##### 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, 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

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
  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 June 30, 2007 and
    December 31, 2006


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


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


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


6Notes to Unaudited
    Consolidated Financial Statements


7Item 2.

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


27Item 3.

Quantitative and
    Qualitative Disclosures About Market Risk


42Item 4.

Controls and
    Procedures


47PART II 
    OTHER INFORMATIONItem 1.

Legal
    Proceedings


48Item 1A.

Risk
    Factors


48Item 4.

Submission of
    Matters to a Vote of Security Holders


48Item 6.

Exhibits


48List of SubsidiariesSection 302 Certification of John R. Eckel, Jr.Section 302 Certification of Matthew J. AssiffSection 906 Certification of John R. Eckel, Jr.Section 906 Certification of Matthew J. Assiff   2




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##### Table of Contents



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


December 31,2007


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

$
45,886


$
39,484Accounts receivable, net


94,233



67,095Risk management assets


9,823



13,973Prepayments and other current
    assets


2,244



3,166Total current assets


152,186



123,718Property, plant and equipment, net


658,406



566,927Intangible assets, net


137,688



93,372Investment in unconsolidated
    affiliates


18,428



19,378Risk management assets


23,878



23,826Other assets, net


12,664



11,837Total assets

$
1,003,250


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

$
128,387


$
91,668Notes payable


378



1,495Risk management liabilities


5,772



944Other current liabilities


15,570



11,615Total current liabilities


150,107



105,722Long-term debt


349,000



255,000Deferred tax provision


917



Risk management and other
    noncurrent liabilities


16,774



5,750Commitments and contingencies
    (Note 9)Members capital:Common units, no par value,
    42,287,541 units and 35,190,590 units issued and
    outstanding as of June 30, 2007 and December 31, 2006,
    respectively


491,714



480,797Class C units, no par value,
    1,579,409 units and 0 units issued and outstanding as
    of June 30, 2007 and December 31, 2006, respectively


54,000



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






10,379Paid-in capital


16,966



10,585Accumulated (deficit) earnings


(9,978
)


2,918Accumulated other comprehensive
    loss


(66,250
)


(32,093
)486,452



472,586Total liabilities and
    members capital

$
1,003,250


$
839,058    3




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##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
 CONSOLIDATED
    STATEMENTS OF OPERATIONS  Six Months EndedThree Months Ended June 30,


June 30,2007


2006


2007


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

$
140,052


$
103,826


$
251,329


$
231,806Natural gas liquids sales


116,025



95,676



203,912



171,002Transportation, compression and
    processing fees


4,192



3,435



8,440



7,255Condensate and other


21,451



6,690



29,027



13,524Total revenue


281,720



209,627



492,708



423,587Costs and expenses:Cost of natural gas and natural
    gas liquids


234,070



160,766



405,846



337,478Transportation


1,218



658



2,104



1,427Operations and maintenance


9,675



7,824



18,173



15,008Depreciation and amortization


9,825



7,850



18,295



15,475General and administrative


7,700



5,736



15,216



11,811Taxes other than income


1,029



544



1,556



988Equity in (earnings) loss from
    unconsolidated affiliates


(754
)


101



(1,618
)


(95
)Total costs and expenses


262,763



183,479



459,572



382,092Operating income


18,957



26,148



33,136



41,495Interest and other income


705



343



1,325



592Interest and other financing costs


(6,179
)


(7,604
)


(11,372
)


(15,787
)Income before income taxes


13,483



18,887



23,089



26,300Provision for income taxes


(175
)






(1,079
)


Net income

$
13,308


$
18,887


$
22,010


$
26,300Basic net income per common unit:Net income per common unit

$
0.31


$
0.52


$
0.53


$
0.72Weighted average number of common
    units


42,748



29,361



40,556



29,338Diluted net income per common unit:Net income per common unit

$
0.31


$
0.51


$
0.52


$
0.72Weighted average number of common
    units


43,475



29,729



41,199



29,669Basic net income per subordinated
    unit:Net income per subordinated unit

$



$
0.52


$
0.26


$
0.72Weighted average number of
    subordinated units






7,038



1,711



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

$



$
0.52


$
0.26


$
0.72Weighted average number of
    subordinated units






7,038



1,711



7,038    4




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##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
 CONSOLIDATED
    STATEMENTS OF CASH FLOWS  Six Months EndedJune 30,2007


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

$
22,010


$
26,300Adjustments to reconcile net
    income to net cash provided by operating activities:Depreciation and amortization


18,295



15,475Amortization of debt issue costs


615



1,388Equity in earnings from
    unconsolidated affiliates


(1,618
)


(95
)Distributions from unconsolidated
    affiliates


2,111



Equity-based compensation


1,327



736Deferred tax provision


917



Other noncash items


(20
)


83Changes in assets and liabilities,
    net of acquisitions:Accounts receivable


(16,019
)


22,131Prepayments and other current
    assets


1,315



748Risk management activities


(18,994
)


2,860Accounts payable


24,115



(16,800
)Other current liabilities


6,837



7,111Net cash provided by operating
    activities


40,891



59,937Cash Flows From Investing
    Activities:Additions to property, plant and
    equipment


(40,627
)


(17,602
)Additions to intangible assets


(1,763
)


(184
)Acquisitions


(55,327
)


