##### Table of Contents



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

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2006ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934   Commission File
    No. 001-33016
      EAGLE ROCK ENERGY PARTNERS,
    L.P.
 (Exact Name of Registrant as
    Specified in Its Charter)
  Delaware

68-0629883(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer
    Identification Number)   16701 Greenspoint Park Drive, Suite 200
 Houston, Texas 77060
 (Address of principal executive
    offices, including zip code)
  (281) 408-1200
 (Registrants telephone
    number, including area code)
  14950 Heathrow Forest Parkway, Suite 111
 Houston, Texas 77032
 (Former name, former address and
    former fiscal year, if changed since last report)
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Each Exchange on Which RegisteredCommon Units of Limited Partner
    Interests

NASDAQ Stock Market LLC   Securities registered pursuant to Section 12(g) of the
    Act:
 None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2
 o o þ
  Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE:




---



##### 



TABLE OF
    CONTENTS
  
  PageItem 1.


Business


1Item 1A.


Risk
    Factors


17Item 1B.


Unresolved Staff
    Comments


36Item 2.


Properties


36Item 3.


Legal
    Proceedings


36Item 4.


Submission of
    Matters to a Vote of Security Holders


36Item 5.


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


37Item 6.


Selected Financial
    Data


39Item 7.


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


44Item 7A.


Quantitative and
    Qualitative Disclosures About Market Risk


59Item 8.


Financial
    Statements and Supplementary Data


63Item 9.


Changes in and
    Disagreements With Accountants on Accounting and Financial
    Disclosure


63Item 9A.


Controls and
    Procedures


63Item 9B.


Other
    Information


64Item 10.


Directors,
    Executive Officers and Corporate Governance


64Item 11.


Executive
    Compensation


66Item 12.


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


68Item 13.


Certain
    Relationships and Related Transactions, and Director
    Independence


69Item 14.


Principal
    Accountant Fees and Services


70Item 15.


Exhibits and
    Financial Statement Schedules


71Consent of Deloitte & Touche LLPPowers of AttorneyCertification by Alex A. Bucher, Jr. Pursuant to Section 302Certification by Richard W. FitzGerald Pursuant to Section 302Certification by Alex A. Bucher, Jr. Pursuant to Section 906Certification by Richard W. FitzGerald Pursuant to Section 906   i




---



##### Table of Contents



PART I
  Item 1.
    Business.  Our
    Partnership
            
    approximately 773 miles of natural gas gathering pipelines,
    ranging from two inches to 12 inches in diameter, with
    35,289 horsepower of associated pipeline compression;
    three active natural gas processing plants with an aggregate
    capacity of 90 MMcf/d; and
    two natural gas treating facilities with an aggregate capacity
    of 75 MMcf/d. 1




---



##### Table of Contents




    approximately 2,736 miles of natural gas gathering
    pipelines, ranging from two inches to 12 inches in
    diameter, with 81,473 horsepower of associated pipeline
    compression;
    four active natural gas processing plants with an aggregate
    capacity of 101 MMcf/d;
    three natural gas treating facilities with an aggregate capacity
    of 65 MMcf/d;
    a propane fractionation facility with capacity of
    1,000 Bbls/d; and
    a condensate collection facility.    
    approximately 1,049 miles of natural gas gathering
    pipelines, ranging from four inches to 12 inches in
    diameter, with 5,200 horsepower of associated pipeline
    compression;
    a 100 MMcf/d cryogenic processing plant;
    a 150 MMcf/d cryogenic processing plant, in which we own a
    25% undivided interest; and
    a 19-mile
    NGL pipeline.  2
  Business
    Strategies
    
    Maximizing the profitability of our existing
    assets.  We intend to maximize the profitability
    of our existing assets by adding new volumes of natural gas and
    undertaking additional initiatives to enhance utilization and
    improve operating efficiencies. We plan to:  
    market our midstream services and provide superior customer
    service to producers in our areas of operation to connect new
    wells to our gathering and processing systems, increase
    gathering volumes from existing wells and more fully utilize
    excess capacity on our systems; and
    improve the operations of our existing assets by relocating idle
    processing plants to areas experiencing increased processing
    demand, reconfiguring compression facilities, improving
    processing plant efficiencies and capturing lost and unaccounted
    for natural gas.  
    Expanding our operations through organic growth
    projects.  We intend to leverage our existing
    infrastructure and customer relationships by expanding our
    existing asset base to meet new or increased demand for
    midstream services. We completed the construction of our Tyler
    County pipeline in the March 2006 quarter and will complete a
    16-mile
    extension in the first half of 2007 that will allow for the
    delivery of dedicated natural gas volumes to our Brookeland
    processing plant. We will complete in 2




