##### 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
    September 30, 2007oro

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(State or Other Jurisdiction
    of
    Incorporation or Organization)

51-0411678(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
  Rule 12b-2
  o þ o
  Rule 12b-2 o þ




---



##### 



TABLE OF
    CONTENTS
  PagePART I  FINANCIAL INFORMATIONItem 1.


Financial Statements.


3Unaudited Consolidated Balance Sheets as of
    September 30, 2007 and December 31, 2006


3Unaudited Consolidated Statements of Operations
    for the Three and Nine Months Ended September 30, 2007 and
    2006


4Unaudited Consolidated Statements of Cash Flows
    for the Nine Months Ended September 30, 2007 and 2006


5Unaudited Consolidated Statement of Members
    Capital and Comprehensive Income (Loss) for the Nine Months
    Ended September 30, 2007


6Notes to Unaudited Consolidated Financial
    Statements


7Item 2.


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


30Item 3.


Quantitative and Qualitative Disclosures About
    Market Risk


45Item 4.


Controls and Procedures


51PART II  OTHER
    INFORMATIONItem 1.


Legal Proceedings


51Item 1A.


Risk Factors


51Item 6.


Exhibits


55First Amendment to Administrative and Operating Services AgreementCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906   2




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##### Table of Contents



Item 1.
    Financial
    Statements.  COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  CONSOLIDATED
    BALANCE SHEETS
  September 30,


December 31,2007


2006(Unaudited)(In thousands, except unit information)ASSETSCurrent assets:Cash and cash equivalents

$
47,846


$
39,484Accounts receivable, net


90,486



67,095Risk management assets


5,734



13,973Prepayments and other current assets


4,121



3,166Total current assets


148,187



123,718Property, plant and equipment, net


665,052



566,927Intangible assets, net


138,699



93,372Investment in unconsolidated affiliates


17,982



19,378Risk management assets


16,043



23,826Other assets, net


13,975



11,837Total assets

$
999,938


$
839,058LIABILITIES AND MEMBERS CAPITALCurrent liabilities:Accounts payable

$
117,908


$
91,668Notes payable






1,495Risk management liabilities


12,498



944Other current liabilities


14,347



11,615Total current liabilities


144,753



105,722Long-term debt


359,000



255,000Deferred tax provision


898



Risk management and other noncurrent liabilities


18,260



5,750Commitments and contingencies (Note 9)Members capital:Common units, no par value, 42,357,653 units and
    35,190,590 units issued and outstanding as of
    September 30, 2007 and December 31, 2006, respectively


491,978



480,797Class C units, no par value, 1,579,409 units issued
    and outstanding as of September 30, 2007


54,000



Subordinated units, no par value, 7,038,252 units issued
    and outstanding as of December 31, 2006






10,379Paid-in capital


19,934



10,585Accumulated (deficit) earnings


(9,053
)


2,918Accumulated other comprehensive loss


(79,832
)


(32,093
)477,027



472,586Total liabilities and members capital

$
999,938


$
839,058    3




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##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Three Months Ended


Nine Months EndedSeptember 30,


September 30,2007


2006


2007


2006(Unaudited)(In thousands, except unit information)Revenue:Natural gas sales

$
124,091


$
114,624


$
375,420


$
346,430Natural gas liquids sales


132,835



106,534



336,748



277,536Transportation, compression and processing fees


3,880



3,919



12,320



11,174Condensate and other


32,270



6,234



61,298



19,758Total revenue


293,076



231,311



785,786



654,898Costs and expenses:Cost of natural gas and natural gas liquids


235,952



174,525



641,799



512,003Transportation


1,239



814



3,342



2,241Operations and maintenance


10,525



8,519



28,700



23,527Depreciation and amortization


10,130



8,182



28,426



23,657General and administrative


8,615



8,108



23,831



19,919Taxes other than income


1,010



622



2,566



1,610Equity in (earnings) loss from unconsolidated affiliates


(401
)


(549
)


(2,019
)


(644
)Total costs and expenses


267,070



200,221



726,645



582,313Operating income


26,006



31,090



59,141



72,585Interest and other income


706



718



2,032



1,310Interest and other financing costs


(6,943
)


(9,525
)


(18,314
)


(25,312
)Income before income taxes


19,769



22,283



42,859



48,583Provision for income taxes


(102
)






(1,182
)


Net income

$
19,667


$
22,283


$
41,677


$
48,583Basic net income per common unit:Net income per common unit

$
0.46


$
0.61


$
1.00


$
1.33Weighted average number of common units


42,330



29,393



41,154



29,357Diluted net income per common unit:Net income per common unit

$
0.44


$
0.60


$
0.96


$
1.32Weighted average number of common units


44,233



36,863



43,606



36,767Basic net income per subordinated unit:Net income per subordinated unit

$



$
0.61


$
0.49


$
1.33Weighted average number of subordinated units






7,038



1,134



7,038Diluted net income per subordinated unit:Net income per subordinated unit

$



$
0.61


$
0.49


$
1.33Weighted average number of subordinated units






7,038



1,134



7,038    4




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##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Nine Months Ended September 30,2007


2006(Unaudited)(In thousands)Cash Flows From Operating Activities:Net income

$
41,677


$
48,583Adjustments to reconcile net income to net cash provided by
    operating activities:Depreciation and amortization


28,426



23,657Amortization of debt issue costs


921



3,524Equity in earnings from unconsolidated affiliates


(2,019
)


(644
)Distributions from unconsolidated affiliates


2,888



Equity-based compensation


2,180



1,315Deferred tax provision


898



Other noncash items


(98
)


94Changes in assets and liabilities, net of acquisitions:Accounts receivable


(12,135
)


19,765Prepayments and other current assets


(562
)


1,661Risk management activities


(19,137
)


6,914Accounts payable


13,200



(7,447
)Other current liabilities


12,099



(795
)Net cash provided by operating activities


68,338



96,627Cash Flows From Investing Activities:Additions to property, plant and equipment


(57,247
)


(30,148
)Additions to intangible assets


(2,604
)


(308
)Acquisitions, net of cash acquired


(55,471
)


(9,074
)Investment in unconsolidated affiliate






(11,053
)Distributions from unconsolidated affiliate


375



Other


(990
)


(504
)Net cash used in investing activities


(115,937
)


(51,087
)Cash Flows From Financing Activities:Repayments of long-term debt






(376,500
)Proceeds from long-term debt


104,000



353,500Repayments of short-term notes payable


(1,494
)


(1,477
)Deferred financing costs


(608
)


(7,013
)Distributions to unitholders


(53,441
)


(33,277
)Proceeds from private placement of common units






25,000Capital contributions from Pre-IPO Investors


7,169



4,006Proceeds from option exercises


850



199Equity offering costs


(515
)


(640
)Net cash provided by (used in) financing activities


55,961



(36,202
)Net increase in cash and cash equivalents


8,362



9,338Cash and cash equivalents, beginning of year


39,484



25,297Cash and cash equivalents, end of period

$
47,846


$
34,635    5




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##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENT OF MEMBERS CAPITAL AND COMPREHENSIVE INCOME
    (LOSS)
  AccumulatedOther