(712
)Investment in unconsolidated
    affiliate






(10,553
)Distributions from unconsolidated
    affiliate


381



Other


103



(437
)Net cash used in investing
    activities


(97,233
)


(29,488
)Cash Flows From Financing
    Activities:Repayments of long-term debt






(268,000
)Proceeds from long-term debt


94,000



245,000Repayments of short-term notes
    payable


(1,116
)


(756
)Deferred financing costs


(608
)


(6,296
)Distributions to unitholders


(34,690
)


(20,940
)Proceeds from private placement of
    common units






25,000Capital contributions from Pre-IPO
    Investors


5,054



3,542Proceeds from option exercises


585



109Equity offering costs


(481
)


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


62,744



(22,981
)Net increase in cash and cash
    equivalents


6,402



7,468Cash and cash equivalents,
    beginning of year


39,484



25,297Cash and cash equivalents, end of
    period

$
45,886


$
32,765    5




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##### Table of Contents



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


Class C


Subordinated





Accumulated


Other





TotalNumber of


Common


Number of


Class C


Number of


Subordinated


Paid-in


Earnings


Comprehensive





ComprehensiveUnits


Units


Units


Units


Units


Units


Capital


(Deficit)


Income (Loss)


Total


Income (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


























5,054











5,054



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






(47
)






























(47
)


Distributions to unitholders






























(34,906
)






(34,906
)


Option exercises


44



585































585



Equity-based compensation


























1,327











1,327



Vested restricted units


15







































Net income






























22,010







22,010



22,010Derivative settlements reclassified
    to income


































3,860



3,860



3,860Unrealized loss-change in fair
    value of derivatives


































(38,017
)


(38,017
)


(38,017
)Comprehensive loss









































$
(12,147
)Balance, June 30,
    2007


42,288


$
491,714



1,579


$
54,000






$



$
16,966


$
(9,978
)

$
(66,250
)

$
486,452    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.
  Note 3 
    Intangible
    Assets   8




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##### Table of Contents



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


December 31,2007


2006Rights-of-way and easements, at
    cost

$
96,342


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


(6,670
)


(6,520
)Contracts


53,050



42,444Less accumulated amortization for
    contracts


(5,541
)


(4,009
)Customer relationship


725



725Less accumulated amortization for
    customer relationship


(218
)


(199
)Intangible assets, net

$
137,688


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

$
110,000Estimated net working capital
    adjustments


967Estimated acquisition costs


1,443Total purchase price for the
    Cimmarron Acquisition

$
112,410  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


11,154Prepayments and other current
    assets


393Property, plant and equipment


65,389Intangibles


45,575Other assets


476Investment in unconsolidated
    affiliates


77Accounts payable


(13,911
)$
112,410       Six Months EndedThree Months Ended June 30,


June 30,2007


2006


2007


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

$
293,185


$
233,526


$
530,322


$
467,573Costs and expenses

$
274,157


$
207,730


$
496,990


$
426,768Operating income

$
19,028


$
25,796


$
33,331


$
40,806Income before extraordinary items

$
13,070


$
17,634


$
20,944


$
23,798Net income

$
13,070


$
17,634


$
20,944


$
23,798Basic net income per common unit:As reported units outstanding


42,748



29,361



40,556



29,338Pro forma units outstanding


42,748



29,361



40,556



29,338As reported net income per unit

$
0.31


$
0.52


$
0.53


$
0.72Pro forma net income per unit

$
0.31


$
0.48


$
0.51


$
0.65 10




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##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Six Months EndedThree Months Ended June 30,


June 30,2007


2006


2007


2006(In thousands, except per unit information)Diluted net income per common unit:As reported units outstanding


43,475



29,729



41,199



29,669Pro forma units outstanding


43,495



29,729



41,206



26,669As reported net income per unit

$
0.31


$
0.51


$
0.52


$
0.72Pro forma net income per unit

$
0.30


$
0.48


$
0.49


$
0.65Basic net income per subordinated
    unit:As reported units outstanding






7,038



1,711



7,038Pro forma units outstanding






7,038



1,711



7,038As reported net income per unit

$



$
0.52


$
0.26


$
0.72Pro forma net income per unit

$



$
0.48


$
0.25


$
0.65Diluted net income per
    subordinated unit:As reported units outstanding






7,038



1,711



7,038Pro forma units outstanding






7,038



1,711



7,038As reported net income per unit

$



$
0.52


$
0.26


$
0.72Pro forma net income per unit

$



$
0.48


$
0.25


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


December 31,2007


2006Long-term debt:Credit Facility

$
124,000


$
30,000Senior Notes


225,000



225,000Total

$
349,000


$
255,000   Credit
    Facility
   11




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##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Senior
    Notes
       12




---



##### Table of Contents



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

$
2,171


$



$
43,715


$



$



$
45,886


$
1,286


$



$
38,198


$



$



$
39,484Accounts receivable, net


29







94,204











94,233



32







120,057







(52,994
)


67,095Intercompany receivable


58,411







(14,976
)






(43,435
)






24,908







(71,028
)






46,120



Risk management assets










9,823











9,823











13,973











13,973Prepayments and other current assets


39







2,205











2,244



44







3,122











3,166Total current assets


60,650







134,971







(43,435
)


152,186



26,270







104,322







(6,874
)