---



##### Table of Contents



the second quarter of 2007 the refurbishment project of
    restarting the Red Deer plant in our Texas Panhandle Systems
    which will provide needed additional gas processing capacity.  
    Pursuing complementary acquisitions.  We have
    grown significantly through acquisitions and will continue to
    employ a disciplined acquisition strategy that capitalizes on
    the operational experience of our management team as well as
    bring new expertise to the Partnership. We believe that the
    extensive experience of our management team in acquiring and
    operating natural gas gathering and processing assets will
    enable us to continue to successfully identify and complete
    acquisitions that will enhance our profitability and increase
    our operating capacity.
    Continuing to reduce our exposure to commodity price
    risk.  We intend to continue to operate our
    business in a manner that reduces our exposure to commodity
    price risk. We instituted a hedging program related to our NGL
    business and have hedged substantially all of our share of
    expected NGL volumes through 2007 through the purchase of NGL
    put contracts, costless collar contracts and swap contracts, and
    substantially all of our share of expected NGL volumes related
    to our
    percentage-of-proceeds
    contracts from 2008 through 2010 through a combination of direct
    NGL hedging as well as indirect hedging through crude oil
    costless collars. We have also hedged substantially all of our
    share of our short natural gas position for 2006 and 2007. We
    anticipate that after 2007, our short natural gas position will
    become a long natural gas position because of our increased
    volumes in the Texas Panhandle and the volumes contributed from
    our acquisition of the Brookeland and Masters Creek systems. In
    addition, where market conditions permit, we intend to pursue
    fee-based arrangements and to increase retained percentages of
    natural gas and NGLs under
    percent-of-proceeds
    arrangements.
    Maintaining a disciplined financial policy.  We
    will continue to pursue a disciplined financial policy by
    maintaining a prudent capital structure, managing our exposure
    to interest rate and commodity price risk and conservatively
    managing our cash reserves. We are committed to maintaining a
    balanced capital structure, which will allow us to use our
    available capital to selectively pursue accretive investment
    opportunities.  Competitive
    Strengths
    
    Our assets are strategically located in major natural gas
    supply areas.  Our assets are strategically
    located in the Texas Panhandle, southeast Texas and Louisiana.
    Our Texas Panhandle Systems are located in areas that produce
    natural gas with high NGL content, especially in the West
    Panhandle System. Our East Panhandle System is experiencing
    significant drilling activity related to the Granite Wash play
    and our West Panhandle System is connected to wells that
    generally have long lives with predictable, steady flow rates
    and minimal decline. Additionally, our southeast Texas and
    Louisiana assets, specifically in Tyler and Polk Counties, are
    located in areas characterized by high volumes of natural gas
    and significant drilling activity, which provides us with
    attractive opportunities to access newly developed natural gas
    supplies. We believe that our extensive existing presence in
    these regions, together with our available capacity and the
    limited alternatives available to local producers, provide us
    with a competitive advantage in capturing new supplies of
    natural gas.
    We provide a distinct and integrated package of midstream
    services.  We provide a broad range of midstream
    services to natural gas producers, including gathering,
    compressing, treating, processing, transporting and selling
    natural gas and fractionating and transporting NGLs. For
    example, in the Texas Panhandle, we treat natural gas to extract
    impurities such as carbon dioxide and hydrogen sulfide and we
    fractionate NGLs to extract propane. Our competitors in this
    area do not provide these services. Additionally, many of our
    gathering systems, including our Texas Panhandle Systems,
    operate at lower inlet pressures, which allow us to provide
    gathering services to customers at a lower cost and on a more
    timely basis than our competitors, who are often required to add
    compression to provide gathering services to new wells. 3