TotalCommon


Class C


Subordinated





Accumulated


Comprehensive





ComprehensiveNumber of


Common


Number of


Class C


Number of


Subordinated


Paid-in


Earnings


Income





IncomeUnits


Units


Units


Units


Units


Units


Capital


(Deficit)


(Loss)


Total


(Loss)(Unaudited)(In thousands)Balance, December 31, 2006


35,191


$
480,797






$




7,038


$
10,379


$
10,585


$
2,918


$
(32,093
)

$
472,586


$
Capital contributions from Pre-IPO Investors


























7,169











7,169



Conversion of subordinated units into common units


7,038



10,379











(7,038
)


(10,379
)


















Private placement of units










1,579



54,000























54,000



Offering costs






(48
)






























(48
)


Distributions to unitholders






























(53,648
)






(53,648
)


Option exercises


61



850































850



Equity-based compensation


























2,180











2,180



Vested restricted units


68







































Net income






























41,677







41,677



41,677Derivative settlements reclassified to income


































5,905



5,905



5,905Unrealized loss-change in fair value of derivatives


































(53,644
)


(53,644
)


(53,644
)Comprehensive loss









































$
(6,062
)Balance, September 30, 2007


42,358


$
491,978



1,579


$
54,000






$



$
19,934


$
(9,053
)

$
(79,832
)

$
477,027    6




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##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
  Note 1 
    Organization
    and Basis of Presentation  Organization
  Unless
    the context requires otherwise, references to
    Copano, we, our,
    us or like terms refer to Copano Energy, L.L.C. and
    its subsidiaries
    Basis
    of Presentation and Principles of Consolidation
      Accounting for Income Taxes,
 7




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##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Form 10-K
  Note 2 
    New
    Accounting Pronouncements  Fair
    Value Measurements
  Fair
    Value Measurements. Accounting for Derivative
    Instruments and Hedging Activities,
  Fair
    Value Option for Financial Assets and Financial
    Liabilities
  The Fair Value Option for Financial Assets and
    Financial Liabilities,
  Accounting
    for Uncertainty in Income Taxes  an Interpretation of
    FASB Statement No. 109
  Accounting for Uncertainty in
    Income Taxes  an Interpretation of FASB Statement
    No. 109.
 8




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##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 3 
    Intangible
    Assets  2007  2008  2009  2010  2011  2012 
  September 30,


December 31,2007


2006Rights-of-way and easements, at cost

$
103,695


$
60,931Less accumulated amortization for rights-of-way and easements


(7,717
)


(6,520
)Contracts


48,522



42,444Less accumulated amortization for contracts


(6,300
)


(4,009
)Customer relationship


725



725Less accumulated amortization for customer relationship


(226
)


(199
)Intangible assets, net

$
138,699


$
93,372     Note 4 
    Acquisitions  Acquisition
    of Cimmarron Gathering, L.P.
        Purchase price for the Cimmarron Acquisition

$
110,000Net working capital adjustments


753Acquisition costs


1,237Total purchase price for the Cimmarron Acquisition

$
111,990    9




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##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Cash and cash equivalents

$
3,257Accounts receivable


11,027Prepayments and other current assets


393Property, plant and equipment


63,379Intangibles


47,560Other assets


476Investment in unconsolidated affiliates


77Accounts payable


(14,179
)$
111,990    10




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##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Three Months EndedSeptember 30,


Nine Months Ended September 30,2007


2006


2007


2006(In thousands, except per unit information)Pro Forma Earnings Data:Revenue

$
293,076


$
259,128


$
823,398


$
726,702Costs and expenses

$
267,070


$
228,293


$
764,142


$
655,061Operating income

$
26,006


$
30,835


$
59,256


$
71,641Income before extraordinary items

$
19,667


$
22,119


$
40,530


$
45,916Net income

$
19,667


$
22,119


$
40,530


$
45,916Basic net income per common unit:As reported units outstanding


42,330



29,393



41,154



29,357Pro forma units outstanding


42,725



29,788



41,285



29,488As reported net income per unit

$
0.46


$
0.61


$
1.00


$
1.33Pro forma net income per unit

$
0.46


$
0.60


$
0.97


$
1.26Diluted net income per common unit:As reported units outstanding


44,233



36,863



43,606



36,767Pro forma units outstanding


44,233



30,958



42,482



30,854As reported net income per unit

$
0.44


$
0.60


$
0.96


$
1.32Pro forma net income per unit

$
0.44


$
0.58


$
0.93


$
1.21Basic net income per subordinated unit:As reported units outstanding






7,038



1,134



7,038Pro forma units outstanding






7,038



1,134



7,038As reported net income per unit

$



$
0.61


$
0.49


$
1.33Pro forma net income per unit

$



$
0.60


$
0.31


$
1.26Diluted net income per subordinated unit:As reported units outstanding






7,038



1,134



7,038Pro forma units outstanding






7,038



1,134



7,038As reported net income per unit

$



$
0.61


$
0.49


$
1.33Pro forma net income per unit

$



$
0.60


$
0.31


$
1.25  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    September 30,


December 31,2007


2006Long-term debt:Credit Facility

$
134,000


$
30,000Senior Notes


225,000



225,000Total

$
359,000


$
255,000   Credit
    Facility
          Senior
    Notes
   12




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##### Table of Contents



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




---



##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONDENSED CONSOLIDATING BALANCE SHEETS
  September 30, 2007


December 31, 2006Investment 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

$
1,375


$



$
46,471


$



$



$
47,846


$
1,286


$



$
38,198


$



$



$
39,484Accounts receivable, net


26







90,460











90,486



32







120,057







(52,994
)


67,095Intercompany receivable


48,719







(24,876
)






(23,843
)






24,908







(71,028
)






46,120



Risk management assets










5,734











5,734











13,973











13,973Prepayments and other current assets


1,162







2,959











4,121



44







3,122











3,166Total current assets


51,282







120,748







(23,843
)


148,187



26,270







104,322







(6,874
)


123,718Property, plant and equipment, net


275







664,777











665,052



299







566,628











566,927Intangible assets, net










138,699











138,699











93,372











93,372Investment in unconsolidated affiliates










17,982



17,982



(17,982
)


17,982











19,378



19,378



(19,378
)


19,378Investment in consolidated subsidiaries


780,512















(780,512
)






674,105















(674,105
)


Risk management assets










16,043











16,043











23,826











23,826Other assets, net


8,389







5,586











13,975



8,577







3,260











11,837Total assets

$
840,458


$



$
963,835


$
17,982


$
(822,337
)

$
999,938


$
709,251


$



$
810,786


$
19,378


$
(700,357
)

$
839,058LIABILITIES AND MEMBERS/PARTNERS CAPITALCurrent liabilities:Accounts payable

$
66


$



$
117,842


$



$



$
117,908


$
434


$



$
130,919


$



$
(39,685
)

$
91,668Intercompany payable


96







23,747







(23,843
)






(26,291
)






(6,520
)