123,718Property, plant and equipment, net


287







658,119











658,406



299







566,628











566,927Intangible assets, net










137,688











137,688











93,372











93,372Investment in unconsolidated
    affiliates










18,428



18,428



(18,428
)


18,428











19,378



19,378



(19,378
)


19,378Investment in consolidated
    subsidiaries


774,927















(774,927
)






674,105















(674,105
)


Risk management assets










23,878











23,878











23,826











23,826Other assets, net


8,570







4,094











12,664



8,577







3,260











11,837Total assets

$
844,434


$



$
977,178


$
18,428


$
(836,790
)

$
1,003,250


$
709,251


$



$
810,786


$
19,378


$
(700,357
)

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

$



$



$
128,387


$



$



$
128,387


$
434


$



$
130,919


$



$
(39,685
)

$
91,668Intercompany payable


97







43,340







(43,437
)






(26,291
)






(6,520
)






32,811



Notes payable










378











378











1,495











1,495Risk management liabilities










5,772











5,772











944











944Other current liabilities


7,323







8,247











15,570



6,811







4,804











11,615Total current liabilities


7,420







186,124







(43,437
)


150,107



(19,046
)






131,642







(6,874
)


105,722Long-term debt


349,000



















349,000



255,000



















255,000Deferred tax provision


917



















917Risk management and other
    noncurrent liabilities


645







16,129











16,774



711







5,039











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


491,714



















491,714



480,797



















480,797Class C units


54,000



















54,000























Subordinated units


























10,379



















10,379Paid-in capital


16,966



1



772,334



15,310



(787,645
)


16,966



10,585



1



524,940



17,445



(542,386
)


10,585Accumulated (deficit) earnings


(9,978
)


(1
)


68,841



3,118



(71,958
)


(9,978
)


2,918



(1
)


181,258



1,933



(183,190
)


2,918Accumulated other comprehensive loss


(66,250
)






(66,250
)






66,250



(66,250
)


(32,093
)






(32,093
)






32,093



(32,093
)486,452







774,925



18,428



(793,353
)


486,452



472,586







674,105



19,378



(693,483
)


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

$
844,434


$



$
977,178


$
18,428


$
(836,790
)

$
1,003,250


$
709,251


$



$
810,786


$
19,378


$
(700,357
)

$
839,058  13




---



##### Table of Contents



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

$



$



$
140,052


$



$



$
140,052


$



$



$
103,826


$



$



$
103,826Natural gas liquids sales










116,025











116,025











95,676











95,676Transportation, compression and
    processing fees










4,192











4,192











3,435











3,435Condensate and other










21,451











21,451











6,690











6,690Total revenue










281,720











281,720











209,627











209,627Costs and expenses:Cost of natural gas and natural gas
    liquids










234,070











234,070











160,766











160,766Transportation










1,218











1,218











658











658Operations and maintenance


410







9,265











9,675











7,824











7,824Depreciation and amortization


11







9,814











9,825



16







7,834











7,850General and administrative


2,395







5,305











7,700



519







5,217











5,736Taxes other than income










1,029











1,029











544











544Equity in (earnings) loss from
    unconsolidated affiliates










(754
)


(754
)


754



(754
)










101



101



(101
)


101Total costs and expenses


2,816







259,947



(754
)


754



262,763



535







182,944



101



(101
)


183,479Operating (loss) income


(2,816
)






21,773



754



(754
)


18,957



(535
)






26,683



(101
)


101



26,148Interest and other income


161







544











705











343











343Interest and other financing costs


(6,248
)






69











(6,179
)


(7,642
)






38











(7,604
)(Loss) income before income taxes
    and equity in earnings from consolidated subsidiaries


(8,903
)






22,386



754



(754
)


13,483



(8,177
)






27,064



(101
)


101



18,887Provision for income taxes


(175
)


















(175
)






















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


(9,078
)






22,386



754



(754
)


13,308



(8,177
)






27,064



(101
)


101



18,887Equity in earnings (loss) from
    consolidated subsidiaries


22,386















(22,386
)






27,064















(27,064
)


Net income (loss)

$
13,308


$



$
22,386


$
754


$
(23,140
)

$
13,308


$
18,887


$



$
27,064


$
(101
)

$
(26,963
)

$
18,887  14




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##### Table of Contents



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

$



$



$
251,329


$



$



$
251,329


$



$



$
231,806


$



$



$
231,806Natural gas liquids sales










203,912











203,912











171,002











171,002Transportation, compression and
    processing fees










8,440











8,440











7,255











7,255Condensate and other










29,027











29,027











13,524











13,524Total revenue










492,708











492,708











423,587











423,587Costs and expenses:Cost of natural gas and natural gas
    liquids










405,846











405,846











337,478











337,478Transportation










2,104











2,104











1,427











1,427Operations and maintenance


808







17,365











18,173











15,008











15,008Depreciation and amortization


11







18,284











18,295



33







15,442











15,475General and administrative


5,128







10,088











15,216



837







10,974











11,811Taxes other than income










1,556











1,556











988











988Equity in earnings from
    unconsolidated affiliates










(1,618
)


(1,618
)


1,618



(1,618
)










(95
)


(95
)


95



(95
)Total costs and expenses


5,947







453,625



(1,618
)


