674Texas Plant Inlet (MMBtu/d)


601,736



629,334



596,225



600,719




558,115



559,597Texas Segment Gross Margin (in thousands)

$
41,576


$
40,499


$
41,392


$
19,256



$
20,580


$
23,320   Oklahoma Prices. month-to-date
  Oklahoma
    Average Prices for Natural Gas and
    NGLs(1)
  
   (1)
    
    NGLs prices for August are
    month-to-date
    through August 6, 2009. Average NGLs prices are calculated
    based on our weighted-average product production mix at Conway
    for the period indicated. Average NGLs prices for July and
    August are based on our second-quarter weighted-average
    production mix.  Quarterly Data for OklahomaQ1 2008


Q2 2008


Q3 2008


Q4 2008



Q1 2009


Q2 2009CenterPoint East ($/MMBtu)

$
7.20


$
9.26


$
8.41


$
3.58



$
3.37


$
2.70Conway ($/barrel)

$
56.33


$
62.27


$
59.42


$
27.36



$
24.13


$
25.57Oklahoma Service Throughput (MMBtu/d)


222,006



228,941



243,000



261,107




271,222



267,576Oklahoma Plant Inlet (MMBtu/d)


150,060



155,430



158,047



160,074




160,181



166,846Oklahoma Segment Gross Margin (in thousands)

$
36,570


$
47,852


$
33,536


$
18,420



$
15,071


$
18,626     Trends in Drilling and Production Activity.
 40




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##### Table of Contents



Other Industry Trends.
  Credit and Capital Market Disruptions.
    Factors
    Affecting Operating Results and Financial Condition
     41




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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.
   42




---



##### Table of Contents



mark-to-market
      Operations and Maintenance Expenses.
  General and Administrative Expenses.
  EBITDA and Adjusted EBITDA.
 43




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##### 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. mark-to-market
     44




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##### Table of Contents



Non-GAAP Financial Measures.
  Three Months EndedJune 30,


Six Months Ended June 30,2009


2008


2009


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

$
18,602


$
39,366


$
35,134


$
65,088Add: Operations and maintenance expenses


13,028



13,065



25,850



24,895Depreciation and amortization


13,835



12,767



27,000



24,337General and administrative expenses


9,321



10,936



20,046



22,786Taxes other than income


727



729



1,513



1,470Equity in earnings from unconsolidated affiliates


(2,099
)


(4,788
)


(3,583
)


(5,184
)Total segment gross margin

$
53,414


$
72,075


$
105,960


$
133,392Reconciliation of EBITDA and adjusted EBITDA to net income:Net income

$
6,038


$
23,202


$
11,943


$
37,704Add: Depreciation and amortization


13,835



12,767



27,000



24,337Interest and other financing costs


12,001



16,077



26,449



27,469Provision for income taxes


571



365



735



649EBITDA


32,445



52,411



66,127



90,159Add: Amortization of difference between the carried investment
    and the underlying equity in net assets of equity investments


4,785



4,602



9,603



9,201Copanos share of depreciation and amortization included in
    equity in earnings from unconsolidated affiliates


1,776



1,319



3,333



2,588Copanos share of interest and other financing costs
    incurred by our equity method investments


(30
)


(944
)


478



1,226Adjusted EBITDA

$
38,976


$
57,388


$
79,541


$
103,174Reconciliation of EBITDA and adjusted EBITDA to cash flows from
    operating activities:Cash flow provided by operating activities

$
44,230


$
58,807


$
79,628


$
77,985Add: Cash paid for interest and other financing costs


11,106



15,226



24,284



25,850Equity in earnings from unconsolidated affiliates


2,099



4,788



3,583



5,184Distributions from unconsolidated affiliates


(6,068
)


(7,442
)


(11,439
)


(11,718
)Risk management activities


(9,291
)


8,145



(18,479
)


26,320Decrease in working capital and other


(9,631
)


(27,113
)


(11,450
)


(33,462
)EBITDA


32,445



52,411



66,127



90,159Add: Amortization of difference between the carried investment
    and the underlying equity in net assets of equity investments


4,785



4,602



9,603



9,201Copanos share of depreciation and amortization included in
    equity in earnings from unconsolidated affiliates


1,776



1,319



3,333



2,588Copanos share of interest and other financing costs
    incurred by our equity method investments


(30
)


(944
)