---



##### Table of Contents




    We have the financial flexibility to pursue growth
    opportunities.  We currently have approximately a
    $500.0 million amended and restated credit facility, under
    which we have approximately $80.0 million unused capacity,
    with $24.0 million available capacity at year end. We
    believe the available capacity under this credit facility,
    combined with our expected ability to access the capital
    markets, will provide us with a flexible financial structure
    that will facilitate our strategic expansion and acquisition
    strategies.
    We have an experienced, knowledgeable management team with a
    proven record of performance.  Our management team
    has a proven record of enhancing value through the investment
    in, and the acquisition, exploitation and integration of,
    natural gas midstream assets. Our senior management team has an
    average of over 25 years of industry-related experience.
    Our teams extensive experience and contacts within the
    midstream industry provide a strong foundation for managing and
    enhancing our operations, accessing strategic acquisition
    opportunities and constructing new assets. Members of our senior
    management team have a substantial economic interest in us.
    We are affiliated with Natural Gas Partners, a leading
    private equity capital source for the energy
    industry.  Natural Gas Partners, a leading private
    equity firm focused on the energy industry, owns a significant
    equity position in Eagle Rock Holdings, L.P., which owns
    2,187,871 common and 20,691,495 subordinated units and all of
    the equity interests in our general partner. We expect that our
    relationship with Natural Gas Partners will provide us with
    several significant benefits, including increased exposure to
    acquisition opportunities and access to a significant group of
    transactional and financial professionals with a successful
    track record of investing in midstream assets. Founded in 1988,
    Natural Gas Partners is among the oldest of the private equity
    firms that specialize in the energy industry. Through its family
    of eight institutionally-backed investment funds, Natural Gas
    Partners has sponsored over 100 portfolio companies and has
    controlled invested capital and additional commitments totaling
    $2.9 billion.    Industry
    Overview
    Natural Gas Demand and Production.
  Midstream Natural Gas Industry.
  Natural Gas Gathering and Treating.
 4




---



##### Table of Contents



Natural Gas Compression.
  Natural Gas Processing.
  o
    Natural Gas Fractionation.
 5




---



##### Table of Contents



Natural Gas and NGL Transportation.
  Formation
    and Acquisitions
  2
  Acquisition
    of Camp Ruby Gathering System and Indian Spring Processing Plant
    and Expansion of System
      Acquisition
    of Panhandle Assets
   6




---



##### Table of Contents



10-mile
  Acquisition
    of Brookeland Assets
    16-mile
  Acquisition
    of MGS
  1-for-0.719
  Our
    Assets
    Texas
    Panhandle Operations
  wellhead-to-market
   7




---



##### Table of Contents



East
    Panhandle System
    10-mile
  System Description.
  
    approximately 773 miles of natural gas gathering pipelines,
    ranging from two inches to 12 inches in diameter, with
    35,289 horsepower of associated pipeline compression;
    three active natural gas processing plants with an aggregate
    capacity of 90 MMcf/d; and
    two natural gas treating facilities with an aggregate capacity
    of 75 MMcf/d.           8




---



##### Table of Contents



Natural Gas Supply.
    percent-of-proceeds percent-of-proceeds,
  Markets.
      Competition.
  West
    Panhandle System
    System Description.
  
    approximately 2,736 miles of natural gas gathering
    pipelines, ranging from two inches to 12 inches in
    diameter, with 81,473 horsepower of associated pipeline
    compression;
    four active natural gas processing plants with an aggregate
    capacity of 101 MMcf/d;
    three natural gas treating facilities with an aggregate capacity
    of 65 MMcf/d;
    a propane fractionation facility with capacity of
    1,000 Bbls/d; and
    a condensate collection facility. 9




---



##### Table of Contents



Natural Gas Supply.
   10




---



##### Table of Contents



percent-of-proceeds
  Markets.
  Competition.
  Southeast
    Texas and Louisiana Operations
    Systems Description.
  
    approximately 1,049 miles of natural gas gathering
    pipelines, ranging from four inches to 12 inches in
    diameter, with 5,200 horsepower of associated pipeline
    compression;
    a 100 MMcf/d cryogenic processing plant;
    a 150 MMcf/d cryogenic processing plant, in which we own a
    25% undivided interest; and
    a 19-mile
    NGL pipeline.       11




---



##### Table of Contents



23-mile, 10-inch
  19-mile, 6-inch
    Natural Gas Supply.
  percent-of-proceeds percent-of-liquids percent-of-proceeds
 12