32,811



Notes payable


































1,495











1,495Risk management liabilities










12,498











12,498











944











944Other current liabilities


2,759







11,588











14,347



6,811







4,804











11,615Total current liabilities


2,921







165,675







(23,843
)


144,753



(19,046
)






131,642







(6,874
)


105,722Long-term debt


359,000



















359,000



255,000



















255,000Deferred tax provision


898



















898























Risk management and other noncurrent liabilities


612







17,648











18,260



711







5,039











5,750Members/Partners capital:Common units


491,978



















491,978



480,797



















480,797Class C units


54,000



















54,000























Subordinated units


























10,379



















10,379Paid-in capital


19,934



1



772,335



14,463



(786,799
)


19,934



10,585



1



524,940



17,445



(542,386
)


10,585Accumulated (deficit) earnings


(9,053
)


(1
)


88,009



3,519



(91,527
)


(9,053
)


2,918



(1
)


181,258



1,933



(183,190
)


2,918Accumulated other comprehensive loss


(79,832
)






(79,832
)






79,832



(79,832
)


(32,093
)






(32,093
)






32,093



(32,093
)477,027







780,512



17,982



(798,494
)


477,027



472,586







674,105



19,378



(693,483
)


472,586Total liabilities and members/partners capital

$
840,458


$



$
963,835


$
17,982


$
(822,337
)

$
999,938


$
709,251


$



$
810,786


$
19,378


$
(700,357
)

$
839,058  14




---



##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONDENSED
    CONSOLIDATING STATEMENTS OF OPERATIONS
  Three Months Ended September 30,2007


2006Investment 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

$



$



$
124,091


$



$



$
124,091


$



$



$
114,624


$



$



$
114,624Natural gas liquids sales










132,835











132,835











106,534











106,534Transportation, compression and processing fees










3,880











3,880











3,919











3,919Condensate and other










32,270











32,270











6,234











6,234Total revenue










293,076











293,076











231,311











231,311Costs and expenses:Cost of natural gas and natural gas liquids










235,952











235,952











174,525











174,525Transportation










1,239











1,239











814











814Operations and maintenance


456







10,069











10,525











8,519











8,519Depreciation and amortization


11







10,119











10,130



16







8,166











8,182General and administrative


2,448







6,167











8,615



562







7,546











8,108Taxes other than income










1,010











1,010











622











622Equity in (earnings) loss from unconsolidated affiliates










(401
)


(401
)


401



(401
)










(549
)


(549
)


549



(549
)Total costs and expenses


2,915







264,155



(401
)


401



267,070



578







199,643



(549
)


549



200,221Operating (loss) income


(2,915
)






28,921



401



(401
)


26,006



(578
)






31,668



549



(549
)


31,090Interest and other income


28







678











706











718











718Interest and other financing costs


(7,011
)






68











(6,943
)


(9,597
)






72











(9,525
)(Loss) income before income taxes and equity in earnings from
    consolidated subsidiaries


(9,898
)






29,667



401



(401
)


19,769



(10,175
)






32,458



549



(549
)


22,283Provision for income taxes


(102
)


















(102
)






















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


(10,000
)






29,667



401



(401
)


19,667



(10,175
)






32,458



549



(549
)


22,283Equity in earnings (loss) from consolidated subsidiaries


29,667















(29,667
)






32,458















(32,458
)


Net income (loss)

$
19,667


$



$
29,667


$
401


$
(30,068
)

$
19,667


$
22,283


$



$
32,458


$
549


$
(33,007
)

$
22,283  15




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##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
  Nine Months Ended September 30,2007


2006Investment 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

$



$



$
375,419


$



$



$
375,419


$



$



$
346,430


$



$



$
346,430Natural gas liquids sales










336,748











336,748











277,536











277,536Transportation, compression and processing fees










12,320











12,320











11,174











11,174Condensate and other










61,298











61,298











19,758











19,758Total revenue










785,785











785,785











654,898











654,898Costs and expenses:Cost of natural gas and natural gas liquids










641,798











641,798











512,003











512,003Transportation










3,342











3,342











2,241











2,241Operations and maintenance


1,264







27,436











28,700











23,527











23,527Depreciation and amortization


23







28,403











28,426



49







23,608











23,657General and administrative


7,576







16,255











23,831



1,399







18,520











19,919Taxes other than income










2,566











2,566











1,610











1,610Equity in earnings from unconsolidated affiliates










(2,019
)


(2,019
)


2,019



(2,019
)










(644
)


(644
)


644



(644
)Total costs and expenses


8,863







717,781



(2,019
)


2,019



726,644



1,448







580,865



(644
)


644



582,313Operating (loss) income


(8,863
)






68,004



2,019



(2,019
)


59,141



(1,448
)






74,033



644



(644
)


72,585Interest and other income


201







1,831











2,032











1,310











1,310Interest and other financing costs


(18,399
)






85











(18,314
)


(25,384
)






72











(25,312
)(Loss) income before income taxes and equity in earnings from
    consolidated subsidiaries


(27,061
)






69,920



2,019



(2,019
)


42,859



(26,832
)






75,415



644



(644
)


48,583Provision for income taxes


(1,182
)


















(1,182
)






















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


(28,243
)






69,920



2,019



(2,019
)


41,677



(26,832
)






75,415



644



(644
)


48,583Equity in earnings (loss) from consolidated subsidiaries


69,920















(69,920
)






75,415















(75,415
)


Net income (loss)

$
41,677


$



$
69,920


$
2,019


$
(71,939
)

$
41,677


$
48,583


$



$
75,415


$
644


$
(76,059
)

$
48,583  16




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##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
  Nine Months Ended September 30,2007


2006Investment 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 (used in) provided by operating activities

$
(27,099
)

$



$
95,437


$
2,888


$
(2,888
)

$
68,338


$
(16,179
)

$



$
112,806


$



$



$
96,627Cash Flows From Investing Activities:Net cash (used in) provided by investing activities


(30,266
)






(115,896
)


375



29,850



(115,937
)


50,374







(51,086
)


(11,053
)


(39,322
)


(51,087
)Cash Flows From Financing Activities:Net cash provided by (used in) financing activities


57,454







28,732







(30,225
)


55,961



(34,725
)






(51,852
)


11,053



39,322



(36,202
)Net increase (decrease) in cash and cash equivalents


89







8,273



3,263



(3,263
)


8,362



(530
)






9,868











9,338Cash and cash equivalents, beginning of year


1,286







38,198











39,484



1,167



1



24,129











25,297Cash and cash equivalents, end of period

$
1,375


$



$
46,471


$
3,263


$
(3,263
)

$
47,846


$
637


$
1


$
33,997


$



$



$
34,635  17




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##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 6 
    Members
    Capital and Distributions  Common
    Units and Subordinated Units
            Class C
    Units
  six-month, 12-month, 18-month 24-month
 18




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##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Distributions
          Accounting
    for Equity-Based Compensation
  Share-Based
    Payment, Restricted Common Units Unit
    Options
  Restricted Common Units.
 19




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##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      WeightedNumber of