478



1,226Adjusted EBITDA

$
38,976


$
57,388


$
79,541


$
103,174 45




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##### Table of Contents



Three Months EndedJune 30,


Six Months Ended June 30,2009


2008


2009


2008(In thousands)Reconciliation of net income to total distributable cash flow:Net income

$
6,038


$
23,202


$
11,943


$
37,704Add: Depreciation and amortization


13,835



12,767



27,000



24,337Amortization of commodity derivative options


9,291



8,495



18,479



16,057Amortization of debt issue costs


895



851



2,165



1,619Equity-based compensation


2,296



1,023



4,255



1,992Distributions from unconsolidated affiliates


7,296



7,543



14,227



12,595Unrealized losses associated with line fill contributions and
    gas
    imbalances(1)


361



(2,681
)


527



(2,607
)Unrealized losses on derivatives


(1,396
)


5,528



(1,636
)


10,001Deferred taxes and other


325



106



672



167Less: Equity in earnings from unconsolidated affiliates


(2,099
)


(4,788
)


(3,583
)


(5,184
)Maintenance capital expenditures


(3,895
)


(3,094
)


(6,046
)


(6,153
)Total distributable cash
    flow(1)

$
32,947


$
48,952


$
68,003


$
90,528     (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
    Economic Models and Standardized Processing
    Margin.
  processing margin
  
    NGLs we extract in processing; and
    the thermal equivalent of natural gas attributable to those NGLs
    plus the natural gas consumed as fuel in extracting those NGLs.    Flow and Transaction Monitoring Systems.
 46




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##### Table of Contents



Producer Activity Evaluation and Reporting.
  Imbalance Monitoring and Control. month-to-month
  Our
    Long-Term Growth Strategy
  per-unit
   47




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##### Table of Contents



Forward-Looking
    Statements
    
    our ability to successfully integrate any acquired asset 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;
    our ability to access NGL fractionation capacity,
    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;
    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
 48




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##### Table of Contents



Our
    Results of Operations
  Three Months Ended June 30,


Six Months Ended June 30,2009


2008


2009


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

$
53,414


$
72,075


$
105,960


$
133,392Operations and maintenance expenses


13,028



13,065



25,850



24,895Depreciation and amortization


13,835



12,767



27,000



24,337General and administrative expenses


9,321



10,936



20,046



22,786Taxes other than income


727



729



1,513



1,470Equity in earnings from unconsolidated affiliates


(2,099
)


(4,788
)


(3,583
)


(5,184
)Operating income


18,602



39,366



35,134



65,088Gain on retirement of unsecured debt










3,939



Interest and other financing costs, net


(11,993
)


(15,799
)


(26,395
)


(26,735
)Provision for income taxes


(571
)


(365
)


(735
)


(649
)Net income

$
6,038


$
23,202


$
11,943


$
37,704Segment gross margin:Oklahoma

$
18,626


$
47,852


$
33,697


$
84,422Texas


23,320



40,499



43,900



82,075Rocky Mountains


711



1,218



1,510



2,181Segment gross margin


42,657



89,569



79,107



168,678Corporate and
    other(2)


10,757



(17,494
)


26,853



(35,286
)Total segment gross
    margin(1)

$
53,414


$
72,075


$
105,960


$
133,392Segment gross margin per unit:Oklahoma:Service throughput
    ($/MMBtu)(3)

$
0.76


$
2.30


$
0.69


$
2.06Texas:Service throughput
    ($/MMBtu)(4)

$
0.41


$
0.64


$
0.38


$
0.65Rocky Mountains:Producer services throughput
    ($/MMBtu)(5)

$
0.04


$
0.06


$
0.05


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


267,576



228,941



269,389



225,474Plant inlet volumes (MMBtu/d)


166,846



155,430



163,532



153,020NGLs produced (Bbls/d)


15,981



15,465



15,647



15,004Crude oil service volumes (Bbls/d)


4,314



5,074



4,360



4,854Texas:(4)(7)Service throughput (MMBtu/d)


630,674



700,545



637,565



697,844Pipeline throughput (MMBtu/d)


290,005



313,523



296,932



320,761Plant inlet volumes (MMBtu/d)


559,597



629,334



558,900



617,034NGLs produced (Bbls/d)


18,425



17,721



17,667



17,902Rocky Mountains:Producer services throughput
    (MMBtu/d)(5)