1,618



459,572



870







381,222



(95
)


95



382,092Operating (loss) income


(5,947
)






39,083



1,618



(1,618
)


33,136



(870
)






42,365



95



(95
)


41,495Interest and other income


172







1,153











1,325











592











592Interest and other financing costs


(11,389
)






17











(11,372
)


(15,787
)


















(15,787
)(Loss) income before income taxes
    and equity in earnings from consolidated subsidiaries


(17,164
)






40,253



1,618



(1,618
)


23,089



(16,657
)






42,957



95



(95
)


26,300Provision for income taxes


(1,079
)


















(1,079
)






















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


(18,243
)






40,253



1,618



(1,618
)


22,010



(16,657
)






42,957



95



(95
)


26,300Equity in earnings (loss) from
    consolidated subsidiaries


40,253















(40,253
)






42,957















(42,957
)


Net income (loss)

$
22,010


$



$
40,253


$
1,618


$
(41,871
)

$
22,010


$
26,300


$



$
42,957


$
95


$
(43,052
)

$
26,300  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 CASH FLOWS
  Six Months Ended June 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

$
(22,249
)

$



$
63,140


$
2,111


$
(2,111
)

$
40,891


$
(5,063
)

$



$
65,000


$



$



$
59,937Cash Flows From Investing
    Activities:Net cash (used in) provided by
    investing activities


(40,726
)






(97,233
)


381



40,345



(97,233
)


28,739







(29,487
)






(28,740
)


(29,488
)Cash Flows From Financing
    Activities:Net cash provided by (used in)
    financing activities


63,860







39,610







(40,726
)


62,744



(22,225
)






(29,496
)






28,740



(22,981
)Net increase (decrease) in cash and
    cash equivalents


885







5,517



2,492



(2,492
)


6,402



1,451







6,017











7,468Cash 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

$
2,171


$



$
43,715


$
2,492


$
(2,492
)

$
45,886


$
2,618


$
1


$
30,146


$



$



$
32,765   16




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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
  12-month, 18-month 24-month
 17




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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.
      WeightedNumber of


AverageRestricted


Grant-DateUnits


Fair ValueOutstanding at beginning of year


315,936


$
20.84Granted


4,000



34.63Vested


(15,176
)


14.71Forfeited


(4,038
)


21.07Outstanding at end of period


300,722


$
21.33  18




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##### Table of Contents



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


AveragePhantom


Grant-DateUnits


Fair ValueOutstanding at beginning of year





$
Granted


84,965



41.45Vested






Forfeited






Outstanding at end of period


84,965


$
41.45     Unit Options.
   19




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##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Six Months Ended June 30,2007

2006Weighted average exercise price

$37.34

$22.97Expected volatility

20.6%-21.5%

22%-22.5%Distribution yield

6.00%-6.05%

5.99%Risk-free interest rate

4.46%-4.8%

4.33%-4.61%Expected term (in years)

6.5

6.5Weighted average grant-date fair
    value of options granted

$4.45

$3.05Total intrinsic value of options
    exercised

$885,000

$122,000     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
   20




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##### Table of Contents



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


Six Months Ended June 30,2007


2006


2007


2006Net income available 
    basic

$
13,308


$
18,887


$
22,010


$
26,300Less net income attributable to
    subordinated unitholders






(3,652
)


(237
)


(5,089
)Net income  basic


13,308



15,235



21,773



21,211Net income attributable to
    subordinated unitholders






3,652



237



5,089Net income available 
    diluted(1)

$
13,308


$
18,887


$
22,010


$
26,300Basic weighted average units


42,748



29,361



40,556



29,338Dilutive weighted average units(1)


43,475



29,729



41,199



29,669Basic net income per unit

$
0.31


$
0.52


$
0.53


$
0.72Diluted net income per unit(1)

$
0.31


$
0.51


$
0.52


$
0.72     (1)
    
    Potentially dilutive (i) restricted and phantom units and
    (ii) employee unit options totaled 101,296 and 625,915,
    respectively, during the three months ended June 30, 2007.
    Potentially dilutive restricted units and employee unit options
    totaled 108,094 and 259,363, respectively, during the three
    months ended June 30, 2006. Potentially dilutive
    (i) restricted and phantom units and (ii) employee
    unit options totaled 81,462 and 561,346, respectively, during
    the six months ended June 30, 2007. Potentially dilutive
    restricted units and employee unit options totaled 106,593 and
    224,584, respectively, during the six months ended June 30,
    2006.  Note 8 
    Related
    Party Transactions  Operations
    Services
     21




---



##### Table of Contents



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


Ended June 30,2007


2006


2007


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

$



$
45


$
25


$
49Gathering and compression
    services(2)


9



7



16



17Natural gas purchases(3)


784



585



1,126



1,057Webb/Duval:Natural gas sales(1)






92







604Natural gas purchases(3)


(87
)


282



115



(50
)Transportation costs(4)


94



99



170



189Southern Dome:Natural gas liquid sales(5)


38







38



Condensate sales(6)


21







21



     (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.         22




---



##### 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,
  Regulatory
    Compliance
    Litigation
   23




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##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 10 
    Supplemental
    Disclosures to the Statements of Cash Flows  Six MonthsEnded June 30,2007