AverageRestricted


Grant-DateUnits


Fair ValueOutstanding at beginning of year


315,936


$
20.84Granted


5,500



37.17Vested


(68,362
)


19.83Forfeited


(4,038
)


21.07Outstanding at end of period


249,036


$
21.47     Phantom Units.
      WeightedNumber of


AveragePhantom


Grant-DateUnits


Fair ValueOutstanding at beginning of year





$
Granted


89,715



41.38Vested






Forfeited


(545
)


41.81Outstanding at end of period


89,170


$
41.38  20




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##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Unit Options.
      Nine Months Ended September 30,2007

2006Weighted average exercise price

$38.17

$23.13Expected volatility

20.57%-21.50%

21.45%-22.5%Distribution yield

6.00%-6.05%

5.97%-6.02%Risk-free interest rate

4.32%-5.11%

4.33%-5.14%Expected term (in years)

6.5

6.5Weighted average grant-date fair value of options granted

$4.55

$3.06Total intrinsic value of options exercised

$1,315,000

$162,000     Note 7 
    Net
    Income Per Unit  Earnings Per Share, No. 03-6 03-6), Participating Securities and the Two-Class Method
    under Financial Accounting Standards Board Statement
    No. 128. 03-6
 21




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##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Three Months Ended


Nine Months EndedSeptember 30,


September 30,2007


2006


2007


2006Net income available  basic

$
19,677


$
22,283


$
41,677


$
48,583Less net income attributable to subordinated unitholders






(4,305
)


(553
)


(9,395
)Net income  basic


19,677



17,978



41,124



39,188Net income attributable to subordinated unitholders






4,305



553



9,395Net income available  diluted(1)

$
19,677


$
22,283


$
41,677


$
48,583Basic weighted average units


42,330



29,393



41,154



29,357Dilutive weighted average units(1)


44,233



36,863



43,606



36,767Basic net income per unit

$
0.46


$
0.61


$
1.00


$
1.33Diluted net income per unit(1)

$
0.44


$
0.60


$
0.96


$
1.32     (1)
    
    Potentially dilutive (i) restricted and phantom units,
    (ii) employee unit options and (iii) Class C
    units totaled 166,110, 611,086 and 1,125,571, respectively,
    during the three months ended September 30, 2007.
    Potentially dilutive restricted units and employee unit options
    totaled 101,149 and 330,153, respectively, during the three
    months ended September 30, 2006. Potentially dilutive
    (i) restricted and phantom units, (ii) employee unit
    options and (iii) Class C units totaled 117,892,
    568,781 and 630,814, respectively, during the nine months ended
    September 30, 2007. Potentially dilutive restricted units
    and employee unit options totaled 103,934 and 268,135,
    respectively, during the nine months ended September 30,
    2006.  Note 8 
    Related
    Party Transactions  Operations
    Services
   22




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##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Natural
    Gas Transactions and Other
    Nine MonthsThree Months Ended September 30,


Ended September 30,2007


2006


2007


2006Affiliates of Mr. Eckel:Natural gas sales(1)

$



$
35


$
25


$
83Gathering and compression services(2)


7



8



24



26Natural gas purchases(3)


580



420



1,706



1,477Webb/Duval:Natural gas sales(1)














604Natural gas purchases(3)


390



1,329



505



1,278Transportation costs(4)


94



91



264



281Southern Dome:Natural gas liquid sales(5)


109







147



Condensate sales(6)


86







107



     (1)
    
    Revenues included in natural gas sales on our consolidated
    statements of operations.(2)
    
    Revenues included in transportation, compression and processing
    fees on our consolidated statements of operations.(3)
    
    Included in costs of natural gas and natural gas liquids on our
    consolidated statements of operations.(4)
    
    Costs included in transportation on our consolidated statements
    of operations.(5)
    
    Revenues included in natural gas liquid sales on our
    consolidated statements of operations.(6)
    
    Revenues included in condensate and other on our consolidated
    statements of operations.     23




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##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Note 9 
    Commitments and Contingencies
  Commitments
      Guarantees
  Guarantors Accounting and Disclosure
    Requirements for Guarantees, Including Indirect Guarantees of
    Indebtedness of Others,
 24




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##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Regulatory
    Compliance
    Litigation
      Note 10 
    Supplemental
    Disclosures to the Statements of Cash Flows  Nine MonthsEndedSeptember 30,2007


2006(In thousands)Cash payments for interest, net of $676,000 and $465,000
    capitalized in 2007 and 2006, respectively

$
21,478


$
24,535Cash payments for federal and state income taxes

$



$
     Note 11 
    Financial
    Instruments  Commodity
    Risk Hedging Program
   25




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##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Interest
    Rate Risk Hedging Program
          Note 12 
    Segment
    Information   26




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##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Mid-


Texas Gulf


Texas GulfContinent


Coast


CoastOperations


Pipelines


Processing


Corporate


Eliminations


TotalThree Months Ended September 30, 2007:Sales to external customers

$
163,814


$
55,245


$
80,014


$
(5,997
)(a)

$



$
293,076Intersegment sales






38,949



1,495







(40,444
)


Interest expense and other financing costs














6,943







6,943Depreciation and amortization


7,369



1,908



643



210







10,130Equity in earnings from unconsolidated affiliates


(248
)


(153
)














(401
)Net income (loss)


15,849



4,283



15,388



(15,853
)






19,667Three Months Ended September 30, 2006:Sales to external customers

$
112,746


$
56,708


$
62,191


$
(334
)(a)

$



$
231,311Intersegment sales






39,889



6,261







(46,150
)


Interest expense and other financing costs














9,525







9,525Depreciation and amortization


5,850



1,594



632



106







8,182Equity in earnings from unconsolidated affiliates


(56
)


(493
)














(549
)Net income (loss)


16,857



6,256



13,031



(13,861
)






22,283Nine Months Ended September 30, 2007:Sales to external customers

$
417,925


$
174,186


$
208,532


$
(14,857
)(a)

$



$
785,786Intersegment sales






121,218



5,017







(126,235
)


Interest expense and other financing costs














18,314







18,314Depreciation and amortization


19,944



5,736



2,146



600







28,426Equity in earnings from unconsolidated affiliates


(775
)


(1,244
)














(2,019
)Net income (loss)


40,930



11,035



32,361



(42,649
)






41,677Segment assets


741,866



161,154



113,880



6,881



(23,843
)


999,938Nine Months Ended September 30, 2006:Sales to external customers

$
310,896


$
178,637


$
165,040


$
325
(a)

$



$
654,898Intersegment sales






129,137



28,095







(157,232
)


Interest expense and other financing costs






1







25,311







25,312Depreciation and amortization


17,114



4,364



1,830



349







23,657Equity in loss (earnings) from unconsolidated affiliates


119



(763
)














(644
)Net income (loss)


38,961



14,048



28,593



(33,019
)






48,583     (a)
    
    Represents the results of our risk management activities. See
    Note 11. 27




---



##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 13 
    Subsequent
    Events  Closing
    of Cantera Acquisition
        Copano
    Class D Units
      Copano
    Class E Units and Common Units
   28