---



##### Table of Contents



Markets.
  Competition.
  Safety
    and Maintenance Regulation
  right-to-know
  Regulation
    of Operations
    Gathering Pipeline
    Regulation.
   13




---



##### Table of Contents



and/or
            Sales of Natural Gas.
 14




---



##### Table of Contents



Intrastate NGL Pipeline Regulation.
  Environmental
    Matters
       15




---



##### Table of Contents



on-site
  Title to
    Properties and
    Rights-of-Way
  rights-of-way,
 16




---



##### Table of Contents



right-of-way, right-of-way, rights-of-way,
  Employees
    Legal
    Proceedings
      Available
    Information
  1-800-SEC-0330.
  (281-408-1200), Form 10-K, Form 10-Q, Form 8-K,
  Item 1A.
    Risk
    Factors.  Limited partner interests are inherently different from
    capital stock of a corporation, although many of the business
    risks to which we are subject are similar to those that would be
    faced by a corporation engaged in similar businesses.
  If any of the following risks were actually to occur, our
    business, financial condition or results of operations could be
    materially adversely affected. In that case, we might not be
    able to pay the minimum quarterly distribution on our common
    units and the trading price of our common units could
    decline.
 17




---



##### Table of Contents



Risks
    Related to Our Business
  Because
    of the natural decline in production from existing wells, our
    success depends on our ability to obtain new sources of supplies
    of natural gas and NGLs, which are dependent on certain factors
    beyond our control. Any decrease in supplies of natural gas or
    NGLs could adversely affect our business and operating
    results.
      Natural
    gas, NGLs and other commodity prices are volatile, and a
    reduction in these prices could adversely affect our cash flow
    and our ability to make distributions.
    
    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 and natural gas;
    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; 18




---



##### Table of Contents




    the impact of energy conservation efforts; and
    the extent of governmental regulation and taxation.  percentage-of-proceeds percentage-of-proceeds
  Our
    hedging activities may have a material adverse effect on our
    earnings, profitability, cash flows and financial
    condition.
  percent-of-proceed percent-of-proceed
     19




---



##### Table of Contents



We
    typically do not obtain independent evaluations of natural gas
    reserves dedicated to our gathering and pipeline systems;
    therefore, volumes of natural gas on our systems in the future
    could be less than we anticipate.
    We
    depend on certain natural gas producer customers for a
    significant portion of our supply of natural gas. The loss of
    any of these customers could result in a decline in our volumes,
    revenues and cash available for distribution.
  make-up
  We may
    not successfully balance our purchases and sales of natural gas,
    which would increase our exposure to commodity price
    risks.
   20




---



##### Table of Contents



If
    third-party pipelines and other facilities interconnected to our
    systems become unavailable to transport or produce natural gas
    and NGLs, our revenues and cash available for distribution could
    be adversely affected.
    Our
    industry is highly competitive, and increased competitive
    pressure could adversely affect our business and operating
    results.
    A
    change in the jurisdictional characterization of some of our
    assets by federal, state or local regulatory agencies or a
    change in policy by those agencies may result in increased
    regulation of our assets, which may cause our revenues to
    decline and operating expenses to increase.
     21




---



##### Table of Contents



We are
    subject to compliance with stringent environmental laws and
    regulations that may expose us to significant costs and
    liabilities.
      Our
    construction of new assets may not result in revenue increases
    and is subject to regulatory, environmental, political, legal
    and economic risks, which could adversely affect our results of
    operations and financial condition.
  rights-of-way rights-of-way
 22




---



##### Table of Contents



rights-of-way rights-of-way. rights-of-way
  If we
    do not make acquisitions on economically acceptable terms, our
    future growth will be limited.
      
    mistaken assumptions about volumes, revenues and costs,
    including synergies;
    an inability to integrate successfully the businesses we acquire;
    inadequate expertise for new geographic areas, operations or
    products and services;
    the assumption of unknown liabilities;
    limitations on rights to indemnity from the seller;
    mistaken assumptions about the overall costs of equity or debt;
    the diversion of managements and employees attention
    from other business concerns;
    unforeseen difficulties operating in new product areas or new
    geographic areas;
    customer or key employee losses at the acquired
    businesses; and
    establishment of internal controls and procedures that we are
    required to maintain under the Sarbanes-Oxley Act of 2002.      We do
    not own all of the land on which our pipelines and facilities
    are located, which could disrupt our operations.
  and/or right-of-way
 23