2006(In thousands)Cash payments for interest, net of
    $547,000 and $338,000 capitalized in 2007 and 2006, respectively

$
10,193


$
9,860Cash payments for federal and
    state income taxes






     Note 11 
    Financial
    Instruments  Commodity
    Risk Hedging Program
      Interest
    Rate Risk Hedging Program
     24




---



##### Table of Contents



COPANO
    ENERGY, L.L.C. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  mark-to-market
  Note 12 
    Segment
    Information      Mid-


Texas Gulf


Texas GulfContinent


Coast


CoastOperations


Pipelines


Processing


Corporate


Eliminations


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

$
147,573


$
68,151


$
72,125


$
(6,129
)(a)

$



$
281,720Intersegment sales






44,566



1,862







(46,428
)


Interest expense and other
    financing costs














6,179







6,179Depreciation and amortization


6,674



2,149



795



207







9,825Equity in earnings from
    unconsolidated affiliates


(269
)


(485
)














(754
)Net income (loss)


14,794



2,931



10,660



(15,077
)






13,308Three Months Ended
    June 30, 2006:Sales to external customers

$
98,452


$
53,263


$
57,500


$
412
(a)

$



$
209,627Intersegment sales






39,705



7,022







(46,727
)


Interest expense and other
    financing costs














7,604







7,604Depreciation and amortization


5,669



1,424



598



159







7,850Equity in loss (earnings) from
    unconsolidated affiliates


147



(46
)














101Net income (loss)


12,563



3,897



11,505



(9,078
)






18,887   25




---



##### 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


TotalSix Months Ended
    June 30, 2007:Sales to external customers

$
254,110


$
118,941


$
128,518


$
(8,861
)(a)

$



$
492,708Intersegment sales






82,269



3,522







(85,791
)


Interest expense and other
    financing costs














11,372







11,372Depreciation and amortization


12,575



3,827



1,503



390







18,295Equity in earnings from
    unconsolidated affiliates


(527
)


(1,091
)














(1,618
)Net income (loss)


25,080



6,752



16,974



(26,796
)






22,010Segment assets


734,959



182,927



102,493



26,306



(43,435
)


1,003,250Six Months Ended
    June 30, 2006:Sales to external customers

$
198,150


$
121,928


$
102,850


$
659
(a)

$



$
423,587Intersegment sales






89,248



21,834







(111,082
)


Interest expense and other
    financing costs






2







15,785







15,787Depreciation and amortization


11,263



2,771



1,198



243







15,475Equity in loss (earnings) from
    unconsolidated affiliates


175



(270
)














(95
)Net income (loss)


22,103



7,793



15,562



(19,158
)






26,300     (a)
    
    Represents the results of our risk management activities. See
    Note 11. 26




---



##### 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
    June 30, 2007. For the three months ended June 30,
    2007 and 2006, this segment generated approximately 60% and 49%,
    respectively, of our total segment gross margin. For the six
    months ended June 30, 2007 and 2006, this segment generated
    approximately 58% and 52%, 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 June 30, 2007 and 2006, this segment generated
    approximately 21% and 19%, respectively, of our total segment
    gross margin. For the six months ended June 30, 2007 and
    2006, this segment generated approximately 23% 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 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 June 30, 2007 and 2006, this segment generated
    approximately 32% and 31%, respectively, of our total segment
    gross margin. For the six months ended June 30, 2007 and
    2006, this segment generated approximately 29% and 26%,
    respectively, of our total segment gross margin.
    Corporateengages in risk management and other corporate
    activities. For the three months ended June 30, 2007 and
    2006, this segment generated approximately (13)% and 1%,
    respectively, of our total segment 27




---



##### Table of Contents



gross margin. For the six months ended June 30, 2007 and
    2006, this segment generated approximately (10)% and 1%,
    respectively, of our total segment gross margin.        How We
    Evaluate Our Operations
    Throughput Volumes.
  Segment Gross Margin.
 28




---



##### Table of Contents



Operations and Maintenance
    Expenses.
  General and Administrative Expenses.
    General and AdministrativeYear

Expense Limitations1

$1.50 million per quarter2

$1.65 million per quarter3

$1.80 million per quarter    29




---



##### Table of Contents



Pre-IPO
  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
 30




---



##### 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
   31




---



##### 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;
    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. 32




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##### Table of Contents



Form 10-K Form 10-Q
  Our
    Results of Operations
  Three Months Ended


Six Months EndedJune 30,


June 30,2007


2006


2007


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

$
46,432


$
48,203


$
84,758


$
84,682Operations and maintenance expenses


9,675



7,824



18,173



15,008Depreciation and amortization


9,825



7,850



18,295



15,475General and administrative expenses


7,700



5,736



15,216



11,811Taxes other than income


1,029



544



1,556



988Equity in (earnings) loss from
    unconsolidated affiliates


(754
)


101



(1,618
)


(95
)Operating income


18,957



26,148



33,136



41,495Interest and other financing
    costs, net


(5,474
)


(7,261
)


(10,047
)


(15,195
)Provision for income taxes


(175
)






(1,079
)


Net income

$
13,308


$
18,887


$
22,010


$
26,300Segment gross margin:Mid-Continent Operations

$
27,887


$
23,732


$
49,288


$
44,167Texas Gulf Coast Pipelines(2)