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##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Registration
    Rights
      Amended
    Credit Facility
    
    increased the aggregate borrowing capacity under the Credit
    Facility from $200 million to $550 million,
    extended the maturity date of the Credit Facility to
    October 18, 2012,
    reduced the commitment fee rates applicable at certain
    Consolidated Leverage Ratios (as defined in the Credit Facility)
    as set forth below:  Consolidated Leverage Ratio

Commitment Fee34.00:1
    but <4.50:1


0.30
%33.50:1
    but <4.00:1


0.25
%   
    revised the interest rate provisions to provide for applicable
    rates ranging from 1.25% to 2.50% for rates determined using
    LIBOR, and from 0.25% to 1.50% for rates determined using the
    Base Rate (as defined in the Credit Facility). The applicable
    rates are dependent on Consolidated Leverage Ratios ranging from
    3.00:1 to 5.00:1;
    revised covenants under the Credit Facility to accommodate
    Copanos obligations as managing member of each of Bighorn
    and Fort Union, and to accommodate previously existing
    obligations of each entity;
    provided for swing line borrowings in addition to committed
    borrowings, and provides for LIBOR-based determination of
    interest on swing line borrowings;
    revised the minimum consolidated interest coverage ratio to
    2.0:1; and
    increased the sublimit for the issuance of standby letters of
    credit to $50 million.    Interest
    Rate Swaps
   29




---



##### Table of Contents



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

Barrels per dayBtu:

British thermal unitsMMBtu:

One million British thermal unitsMMBtu/d:

One million British thermal units per dayMcf/d:

One thousand cubic feet per dayMMcf/d:

One million cubic feet per dayNGLs:

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

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

The volume of product transported or passing through a
    pipeline, plant, terminal or other facility   Overview
      
    Mid-Continent Operationsis a provider of natural gas
    midstream services in Oklahoma and in north Texas, including
    natural gas gathering and related compression and dehydration
    services, natural gas processing and crude oil gathering. Our
    Mid-Continent Operations includes the results from the Cimmarron
    Acquisition for the period from May 1, 2007 through
    September 30, 2007. For the three months ended
    September 30, 2007 and 2006, this segment generated
    approximately 56% and 50%, respectively, of our total segment
    gross margin. For the nine months ended September 30, 2007
    and 2006, this segment generated approximately 57% and 51%,
    respectively, of our total segment gross margin.
    Texas Gulf Coast Pipelinesowns networks of natural gas
    gathering and intrastate pipelines in the Texas Gulf Coast
    region and is engaged in the gathering and intrastate
    transmission of natural gas. Within this segment, we also
    provide certain related services including compression,
    dehydration and marketing of natural gas. For the three months
    ended September 30, 2007 and 2006, this segment generated
    approximately 20% and 20%, respectively, of our total segment
    gross margin. For the nine months ended September 30, 2007
    and 2006, this segment generated approximately 22% and 21%,
    respectively, of our total segment gross margin.
    Texas Gulf Coast Processingis engaged in natural gas
    processing, conditioning and treating and NGL fractionation and
    transportation through our Houston Central Processing Plant,
    Sheridan NGL Pipeline and, beginning in late 2007, our Brenham
    NGL Pipeline. Our natural gas processing plant is the second
    largest in the Texas Gulf Coast region and the third largest in
    Texas in terms of throughput capacity. Our plant is located
    approximately 100 miles southwest of Houston, Texas. For
    the three months ended September 30, 2007 and 2006, this
    segment generated approximately 35% and 30%, respectively, of
    our total segment 30




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##### Table of Contents



gross margin. For the nine months ended September 30, 2007
    and 2006, this segment generated approximately 31% and 28%,
    respectively, of our total segment gross margin.  
    Corporateengages in risk management and other corporate
    activities. For the three months ended September 30, 2007
    and 2006, this segment generated approximately (11)% and 0%,
    respectively, of our total segment gross margin. For the nine
    months ended September 30, 2007 and 2006, this segment
    generated approximately (10)% and 0%, respectively, of our total
    segment gross margin.        How We
    Evaluate Our Operations
    Throughput Volumes.
  Segment Gross Margin.
 31




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##### Table of Contents



Operations and Maintenance
    Expenses.
  General and Administrative Expenses.
    Year

General and Administrative Expense Limitations1

$
1.50 million per quarter2

$
1.65 million per quarter3

$
1.80 million per quarter    32




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##### Table of Contents



EBITDA.
  
    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.    Distributable Cash Flow. plus
 33




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##### Table of Contents



How We
    Manage Our Operations
    Our Economic Models.
  Flow and Transaction Monitoring Systems.
  Producer Activity Evaluation and Reporting.
  Imbalance Monitoring and Control.
  Our
    Long-Term Growth Strategy
   34




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##### Table of Contents



Acquisition Analysis.
  Capital Expenditure Analysis.
  Forward-Looking
    Statements
    
    our ability to successfully integrate any acquired assets or
    operations;
    the volatility of prices and market demand for natural gas and
    NGLs;
    our ability to continue to obtain new sources of natural gas
    supply;
    the ability of key producers to continue to drill and
    successfully complete and attach new natural gas supplies;
    our ability to retain our key customers; 35




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##### Table of Contents




    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 Form 10-Q
 36




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##### Table of Contents



Our
    Results of Operations
  Nine Months EndedThree Months Ended September 30,


September 30,2007


2006


2007


2006($ in thousands)Total segment gross margin(1)

$
55,885


$
55,972


$
140,645


$
140,654Operations and maintenance expenses


10,525



8,519



28,700



23,527Depreciation and amortization


10,130



8,182



28,426



23,657General and administrative expenses


8,615



8,108



23,831



19,919Taxes other than income


1,010



622



2,566



1,610Equity in (earnings) loss from unconsolidated affiliates


(401
)


(549
)


(2,019
)


(644
)Operating income


26,006



31,090



59,141



72,585Interest and other financing costs, net


(6,237
)


(8,807
)


(16,282
)


(24,002
)Provision for income taxes


(102
)






(1,182
)


Net income

$
19,667


$
22,283


$
41,677


$
48,583Segment gross margin:Mid-Continent Operations

$
31,230


$
27,869


$
80,518


$
72,036Texas Gulf Coast Pipelines(2)


11,215



11,503



30,699



29,387Texas Gulf Coast Processing


19,437



16,934



44,285



38,906Corporate(3)


(5,997
)


(334
)


(14,857
)


325Total segment gross margin(1)

$
55,885


$
55,972


$
140,645


$
140,654Segment gross margin per unit:Mid-Continent Operations:(4)Pipeline throughput ($/MMBtu)(4)

$
1.49


$
1.64


$
1.42


$
1.51Plant Inlet throughput ($/MMBtu)(4)

$
2.04


$
2.30


$
1.95


$
2.15NGLs produced ($/Bbl)(4)

$
21.14


$
23.82


$
20.41


$
22.99Texas Gulf Coast Pipelines ($/MMBtu)(2)

$
0.44


$
0.48


$
0.41


$
0.44Texas Gulf Coast Processing:Inlet throughput ($/MMBtu)(5)