---



##### Table of Contents



Our
    business involves many hazards and operational risks, some of
    which may not be fully covered by insurance. If a significant
    accident or event occurs that is not fully insured, our
    operations and financial results could be adversely
    affected.
    
    damage to pipelines and plants, related equipment and
    surrounding properties caused by hurricanes, tornadoes, floods,
    fires and other natural disasters and acts of terrorism;
    inadvertent damage from construction, farm and utility equipment;
    leaks of natural gas, NGLs and other hydrocarbons or losses of
    natural gas or NGLs as a result of the malfunction of equipment
    or facilities;
    fires and explosions; and
    other hazards that could also result in personal injury and loss
    of life, pollution and suspension of operations.  and/or
  Our
    debt levels may limit our flexibility in obtaining additional
    financing and in pursuing other business
    opportunities.
    
    our ability to obtain additional financing, if necessary, for
    working capital, capital expenditures, acquisitions or other
    purposes may be impaired or such financing may not be available
    on favorable terms;
    we will need a portion of our cash flow to make interest
    payments on our debt, reducing the funds that would otherwise be
    available for operations, future business opportunities and
    distributions to unitholders;
    our debt level will make us more vulnerable to competitive
    pressures or a downturn in our business or the economy
    generally; and
    our debt level may limit our flexibility in responding to
    changing business and economic conditions. 24




---



##### Table of Contents



Restrictions
    in our amended and restated credit facility limit our ability to
    make distributions and limit our ability to capitalize on
    acquisitions and other business opportunities.
    Increases
    in interest rates, which have recently experienced record lows,
    could adversely impact our unit price and our ability to issue
    additional equity, to incur debt to make acquisitions or for
    other purposes or to make cash distributions at our intended
    levels.
    Due to
    our lack of industry and geographic diversification, adverse
    developments in our midstream operations or operating areas
    would reduce our ability to make distributions to our
    unitholders.
    We are
    exposed to the credit risks of our key producer customers, and
    any material nonpayment or nonperformance by our key producer
    customers could reduce our ability to make distributions to our
    unitholders.
   25




---



##### Table of Contents



Terrorist
    attacks, and the threat of terrorist attacks, have resulted in
    increased costs to our business. Continued hostilities in the
    Middle East or other sustained military campaigns may adversely
    impact our results of operations.
      If we
    fail to develop or maintain an effective system of internal
    controls, we may not be able to report our financial results
    accurately or prevent fraud.
    Risks
    Inherent in an Investment in Us
  We may
    not have sufficient cash from operations following the
    establishment of cash reserves and payment of fees and expenses,
    including cost reimbursements to our general partner, to enable
    us to make cash distributions to holders of our common units and
    subordinated units at the initial distribution rate under our
    cash distribution policy.
    
    the fees we charge and the margins we realize for our services; 26




---



##### Table of Contents




    the prices of, level of production of, and demand for, natural
    gas, NGLs and condensate;
    the volume of natural gas we gather, treat, compress, process,
    transport and sell, and the volume of NGLs we transport and sell;
    the producers drilling activities and success of such
    programs;
    the level of competition from other midstream energy companies;
    the level of our operating and maintenance and general and
    administrative costs;
    the relationship between natural gas and NGL prices; and
    prevailing economic conditions.    
    the level of capital expenditures we make;
    the cost of acquisitions;
    our debt service requirements and other liabilities;
    fluctuations in our working capital needs;
    our ability to borrow funds and access capital markets;
    restrictions contained in our debt agreements; and
    the amount of cash reserves established by our general partner.  The
    amount of cash we have available for distribution to holders of
    our common units and subordinated units depends primarily on our
    cash flow and not solely on profitability.
        Eagle
    Rock Holdings, L.P., owns a 54.0% limited partner interest in us
    and will control our general partner, which has sole
    responsibility for conducting our business and managing our
    operations. Our general partner has conflicts of interest, which
    may permit it to favor its own interests.
   27