9,920



9,234



19,484



17,884Texas Gulf Coast Processing


14,754



14,825



24,847



21,972Corporate(3)


(6,129
)


412



(8,861
)


659Total segment gross margin(1)

$
46,432


$
48,203


$
84,758


$
84,682Segment gross margin per unit:Mid-Continent Operations:(4)Pipeline throughput ($/MMBtu)(4)

$
1.46


$
1.49


$
1.38


$
1.44Plant Inlet throughput ($/MMBtu)(4)

$
1.99


$
2.11


$
1.90


$
2.07NGLs produced ($/Bbl)(4)

$
20.47


$
22.19


$
19.97


$
22.50Texas Gulf Coast Pipelines
    ($/MMBtu)(2)

$
0.40


$
0.42


$
0.39


$
0.42Texas Gulf Coast Processing:Inlet throughput ($/MMBtu)(5)

$
0.29


$
0.33


$
0.24


$
0.24NGLs produced ($/Bbl)(5)

$
9.69


$
10.82


$
8.40


$
8.47Volumes:Mid-Continent Operations(4)Pipeline throughput (MMBtu/d)(4)


209,812



175,349



197,646



169,956Plant Inlet throughput (MMBtu/d)(4)


154,060



123,874



143,483



118,118NGLs produced (Bbls/d)(4)


14,969



11,753



13,635



10,845Texas Gulf Coast
    Pipelines  throughput (MMBtu/d)(2)


275,303



243,086



277,679



237,075Texas Gulf Coast Processing:Inlet throughput (MMBtu/d)


561,354



496,350



566,975



504,670NGLs produced (Bbls/d)


16,724



15,039



16,344



14,331 33




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##### Table of Contents



Three Months Ended


Six Months EndedJune 30,


June 30,2007


2006


2007


2006($ in thousands)Capital Expenditures:Maintenance capital expenditures

$
3,092


$
2,076


$
4,463


$
3,926Expansion capital expenditures


129,216



9,335



148,169



16,398Total capital expenditures

$
132,308


$
11,411


$
152,632


$
20,324Operations and maintenance
    expenses:Mid-Continent Operations

$
5,144


$
4,048


$
9,514


$
7,916Texas Gulf Coast Pipelines


2,382



1,900



4,415



3,529Texas Gulf Coast Processing


2,149



1,876



4,244



3,563Total operations and maintenance
    expenses

$
9,675


$
7,824


$
18,173


$
15,008     (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
    107,565 MMBtu/d and 111,172 MMBtu/d, net of
    intercompany volumes, for the three months ended June 30,
    2007 and 2006, respectively. Gross volumes transported by Webb
    Duval were
    105,479 MMBtu/d
    and 115,241 MMBtu/d, net of intercompany volumes, for the
    six months ended June 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 June 30, 2007, plant
    inlet throughput averaged 88,730 MMBtu/d and NGLs produced
    averaged 9,109 barrels per day for plants owned by the
    Mid-Continent Operations segment. For the three months ended
    June 30, 2006, plant inlet throughput averaged
    81,257 MMBtu/d and NGLs produced averaged
    7,976 barrels per day for plants owned by the Mid-Continent
    Operations segment. For the six months ended June 30, 2007,
    plant inlet throughput averaged 87,153 MMBtu/d and NGLs
    produced averaged 8,753 barrels per day for plants owned by
    the Mid-Continent Operations segment. For the six months ended
    June 30, 2006, plant inlet throughput averaged
    76,730 MMBtu/d and NGLs produced averaged
    7,275 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 June 30, 2007 Compared with Three Months Ended
    June 30, 2006
  Mid-Continent Operations Segment Gross
    Margin.
 34




---



##### 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.
  Interest Expense.
 35




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##### Table of Contents



Six
    Months Ended June 30, 2007 Compared with Six Months Ended
    June 30, 2006
  Mid-Continent Operations Segment Gross
    Margin.
  Texas Gulf Coast Pipelines Segment Gross
    Margin.
  Texas Gulf Coast Processing Segment Gross
    Margin.
  Corporate Segment Gross Margin.
  Operations and Maintenance
    Expenses.
 36




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##### Table of Contents



Depreciation and Amortization.
  General and Administrative Expenses.
  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. 37




---



##### Table of Contents



Operating
    Cash Flows.
  Six Months Ended June 30,2007


2006(In thousands)Net income

$
22,010


$
26,300Depreciation and amortization


18,910



16,863Equity in earnings from
    unconsolidated affiliates


(1,618
)


(95
)Distributions from unconsolidated
    affiliates


2,111



Equity-based compensation and other


2,224



819Cash (used in) provided by working
    capital


(2,746
)


16,050Net cash provided by operating
    activities

$
40,891


$
59,937       Investing Cash Flows.
 38




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##### Table of Contents



11-mile 8-mile
  Financing Cash Flows.
  Cash Distributions and Reserves:
          12-month, 18-month 24-month
 39




---



##### Table of Contents



Our
    Indebtedness
    Credit Ratings.
  Senior Secured Revolving Credit Facility.
      Senior Notes.
    Recent
    Accounting Pronouncements
   40