166,022



229,513



173,661



228,117Capital Expenditures:Maintenance capital expenditures

$
3,895


$
3,094


$
6,046


$
6,153Expansion capital expenditures


14,301



52,044



24,836



82,665Total capital expenditures

$
18,196


$
55,138


$
30,882


$
88,818Operations and maintenance expenses:Oklahoma

$
5,746


$
6,100


$
11,512


$
12,026Texas


7,280



7,017



14,334



12,869Rocky Mountains


2



(52
)


4



Total operations and maintenance expenses

$
13,028


$
13,065


$
25,850


$
24,895     (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. 49




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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
    June 30, 2009, plant inlet volumes for Southern Dome
    averaged 15,412 MMBtu/d and NGLs produced averaged
    578 Bbls/d. For the three months ended June 30, 2008,
    plant inlet volumes for Southern Dome averaged
    9,116 MMBtu/d and NGLs produced averaged 325 Bbls/d.
    For the six months ended June 30, 2009, plant inlet volumes
    for Southern Dome averaged 13,023 MMBtu/d and NGLs produced
    averaged 473 Bbls/d. For the six months ended June 30,
    2008, plant inlet volumes for Southern Dome averaged
    9,970 MMBtu/d and NGLs produced averaged 386 Bbls/d.(4)
    
    Excludes results and volumes
    associated with our interest in Webb Duval. Volumes transported
    by Webb Duval, net of intercompany volumes, were
    84,452 MMBtu/d and 94,022 MMBtu/d for the three months
    ended June 30, 2009 and 2008, respectively. Volumes
    transported by Webb Duval, net of intercompany volumes, were
    86,584 MMBtu/d and 87,580 MMBtu/d for the six months
    ended June 30, 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 185,622 MMBtu/d and
    217,373 MMBtu/d for the three months ended June 30,
    2009 and 2008, respectively. Volumes transported by
    Fort Union were 795,072 MMBtu/d and
    727,688 MMBtu/d for the three months ended June 30,
    2009 and 2008, respectively. Volumes transported by Bighorn were
    193,654 MMBtu/d and 217,699 MMBtu/d for the six months
    ended June 30, 2009 and 2008, respectively. Volumes
    transported by Fort Union were 799,621 MMBtu/d and
    701,498 MMBtu/d for the six months ended June 30, 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
    June 30, 2009, plant inlet volumes averaged
    128,390 MMBtu/d and NGLs produced averaged
    12,956 Bbls/d for plants owned by the Oklahoma segment. For
    the three months ended June 30, 2008, plant inlet volumes
    averaged 114,720 MMBtu/d and NGLs produced averaged
    11,986 Bbls/d for plants owned by the Oklahoma segment. For
    the six months ended June 30, 2009, plant inlet volumes
    averaged 125,661 MMBtu/d and NGLs produced averaged
    12,747 Bbls/d for plants owned by the Oklahoma segment. For
    the six months ended June 30, 2008, plant inlet volumes
    averaged 106,995 MMBtu/d and NGLs produced averaged
    10,990 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 539,946 MMBtu/d and NGLs produced averaged
    16,759 barrels per day for the three months ended
    June 30, 2009 for plants owned by the Texas segment. Plant
    inlet volumes averaged 607,339 MMBtu/d and NGLs produced
    averaged 15,961 barrels per day for the three months ended
    June 30, 2008 for plants owned by the Texas segment. Plant
    inlet volumes averaged 537,528 MMBtu/d and NGLs produced
    averaged 15,920 barrels per day for the six months ended
    June 30, 2009 for plants owned by the Texas segment. Plant
    inlet volumes averaged 594,195 MMBtu/d and NGLs produced
    averaged 16,168 barrels per day for the six months ended
    June 30, 2008 for plants owned by the Texas segment.  Three
    Months Ended June 30, 2009 Compared with Three Months Ended
    June 30, 2008
    
    a decrease in total segment gross margin of $18.7 million
    consisting of a $46.9 million decrease in operating segment
    gross margins primarily reflecting average NGL price declines of
    59% in the Conway index and 56% in the Mt. Belvieu index and
    lower overall service throughput volumes, offset by an increase
    of $28.2 million from our commodity risk management
    activities;
    a decrease of $2.7 million in equity in earnings of our
    unconsolidated affiliates; and
    an increase in depreciation and amortization expenses of
    $1.0 million primarily related to our expansion of
    operations in north Texas;    
    a decrease of $4.1 million in interest expense as a result
    of (i) a decrease of non-cash mark-to-market charges on our
    interest rate swaps of $5.4 million offset by (ii) an
    increase in interest expense of $1.3 million due to
    increased average outstanding borrowings and slightly offset by
    lower average interest rates between the periods; and
    a decrease in general and administrative expenses of
    $1.6 million primarily related to our successful cost
    reduction efforts, including reduced employee compensation
    expense and third-party service provider fees.  Oklahoma Segment Gross Margin.
 50