---



##### Table of Contents




    neither our partnership agreement nor any other agreement
    requires the NGP Investors to pursue a business strategy that
    favors us;
    our general partner is allowed to take into account the
    interests of parties other than us in resolving conflicts of
    interest;
    The NGP Investors and its affiliates are not limited in their
    ability to compete with us;
    our general partner has limited its liability and reduced its
    fiduciary duties, and has also restricted the remedies available
    to our unitholders for actions that, without the limitations,
    might constitute breaches of fiduciary duty;
    our general partner determines the amount and timing of asset
    purchases and sales, borrowings, issuance of additional
    partnership securities and reserves, each of which can affect
    the amount of cash that is distributed to unitholders;
    our general partner determines the amount and timing of any
    capital expenditures and whether a capital expenditure is a
    maintenance capital expenditure, which reduces operating
    surplus, or an expansion capital expenditure, which does not
    reduce operating surplus. This determination can affect the
    amount of cash that is distributed to our unitholders and the
    ability of the subordinated units to convert to common units;
    our general partner determines which costs incurred by it and
    its affiliates are reimbursable by us;
    our partnership agreement does not restrict our general partner
    from causing us to pay it or its affiliates for any services
    rendered to us or entering into additional contractual
    arrangements with any of these entities on our behalf;
    our general partner intends to limit its liability regarding our
    contractual and other obligations and, in some circumstances, is
    entitled to be indemnified by us;
    our general partner may exercise its limited right to call and
    purchase common units if it and its affiliates own more than 80%
    of the common units;
    our general partner controls the enforcement of obligations owed
    to us by our general partner and its affiliates; and
    our general partner decides whether to retain separate counsel,
    accountants or others to perform services for us.  Affiliates
    of our general partner are not limited in their ability to
    compete with us, which could cause conflicts of interest and
    limit our ability to acquire additional assets or businesses
    which in turn could adversely affect our results of operations
    and cash available for distribution to our
    unitholders.
    Cost
    reimbursements due to our general partner and its affiliates for
    services provided, which will be determined by our general
    partner, will be substantial and will reduce our cash available
    for distribution.
   28




---



##### Table of Contents



Our
    general partner intends to limit its liability regarding our
    obligations.
    Our
    partnership agreement requires that we distribute all of our
    available cash, which could limit our ability to grow and make
    acquisitions.
      Our
    partnership agreement limits our general partners
    fiduciary duties to holders of our common units and subordinated
    units.
    
    its limited call right;
    its voting rights with respect to the units it owns;
    its registration rights; and
    and its determination whether or not to consent to any merger or
    consolidation of the partnership or amendment to the partnership
    agreement. 29




---



##### Table of Contents



Our
    partnership agreement restricts the remedies available to
    holders of our common units and subordinated units for actions
    taken by our general partner that might otherwise constitute
    breaches of fiduciary duty.
    
    provides that whenever our general partner makes a determination
    or takes, or declines to take, any other action in its capacity
    as our general partner, our general partner is required to make
    such determination, or take or decline to take such other action
    in good faith, and our general partner will not be subject to
    any other or different standard imposed by our partnership
    agreement, Delaware law or any other law, rule or regulation or
    at equity;
    provides that our general partner will not have any liability to
    us or our unitholders for decisions made in its capacity as a
    general partner so long as it acted in good faith, and our
    partnership agreement specifies that the satisfaction of this
    standard requires that our general partner must believe that the
    decision is in the best interests of our partnership;
    provides that our general partner and its officers and directors
    will not be liable for monetary damages to us, our limited
    partners or assignees for any acts or omissions unless there has
    been a final and non-appealable judgment entered by a court of
    competent jurisdiction determining that the general partner or
    those other persons acted in bad faith or engaged in fraud or
    willful misconduct or, in the case of a criminal matter, acted
    with knowledge that the conduct was criminal; and
    provides that our general partner will not be in breach of its
    obligations under the partnership agreement or its fiduciary
    duties to us or our unitholders if the resolution of a conflict
    is:  
    approved by the conflicts committee of our general partner,
    although our general partner is not obligated to seek such
    approval;
    approved by the vote of a majority of the outstanding common
    units, excluding any common units owned by our general partner
    or any of its affiliates;
    on terms no less favorable to us than those generally being
    provided to or available from unrelated third parties; or
    fair and reasonable to us, taking into account the totality of
    the relationships among the parties involved, including other
    transactions that may be particularly favorable or advantageous
    to us.    Holders
    of our common units have limited voting rights and are not
    entitled to elect our general partner or its
    directors.
   30