---



##### Table of Contents



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


Six MonthsEnded June 30,


Ended June 30,2007


2006


2007


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

$
18,957


$
26,148


$
33,136


$
41,495Add: Operations and maintenance
    expenses


9,675



7,824



18,173



15,008Depreciation and amortization


9,825



7,850



18,295



15,475General and administrative
    expenses


7,700



5,736



15,216



11,811Taxes other than income


1,029



544



1,556



988Equity in (earnings) loss
    from unconsolidated affiliates


(754
)


101



(1,618
)


(95
)Total segment gross margin

$
46,432


$
48,203


$
84,758


$
84,682Reconciliation of EBITDA to net
    income:Net income

$
13,308


$
18,887


$
22,010


$
26,300Add: Depreciation and amortization


9,825



7,850



18,295



15,475Interest and other financing
    costs


6,179



7,604



11,372



15,787Provision for income taxes


175







1,079



EBITDA

$
29,487


$
34,341


$
52,756


$
57,562Reconciliation of EBITDA to cash
    flows from operating activities:Cash flow provided by operating
    activities

$
16,901


$
37,082


$
40,891


$
59,937Add: Cash paid for interest and
    other financing costs


5,873



7,173



10,756



14,399Equity in earnings (loss)
    from unconsolidated affiliates


754



(101
)


1,618



95Distributions from
    unconsolidated affiliates


(2,111
)






(2,111
)


Risk management activities


21,609



(522
)


18,994



(2,860
)Increase in working capital
    and other


(13,539
)


(9,291
)


(17,392
)


(14,009
)EBITDA

$
29,487


$
34,341


$
52,756


$
57,562  41




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##### Table of Contents



Item 3.
    Quantitative
    and Qualitative Disclosures about Market Risk.    Commodity
    Prices
  Commodity Price Risk.
  agreed-upon
    process condition processing spread processing margin. processing margin conditioning mode
   42




---



##### 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.     43




---



##### 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


$
4,323,0002008

$
7.75



5,000


$
2,054,0002009

$
6.95



5,000


$
1,329,000   Purchased
    HSC Index Natural Gas Call Spreads
  Call Strike(Per MMBtu)


Call VolumesBought


Sold


(MMBtu/d)


Fair Value2007

$
8.00


$
10.00



11,400


$
542,0002008

$
8.15


$
10.00



9,400


$
1,917,0002009

$
7.75


$
10.00



8,000


$
2,109,0002010

$
7.35


$
10.00



7,100


$
2,113,0002011

$
6.95


$
10.00



7,100


$
2,265,000  44




---



##### Table of Contents



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


$
22,000


$
0.6525



599


$
(335,000
)2007

$
0.6960



2,000


$
283,000


$
0.7300



2,000


$
61,0002008

$
0.5700



607


$
53,000


$
0.5650



607


$
(1,728,000
)2008

$
0.6250



2,900


$
607,000


$
0.6525



1,300


$
(2,045,000
)2009

$
0.5900



2,200


$
390,000


$
0.6025



1,100


$
(2,482,000
)2010

$
0.5550



1,600


$
223,000


$
0.5700



500


$
(1,224,000
)2011

$
0.5300



1,700


$
242,000


$
0.5450



500


$
(1,251,000
)   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


$
75,000


$
0.9375



726


$
(923,000
)2007

$
0.9000



1,100


$
47,000











2007

$
1.0950



500


$
196,000











2008

$
0.8360



2,594


$
509,000


$
0.8700



745


$
(2,851,000
)2008

$
0.8975



1,100


$
411,000











2008

$
1.0500



1,000


$
982,000











2009

$
0.8725



2,200


$
922,000











2009

$
0.9650



1,000


$
794,000


$
1.0275



1,000


$
(1,531,000
)2010

$
0.8500



1,100


$
508,000











2010

$
0.9460



700


$
585,000


$
0.9925



700


$
(1,243,000
)2011

$
0.8265



1,100


$
539,000











2011

$
0.9340



700


$
657,000


$
0.9750



700


$
(1,230,000
)   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


$
8,000


$
1.1250



90


$
(156,000
)2007

$
1.0750



200


$
3,000











2008

$
0.9900



622


$
68,000


$
1.0450



92


$
(468,000
)2008

$
1.0900



250


$
70,000











2009

$
1.0600



450


$
150,000











2009

$
1.1600



100


$
65,000


$
1.2425



100


$
(219,000
)2010

$
1.0350



300


$
106,000











2010

$
1.1145



100


$
59,000


$
1.2025



100


$
(244,000
)2011

$
1.0205



300


$
129,000











2011

$
1.1100



100


$
71,000


$
1.1800



100


$
(243,000
)  45




---



##### Table of Contents



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


$
11,000


$
1.1200



264


$
(352,000
)2007

$
1.0675



150


$
2,000











2007

$
1.2700



400


$
118,000











2008

$
0.9875



810


$
70,000


$
1.0400



271


$
(1,112,000
)2008

$
1.0800



300


$
72,000











2008

$
1.2150



400


$
298,000











2009

$
1.0525



700


$
174,000











2009

$
1.1400



400


$
204,000


$
1.2275



400


$
(551,000
)2010

$
1.0300



300


$
71,000











2010

$
1.1000



200


$
84,000


$
1.1850



200


$
(346,000
)2011

$
1.0205



300


$
87,000











2011

$
1.0850



200


$
94,000


$
1.1700



200


$
(338,000
)   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


$
80,000


$
1.6600



400


$
(183,000
)2008

$
1.4850



300


$
293,000


$
1.5850



300


$
(108,000
)2009

$
1.4400



200


$
180,000


$
1.5400



200


$
(206,000
)2010

$
1.4080



300


$
249,000











2011

$
1.4100



300


$
295,000











   Purchased
    WTI Crude Oil Puts
  Put Strike


Put Volumes(Per Barrel)