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##### Table of Contents



Texas Segment Gross Margin.
  Rocky Mountains Segment Gross Margin.
  Corporate and Other. mark-to-market
  Operations and Maintenance
    Expenses.
  Depreciation and Amortization.
  General and Administrative Expenses.
  Interest and Other Financing Costs.
 51




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##### Table of Contents



Six
    Months Ended June 30, 2009 Compared with Six Months Ended
    June 30, 2008
    
    a decrease in total segment gross margin of $27.4 million
    consisting of an $89.6 million decrease in operating
    segment gross margins, primarily reflecting average NGL price
    declines of 58% in the Conway index and 59% in the Mt. Belvieu
    index and lower overall service throughput volumes, offset by an
    increase of $62.2 million from our commodity risk
    management activities;
    an increase in operations, maintenance, depreciation and
    amortization expenses of $3.6 million primarily related to
    our expansion of operations in north Texas; and
    a decrease of $1.6 million in equity in earnings of our
    unconsolidated affiliates;    
    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;
    a decrease in general and administrative expenses of
    $2.7 million primarily related to our successful cost
    reduction efforts, including reduced employee compensation
    expense and third-party service provider fees; and
    a decrease of $1.0 million in interest expense as a result
    of (i) a decrease of non-cash mark-to-market charges on our
    interest rate swaps of $5.4 million offset by (ii) an
    increase in interest expense of $4.4 million due to
    increased average outstanding borrowings and slightly offset by
    lower average interest rates between the periods.  Oklahoma Segment Gross Margin.
  Texas Segment Gross Margin.
 52




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##### Table of Contents



Rocky Mountains Segment Gross Margin.
  Corporate and Other. mark-to-market
  Operations and Maintenance
    Expenses.
  Depreciation and Amortization.
  General and Administrative Expenses.
  Interest and Other Financing Costs.
 53




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##### Table of Contents



Gain on Unsecured Debt Retirement.
  Cash
    Flows
    Six Months EndedJune 30,2009


2008(In thousands)Net cash provided by operating activities

$
79,628


$
77,895Net cash used in investing activities


(41,899
)


(101,554
)Net cash used in financing activities


(26,730
)


(1,355
)     Operating Cash Flows.
  
    risk management activities provided an additional
    $44.8 million of cash flow for the six months ended
    June 30, 2009 as compared to the same period in 2008,
    primarily because we did not purchase commodity derivative
    instruments during the six months ended June 30, 2009,
    whereas in the six months ended June 30, 2008, we used
    $42.6 million to purchase commodity derivative instruments;    
    operating income (adjusted for the timing of related cash
    receipts and disbursements) was $37.1 million lower for the
    six months ended June 30, 2009 compared with the same
    period in 2008;
    interest payments for the six months ended June 30, 2009
    were $5.7 million higher compared to the same period in
    2008; and
    cash distributions received from our unconsolidated affiliates
    (Bighorn, Fort Union, Webb Duval and Southern Dome) were
    $0.3 million lower for the six months ended June 30,
    2009 compared with the same period in 2008.  Investing Cash Flows.
  Financing Cash Flows.
 54




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##### Table of Contents



Liquidity
    and Capital Resources
  Sources of Liquidity.
  Effects of Recent Economic Changes;
    Outlook.
      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. 55




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##### Table of Contents



Cash Distributions.
  One Quarter


Four QuartersCommon
    units(1)

$
31,871


$
127,483     (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 August 3, 2009, we had 128,405 outstanding restricted
    units and 742,390 outstanding phantom units.  Our
    Indebtedness
    Credit Ratings.
  Revolving Credit Facility. cease-and-desist
   56




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##### Table of Contents



Senior Notes.
      Off-Balance
    Sheet Arrangements
    Recent
    Accounting Pronouncements
    Critical
    Accounting Policies
  Impairment of Long-Lived Assets. Accounting for the
    Impairment or Disposal 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.   57




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##### Table of Contents



Form 10-K
  Item 3.
    Quantitative
    and Qualitative Disclosures about Market Risk.      Commodity
    Price Risk
    Oklahoma. percentage-of-proceeds agreed-upon percentage-of-index
  Texas. fee-for-service percentage-of-index
    Rocky Mountains.
 58




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##### Table of Contents



Other Commodity Price Risks.
        Sensitivity.
  Risk
    Management Oversight
         59




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##### Table of Contents



Commodity
    Price Hedging Activities
  Permitted Derivative Instruments.
  