$
0.41


$
0.35


$
0.29


$
0.28NGLs produced ($/Bbl)(5)

$
12.88


$
12.54


$
9.91


$
9.86Volumes:Mid-Continent Operations(4)Pipeline throughput (MMBtu/d)(4)


227,099



184,247



207,572



174,772Plant Inlet throughput (MMBtu/d)(4)


166,175



131,501



151,131



122,628NGLs produced (Bbls/d)(4)


16,058



12,717



14,452



11,475Texas Gulf Coast Pipelines  throughput (MMBtu/d)(2)


277,083



262,986



277,477



246,212Texas Gulf Coast Processing:Inlet throughput (MMBtu/d)


520,341



531,069



551,260



513,567NGLs produced (Bbls/d)


16,402



14,673



16,364



14,446Capital Expenditures:Maintenance capital expenditures

$
2,735


$
3,394


$
7,198


$
7,320Expansion capital expenditures


15,806



19,232



163,976



35,630Total capital expenditures

$
18,541


$
22,626


$
171,174


$
42,950Operations and maintenance expenses:Mid-Continent Operations

$
6,287


$
4,466


$
15,801


$
12,382Texas Gulf Coast Pipelines


2,086



1,634



6,503



5,163Texas Gulf Coast Processing


2,152



2,419



6,396



5,982Total operations and maintenance expenses

$
10,525


$
8,519


$
28,700


$
23,527     (1)
    
    Total segment gross margin is a non-GAAP financial measure. For
    a reconciliation of total segment gross margin to its most
    directly comparable GAAP measure, please read 
    Non-GAAP Financial Measures.(2)
    
    Excludes results and volumes associated with our interest in
    Webb Duval. Gross volumes transported by Webb Duval were
    86,881 MMBtu/d and 118,765 MMBtu/d, net of
    intercompany volumes, for the three months ended 37




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##### Table of Contents



September 30, 2007 and 2006, respectively. Gross volumes
    transported by Webb Duval were 99,212 MMBtu/d and
    116,429 MMBtu/d, net of intercompany volumes, for the nine
    months ended September 30, 2007 and 2006, respectively.(3)
    
    The Corporate segment gross margin includes results attributable
    to Copanos commodity risk management activities.(4)
    
    Segment gross margin per unit amounts for the Mid-Continent
    Operations are calculated as the segment gross margin divided by
    the pipeline throughput, inlet throughput or NGLs produced, as
    appropriate. Plant inlet throughput and NGLs produced represent
    total volumes processed and produced by the Mid-Continent
    Operations segment at all plants, including plants owned by the
    Mid-Continent Operations segment and plants owned by third
    parties. For the three months ended September 30, 2007,
    plant inlet throughput averaged 97,013 MMBtu/d and NGLs
    produced averaged 10,110 barrels per day for plants owned
    by the Mid-Continent Operations segment. For the three months
    ended September 30, 2006, plant inlet throughput averaged
    86,848 MMBtu/d and NGLs produced averaged
    8,672 barrels per day for plants owned by the Mid-Continent
    Operations segment. For the nine months ended September 30,
    2007, plant inlet throughput averaged 90,476 MMBtu/d and
    NGLs produced averaged 9,210 barrels per day for plants
    owned by the Mid-Continent Operations segment. For the nine
    months ended September 30, 2006, plant inlet throughput
    averaged 80,140 MMBtu/d and NGLs produced averaged
    7,746 barrels per day for plants owned by the Mid-Continent
    Operations segment.(5)
    
    Represents the total processing segment gross margin divided by
    the total inlet throughput or NGLs produced, as appropriate.  Three
    Months Ended September 30, 2007 Compared with Three Months
    Ended September 30, 2006
  Mid-Continent Operations Segment Gross
    Margin.
  Texas Gulf Coast Pipelines Segment Gross
    Margin.
  Texas Gulf Coast Processing Segment Gross
    Margin.
 38




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##### Table of Contents



Corporate Segment Gross Margin.
  Operations and Maintenance
    Expenses.
  Depreciation and Amortization.
  General and Administrative Expenses.
  Interest Expense.
  Nine
    Months Ended September 30, 2007 Compared with Nine Months
    Ended September 30, 2006
  Mid-Continent Operations Segment Gross
    Margin.
 39




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##### Table of Contents



Texas Gulf Coast Pipelines Segment Gross
    Margin.
  Texas Gulf Coast Processing Segment Gross
    Margin.
  Corporate Segment Gross Margin.
  Operations and Maintenance
    Expenses.
  Depreciation and Amortization.
  General and Administrative Expenses.
 40




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##### Table of Contents



Interest Expense.
  Liquidity
    and Capital Resources
    Off-Balance Sheet Arrangements.
  Capital Requirements.
  
    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 such as those to acquire
    additional assets to grow our business, to expand and upgrade
    gathering systems, transmission capacity, processing plants and
    to construct or acquire new pipelines or processing plants.     41




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##### Table of Contents



Operating
    Cash Flows.
  Nine Months EndedSeptember 30,2007


2006(In thousands)Net income

$
41,677


$
48,583Depreciation and amortization


29,347



27,181Equity in earnings from unconsolidated affiliates


(2,019
)


(644
)Distributions from unconsolidated affiliates


2,888



Equity-based compensation and other


2,980



1,409Cash (used in) provided by working capital


(6,535
)


20,098Net cash provided by operating activities

$
68,338


$
96,627       Investing Cash Flows. 11-mile 8-mile
 42




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##### Table of Contents



Financing Cash Flows.
  Cash Distributions and Reserves:
              Our
    Indebtedness
   43




---



##### Table of Contents



Credit Ratings.
  Senior Secured Revolving Credit Facility.
          Senior Notes.
    Recent
    Accounting Pronouncements
   44




---



##### Table of Contents



Critical
    Accounting Policies
  Form 10-K
  Non-GAAP Financial
    Measures
    Three Months


Nine MonthsEnded September 30,


Ended September 30,2007


2006


2007


2006Reconciliation of total segment gross margin to operating income:Operating income

$
26,006


$
31,090


$
59,141


$
72,585Add: Operations and maintenance expenses


10,525



8,519



28,700



23,527Depreciation and amortization


10,130



8,182



28,426



23,657General and administrative expenses


8,615



8,108



23,831



19,919Taxes other than income


1,010



622



2,566



1,610Equity in earnings from unconsolidated affiliates


(401
)


(549
)


(2,019
)


(644
)Total segment gross margin

$
55,885


$
55,972


$
140,645


$
140,654Reconciliation of EBITDA to net income:Net income

$
19,667


$
22,283


$
41,677


$
48,583Add: Depreciation and amortization


10,130



8,182



28,426



23,657Interest and other financing costs


6,943



9,525



18,314



25,312Provision for income taxes


102







1,182



EBITDA

$
36,842


$
39,990


$
89,599


$
97,552Reconciliation of EBITDA to cash flows from operating activities:Cash flow provided by operating activities