(Bbls/d)


Fair Value2007

$
48.00



2,000


$
5,0002007

$
55.00



250


$
6,0002008

$
55.00



1,000


$
381,0002008

$
60.00



700


$
525,0002009

$
55.00



1,000


$
611,0002009

$
60.00



500


$
527,0002010

$
55.00



1,000


$
793,0002010

$
60.00



400


$
510,0002011

$
55.00



1,000


$
995,0002011

$
60.00



400


$
603,000   Interest Rates.
 46




---



##### Table of Contents



Risk Management Oversight.
  Credit Risk.
  Item 4.
    Controls
    and Procedures.  Rule 13a-15(e) Form 10-Q,
  Rule 13(a)-15(f)
 47




---



##### Table of Contents



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
  Item 4.
    Submission
    of Matters to a Vote of Security Holders.      For


WithheldJohn R. Eckel, Jr.


36,500,353



100,144James G. Crump


36,500,243



100,254Ernie L. Danner


36,501,243



99,254Scott A. Griffiths


36,501,353



99,144Michael L. Johnson


36,501,353



99,144T. William Porter


33,943,809



2,656,688William L. Thacker


36,493,051



107,446     For


36,442,046Against


106,316Abstentions


52,135     Item 6.
    Exhibits.    Number

Description2
.1

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). 48




---



##### Table of Contents



Number

Description3
.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).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

Class B Unit and Common Unit
    Purchase Agreement dated as of June 17, 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
    HedgeCap, LP, Strome Alpha, LP and Strome Family Foundation
    (incorporated by reference to Exhibit 10.27 to Quarterly
    Report on
    Form 10-Q
    filed August 15, 2005).4
.6

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
.7

Common Unit Purchase 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 4.7 to Annual Report on
    Form 10-K
    filed March 16, 2006).4
.8

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
.9

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).10
.1

Amended and Restated Loan
    Agreement dated as of January 12, 2007, among Copano
    Energy, L.L.C., as the Borrower, Bank of America, N.A., as
    Administrative Agent and L/C Issuer, JPMorgan Chase Bank, N.A.
    and Wachovia Bank, National Association, as Co-Syndication
    Agents and The Other Lenders Party thereto and Banc of America
    Securities LLC, as Sole Lead Arranger and Sole Book Manager
    (incorporated by reference to Exhibit 10.1 to Current
    Report on
    Form 8-K
    filed January 19, 2007).10
.2

2007 Administrative Guidelines for
    the Copano Energy, L.L.C. Management Incentive Compensation Plan
    (incorporated by reference to Exhibit 10.1 to Current
    Report on
    Form 8-K
    filed February 20, 2007).10
.3

Form of Grant of Phantom Units
    (incorporated by reference to Exhibit 10.1 to Current
    Report on
    Form 8-K
    filed June 18, 2007). 49




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##### Table of Contents



Number

Description21
.1*

List of Subsidiaries31
.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.
    
    Portions of this exhibit have been omitted pursuant to a request
    for confidential treatment. 50




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##### Table of Contents



SIGNATURES
      By:
    /s/  John
    R. Eckel, Jr.     By:
    /s/  Matthew
    J. Assiff    51




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##### Table of Contents



Exhibit
    Index
  Number

Description2
.1

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).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

Class B Unit and Common Unit
    Purchase Agreement dated as of June 17, 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
    HedgeCap, LP, Strome Alpha, LP and Strome Family Foundation
    (incorporated by reference to Exhibit 10.27 to Quarterly
    Report on
    Form 10-Q
    filed August 15, 2005).4
.6

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
.7

Common Unit Purchase 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 4.7 to Annual Report on
    Form 10-K
    filed March 16, 2006).4
.8

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
.9

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).10
.1

Amended and Restated Loan
    Agreement dated as of January 12, 2007, among Copano
    Energy, L.L.C., as the Borrower, Bank of America, N.A., as
    Administrative Agent and L/C Issuer, JPMorgan Chase Bank, N.A.
    and Wachovia Bank, National Association, as Co-Syndication
    Agents and The Other Lenders Party thereto and Banc of America
    Securities LLC, as Sole Lead Arranger and Sole Book Manager
    (incorporated by reference to Exhibit 10.1 to Current
    Report on
    Form 8-K
    filed January 19, 2007).




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##### Table of Contents



Number

Description10
.2

2007 Administrative Guidelines for
    the Copano Energy, L.L.C. Management Incentive Compensation Plan
    (incorporated by reference to Exhibit 10.1 to Current
    Report on
    Form 8-K
    filed February 20, 2007).10
.3

Form of Grant of Phantom Units
    (incorporated by reference to Exhibit 10.1 to Current
    Report on
    Form 8-K
    filed June 18, 2007).21
.1*

List of Subsidiaries31
.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.
    
    Portions of this exhibit have been omitted pursuant to a request
    for confidential treatment.