    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),fixed-for-floating swaps, or
    floating-for-floating
    swaps (basis 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.  Limitations.
  
    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 below under Exception to Volume
    Limitations, 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
    exceed 80% of the projected requirements or output, as
    applicable, for the hedged period . We are required to divest
    outstanding hedge positions only to the extent net notional
    hedged volumes with 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 (other
    than basis 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.
    We may not enter into a basis swap if, as a result of the
    proposed transaction, net notional hedged volumes with respect
    to the underlying hedged basis would exceed 80% of the projected
    requirements or output, as applicable, for the hedged period. We
    are required to divest outstanding basis swaps only to the
    extent net notional hedged volumes with respect to an underlying
    hedged basis exceed 100% of the projected requirements or
    output, as applicable, for the hedged period.    Exception to Volume Limitations. out-of-the-money out-of-the-money. in-the-money,
  Approved Markets. over-the-counter
 60




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##### Table of Contents



Oklahoma Segment.
  Texas Segment.
  Rocky Mountains Segment.
  Our Commodity Hedge Portfolio.
  Interest Rates.
      Counterparty Risk.
 61




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##### Table of Contents



Form 10-K
  Item 4.
    Controls
    and Procedures.     62




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##### Table of Contents



PART II-OTHER
    INFORMATION Item 1.
    Legal
    Proceedings.    Item 1A.
    Risk
    Factors.  Form 10-K
  Our
    cash flow and profitability depend upon prices and market demand
    for natural gas and NGLs, which are beyond our control and have
    been volatile.
      
    the impact of weather on the demand for oil and natural gas;
    the level of domestic oil and natural gas production;
    storage levels for oil, natural gas, LNG and NGLs;
    the availability of imported oil, natural gas, LNG and NGLs;
    international demand for LNG, oil and NGLs;
    actions taken by foreign oil and gas producing nations;
    the availability of local, intrastate and interstate
    transportation systems for natural gas and NGLs;
    the availability of downstream NGL fractionation facilities;
    the availability and marketing of competitive fuels;
    the impact of energy conservation efforts; and
    the extent of governmental regulation and taxation.   63




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##### Table of Contents



We
    rely on third-party pipelines and other facilities in providing
    service to our customers. If one or more of these pipelines or
    facilities were to become unavailable, our cash flows, results
    of operations and financial condition could be adversely
    affected.
  Laredo-to-Katy Laredo-to-Katy
        The
    adoption of climate change legislation by Congress could result
    in increased operating costs and reduced demand for the natural
    gas and NGL services we provide.
  cap-and-trade
 64




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##### Table of Contents



The
    adoption of derivatives legislation by Congress could have an
    adverse impact on our ability to hedge risks associated with our
    business.
    Item 4.
    Submission
    of Matters to a Vote of Security Holders      For


WithheldJohn R. Eckel, Jr.


49,462,959



199,793James G. Crump


49,457,962



204,790Ernie L. Danner


49,234,722



428,030Scott A. Griffiths


49,468,696



194,056Michael L. Johnson


49,469,491



193,261T. William Porter


49,437,301



255,451William L. Thacker


49,465,047



197,705    65




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##### Table of Contents



For






28,983,749Against






1,918,231Broker Non-Votes






18,576,814Abstentions






208,358     For






49,280,481Against






236,058Abstentions






170,609       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). 66




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##### Table of Contents



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

Form of Unit Appreciation Right Award Agreement (incorporated by
    reference to Exhibit 99.1 to Current Report on
    Form 8-K
    filed May 18, 2009).10
.2

Amendment to Amended and Restated Copano Energy, L.L.C.
    Long-Term Incentive Plan (incorporated by reference to
    Exhibit 99.2 to Current Report on
    Form 8-K
    filed May 18, 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. 67




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SIGNATURES
      By:
    /s/  John
    R. Eckel, Jr.     By:
    /s/  Matthew
    J. Assiff    68