$
27,447


$
36,690


$
68,338


$
96,627Add: Cash paid for interest and other financing costs


6,636



7,389



17,393



21,788Equity in earnings from unconsolidated affiliates


401



549



2,019



644Distributions from unconsolidated affiliates


(777
)






(2,888
)


Risk management activities


143



(4,054
)


19,137



(6,914
)Increase in working capital and other


2,992



(584
)


(14,400
)


(14,593
)EBITDA

$
36,842


$
39,990


$
89,599


$
97,552   Item 3.
    Quantitative
    and Qualitative Disclosures about Market Risk.   45




---



##### Table of Contents



Commodity Price Risk.
  agreed-upon
    process condition processing spread processing margin. processing margin conditioning mode
   46




---



##### Table of Contents



Commodity Price Hedging Activities.
  
    purchase put options or put spreads (purchase of a
    put and a sale of a put at a lower strike price) on WTI crude
    oil;
    purchase put or call options, enter into collars (purchase of a
    put together with the sale of a call) or call or put
    spreads ((i) purchase of a call and a sale of a call at a
    higher strike price or (ii) purchase of a put and a sale of
    a put at a lower strike price)
    and/or sell
    fixed for floating swaps on natural gas at Henry Hub, HSC or
    other highly liquid points relevant to our operations or to the
    operations of an entity to be acquired by us;
    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 an entity to be
    acquired by us, 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 to the operations of an
    entity to be acquired by us.    
    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;
    Through December 31, 2008, notional volume must not exceed
    the projected requirements or output, as applicable, for the
    hedged period with respect to (i) the purchase of crude oil
    or NGL put options, (ii) the purchase of natural gas put or
    call options, (iii) the purchase of fractionation spread or
    processing margin spread put options or (iv) the entry into
    any crude oil, natural gas or NGL spread options permitted by
    the policy.
    After December 31, 2008, notional volume must not exceed
    80% of the projected requirements or output, as applicable, for
    the hedged period with respect to (i) the purchase of crude
    oil or NGLs put options, (ii) the purchase of natural gas
    put or call options, (iii) the purchase of fractionation
    spread or processing margin spread put options or (iv) the
    entry into any crude oil, natural gas or NGL spread
    options; and
    The aggregate volumetric exposure associated with swaps, collars
    and written calls relating to any product must not exceed 50% of
    the aggregate hedged position with respect to such product.       47




---



##### Table of Contents



Mid-Continent Operations Segment.
  Texas Gulf Coast Pipelines and Processing
    Segments.
    Purchased
    CenterPoint East Natural Gas Puts
  Put Strike


Put Volumes(Per MMBtu)


(MMBtu/d)


Fair Value2007

$
8.75



9,750


$
2,284,0002008

$
7.75



5,000


$
2,192,0002009

$
6.95



5,000


$
1,394,000   Purchased
    HSC Index Natural Gas Call Spreads
  Call Strike(Per MMBtu)


Call VolumesBought


Sold


(MMBtu/d)


Fair Value2007

$
8.00


$
10.00



11,400


$
122,0002008

$
8.15


$
10.00



9,400


$
1,495,0002009

$
7.75


$
10.00



8,000


$
1,941,0002010

$
7.35


$
10.00



7,100


$
1,995,0002011

$
6.95


$
10.00



7,100


$
2,180,000   Purchased
    Purity Ethane Puts and Entered into Swaps
  Put


SwapStrike


Volumes





Price


Volumes(Per Gallon)


(Bbls/d)


Fair Value


(Per Gallon)


(Bbls/d)


Fair Value2007

$
0.6365



599


$



$
0.6525



599


$
(514,000
)2007

$
0.6960



2,000


$
2,000


$
0.7300



2,000


$
(1,121,000
)2008

$
0.5700



607


$
5,000


$
0.5650



607


$
(2,304,000
)2008

$
0.6250



2,900


$
99,000


$
0.6525



1,300


$
(3,252,000
)2009

$
0.5900



2,200


$
155,000


$
0.6025



1,100


$
(3,010,000
)2010

$
0.5550



1,600


$
95,000


$
0.5700



500


$
(1,395,000
)2011

$
0.5300



1,700


$
99,000


$
0.5450



500


$
(1,407,000
)  48




---



##### Table of Contents



Purchased
    TET Propane Puts and Entered into Swaps
  Put


SwapStrike


Volumes





Price


Volumes(Per Gallon)


(Bbls/d)


Fair Value


(Per Gallon)


(Bbls/d)


Fair Value2007

$
0.8930



2,575


$



$
0.9375



726


$
(961,000
)2007

$
0.9000



1,100


$












2007

$
1.0950



500


$
8,000











2008

$
0.8360



2,594


$
83,000


$
0.8700



745


$
(3,775,000
)2008

$
0.8975



1,100


$
84,000











2008

$
1.0500



1,000


$
373,000











2009

$
0.8725



2,200


$
471,000











2009

$
0.9650



1,000


$
474,000


$
1.0275



1,000


$
(2,135,000
)2010

$
0.8500



1,100


$
288,000











2010

$
0.9460



700


$
387,000


$
0.9925



700


$
(1,537,000
)2011

$
0.8265



1,100


$
324,000











2011

$
0.9340



700


$
445,000


$
0.9750



700


$
(1,488,000
)   Purchased
    Non-TET Isobutane Puts and Entered into Swaps
  Put


SwapStrike


Volumes





Price


Volumes(Per Gallon)


(Bbls/d)


Fair Value


(Per Gallon)


(Bbls/d)


Fair Value2007

$
1.0675



620


$



$
1.1250



90


$
(148,000
)2007

$
1.0750



200


$












2008

$
0.9900



622


$
9,000


$
1.0450



92


$
(596,000
)2008

$
1.0900



250


$
13,000











2009

$
1.0600



450


$
75,000











2009

$
1.1600



100


$
38,000


$
1.2425



100


$
(283,000
)2010

$
1.0350



300


$
60,000











2010

$
1.1145



100


$
38,000


$
1.2025



100


$
(287,000
)2011

$
1.0205



300


$
75,000











2011

$
1.1100



100


$
47,000


$
1.1800



100


$
(281,000
)   Purchased
    Non-TET Normal Butane Puts and Entered into Swaps
  Put


SwapStrike


Volumes





Price


Volumes(Per Gallon)


(Bbls/d)


Fair Value


(Per Gallon)


(Bbls/d)


Fair Value2007

$
1.0650



803


$



$
1.1200



264


$
(380,000
)2007

$
1.0675



150


$












2007

$
1.2700



400


$
2,000











2008

$
0.9875



810


$
5,000


$
1.0400



271


$
(1,486,000
)2008

$
1.0800



300


$
10,000











2008

$
1.2150



400


$
78,000











2009

$
1.0525



700


$
65,000











2009

$
1.1400



400


$
98,000


$
1.2275



400


$
(825,000
)2010

$
1.0300



300


$
29,000











2010

$
1.1000



200


$
42,000


$
1.1850



200


$
(444,000
)2011

$
1.0205



300


$
36,000











2011

$
1.0850



200


$
46,000


$
1.1700



200


$
(424,000
)  49




---



##### Table of Contents



Purchased
    Non-TET Natural Gasoline Puts and Entered into Swaps
  Put


SwapStrike


Volumes





Price


Volumes(Per Gallon)


(Bbls/d)


Fair Value


(Per Gallon)


(Bbls/d)


Fair Value2007

$
1.5650



200


$
2,000


$
1.6600



400


$
(197,000
)2008

$
1.4850



300


$
93,000


$
1.5850



300


$
(527,000
)2009

$
1.4400



200


$
112,000


$
1.5400



200


$
(301,000
)2010

$
1.4080



300


$
168,000











2011

$
1.4100



300


$
201,000











   Purchased
    WTI Crude Oil Puts
  Put Strike


Put Volumes(Per Barrel)


(Bbls/d)


Fair Value2007

$
48.00



2,000


$
2007

$
55.00



250


$
2008

$
55.00



1,000


$
104,0002008

$
60.00



700


$
181,0002009

$
55.00



1,000


$
380,0002009

$
60.00



500


$
367,0002010

$
55.00



1,000


$
578,0002010

$
60.00



400


$
403,0002011

$
55.00



1,000


$
744,0002011

$
60.00



400


$
486,000   Interest Rates.
       50




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##### Table of Contents



Risk Management Oversight.
  Credit Risk.
  Item 4.
    Controls
    and Procedures.    PART II 
    OTHER INFORMATION
  Item 1.
    Legal
    Proceedings.    Item 1A.  Risk
    Factors
  Form 10-K Form 10-Q and/or Form 10-K Form 10-Q
  Federal,
    state or local regulatory measures could adversely affect our
    business.
  and/or
 51




---



##### Table of Contents



and/or
   52




---



##### Table of Contents



A
    change in the characterization of some of our assets by federal,
    state or local regulatory agencies could adversely affect our
    business.
    and/or
    Our
    profitability depends upon prices and market demand for natural
    gas and NGLs, which are beyond our control and have been
    volatile.
       53




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##### Table of Contents




    the impact of weather on the demand for oil and natural gas;
    the level of domestic oil and natural gas production;
    the availability of imported oil, natural gas, liquefied natural
    gas and NGLs;
    actions taken by foreign oil and gas producing nations;
    the availability of local, intrastate and interstate
    transportation systems;
    the availability and marketing of competitive fuels;
    the impact of energy conservation efforts; and
    the extent of governmental regulation and taxation.  We own interests in limited liability companies and a
    general partnership in which third parties also own interests,
    which may limit our ability to influence significant business
    decisions affecting these entities.    
    62.5% interest in Webb/Duval Gatherers; 54




---



##### Table of Contents




    majority interest in Southern Dome, L.L.C.;
    51% interest in Bighorn Gas Gathering, LLC; and
    37.04% interest in Fort Union Gas Gathering, LLC      Certain
    of our investors may sell units in the public market, which
    could reduce the market price of our outstanding common
    units.
  Form S-3
  
    1,579,409 common units issued or to be issued upon conversion of
    Class C units we issued to the sellers in the Cimmarron
    Acquisition;
    3,245,817 common units to be issued upon conversion of
    Class D units we issued to the sellers in the Cantera
    Acquisition; and
    10,132,160 common units attributable to equity issued to
    investors in our October 19, 2007 private placement,
    including 5,598,836 common units to be issued upon conversion of
    Class E units issued in the private placement.    Item 6.
    Exhibits.    Number

Description2
.1

2.2 Purchase Agreement dated as of August 31, 2007 among
    Copano Energy, L.L.C., Copano Energy/RockyMountains, 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).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). 55




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##### Table of Contents



Number

Description3
.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).4
.4

Registration Rights Agreement dated as of February 7, 2006,
    among Copano Energy, L.L.C., Copano Energy Finance Corporation,
    the Guarantors parties thereto and the Initial Purchasers named
    therein (incorporated by reference to Exhibit 4.4 to
    Current Report on
    Form 8-K
    filed February 8, 2006).4
.5

Registration Rights Agreement made and entered into as of
    August 1, 2005, by and among Copano Energy, L.L.C. and
    Kayne Anderson MLP Investment Company, RCH Energy MLP
    Fund LP, RCH Energy MLP Fund-A LP, Tortoise Energy
    Infrastructure Corporation, Tortoise Energy Capital Corporation,
    Goldman, Sachs & Co., Energy Income and Growth Fund,
    Fiduciary/Claymore MLP Opportunity Fund, Alerian Opportunity
    Partners LP, Alerian Capital Partners LP, Strome MLP Fund, L.P.,
    Strome Alpha, LP and Strome Family Foundation (incorporated by
    reference to Exhibit 10.28 to Quarterly Report on
    Form 10-Q
    filed August 15, 2005).4
.6

Registration Rights Agreement dated as of December 29,
    2005, by and among Copano Energy, L.L.C. and ZLP Fund, L.P.,
    Structured Finance Americas, LLC and Royal Bank of Canada
    (incorporated by reference to Exhibit 4.8 to Annual Report
    on
    Form 10-K
    filed March 16, 2006).4
.7

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
.8

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
.9

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).10
.1*

First Amendment to Administrative and Operating Services
    Agreement31
.1*

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

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

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

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




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##### Table of Contents



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




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##### Table of Contents



EXHIBITS
    INDEX
     Number

Description2
.1

2.2 Purchase Agreement dated as of August 31, 2007 among
    Copano Energy, L.L.C., Copano Energy/RockyMountains, 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).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).4
.4

Registration Rights Agreement dated as of February 7, 2006,
    among Copano Energy, L.L.C., Copano Energy Finance Corporation,
    the Guarantors parties thereto and the Initial Purchasers named
    therein (incorporated by reference to Exhibit 4.4 to
    Current Report on
    Form 8-K
    filed February 8, 2006).4
.5

Registration Rights Agreement made and entered into as of
    August 1, 2005, by and among Copano Energy, L.L.C. and
    Kayne Anderson MLP Investment Company, RCH Energy MLP
    Fund LP, RCH Energy MLP Fund-A LP, Tortoise Energy
    Infrastructure Corporation, Tortoise Energy Capital Corporation,
    Goldman, Sachs & Co., Energy Income and Growth Fund,
    Fiduciary/Claymore MLP Opportunity Fund, Alerian Opportunity
    Partners LP, Alerian Capital Partners LP, Strome MLP Fund, L.P.,
    Strome Alpha, LP and Strome Family Foundation (incorporated by
    reference to Exhibit 10.28 to Quarterly Report on
    Form 10-Q
    filed August 15, 2005).4
.6

Registration Rights Agreement dated as of December 29,
    2005, by and among Copano Energy, L.L.C. and ZLP Fund, L.P.,
    Structured Finance Americas, LLC and Royal Bank of Canada
    (incorporated by reference to Exhibit 4.8 to Annual Report
    on
    Form 10-K
    filed March 16, 2006).4
.7

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
.8

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). 58




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##### Table of Contents



Number

Description4
.9

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).10
.1*

First Amendment to Administrative and Operating Services
    Agreement31
.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. 59