---



##### Table of Contents



Even
    if holders of our common units are dissatisfied, they cannot
    initially remove our general partner without its
    consent.
  2 3
  Our
    partnership agreement restricts the voting rights of unitholders
    owning 20% or more of our common units.
    Control
    of our general partner may be transferred to a third party
    without unitholder consent.
    We may
    issue additional units without limited partner approval, which
    would dilute ownership interests.
    
    our unitholders proportionate ownership interest in us
    will decrease;
    the amount of cash available for distribution on each unit may
    decrease; 31




---



##### Table of Contents




    because a lower percentage of total outstanding units will be
    subordinated units, the risk that a shortfall in the payment of
    the minimum quarterly distribution will be borne by our common
    unitholders will increase;
    the ratio of taxable income to distributions may increase;
    the relative voting strength of each previously outstanding unit
    may be diminished; and
    the market price of the common units may decline.  Affiliates
    of our general partner, certain private investors, and
    employees, may sell common units in the public markets, which
    sales could have an adverse impact on the trading price of the
    common units.
  lock-up
  Our
    general partner has a limited call right that may require
    limited partners to sell their units at an undesirable time or
    price.
    Liability
    of a limited partner may not be limited if a court finds that
    unitholder action constitutes control of our
    business.
    
    a court or government agency determined that we were conducting
    business in a state but had not complied with that particular
    states partnership statute; or
    the right to act with other unitholders to remove or replace the
    general partner, to approve some amendments to our partnership
    agreement or to take other actions under our partnership
    agreement constitute control of our business. 32




---



##### Table of Contents



Unitholders
    may have liability to repay distributions that were wrongfully
    distributed to them.
  Section 17-607
  The
    price of our common units may fluctuate
    significantly.
      
    our quarterly distributions;
    our quarterly or annual earnings or those of other companies in
    our industry;
    loss of a large customer;
    announcements by us or our competitors of significant contracts
    or acquisitions;
    changes in accounting standards, policies, guidance,
    interpretations or principles;
    general economic conditions;
    the failure of securities analysts to cover our common units or
    changes in financial estimates by analysts;
    future sales of our common units; and
    other factors described in these Risk Factors.  We
    will incur increased costs as a result of being a publicly
    traded partnership.
   33




---



##### Table of Contents



Tax Risks
    to Common Unitholders
  The
    tax efficiency of our partnership structure depends on our
    status as a partnership for federal income tax purposes, as well
    as our not being subject to a material amount of entity-level
    taxation by individual states. If the Internal Revenue Service
    were to treat us as a corporation or if we become subject to a
    material amount of entity-level taxation for state tax purposes,
    it would reduce the amount of cash available for
    distribution.
        If the
    IRS contests the federal income tax positions we take, the
    market for our common units may be adversely impacted and the
    cost of any IRS contest will reduce our cash available for
    distribution.
    Limited
    partners may be required to pay taxes on their share of our
    income even if they do not receive any cash distributions from
    us.
   34




---



##### Table of Contents



Tax
    gain or loss on disposition of our common units could be more or
    less than expected.
    Tax-exempt
    entities and foreign persons face unique tax issues from owning
    common units that may result in adverse tax consequences to
    them.
  non-U.S. persons non-U.S. persons non-U.S. persons
  We
    will treat each purchaser of our common units as having the same
    tax benefits without regard to the actual common units
    purchased. The IRS may challenge this treatment, which could
    adversely affect the value of the common units.
    The
    sale or exchange of 50% or more of our capital and profits
    interests during any twelve-month period will result in the
    termination of our partnership for federal income tax
    purposes.
    Limited
    partners will likely be subject to state and local taxes and
    return filing requirements in states where they do not live as a
    result of investing in our common units.
   35




---



##### Table of Contents



Item 1B.
    Unresolved
    Staff Comments.    Item 2.
    Properties.  rights-of-way rights-of-way rights-of-way
  rights-of-way,
    Item 3.
    Legal
    Proceedings.      Item 4.
    Submission
    of Matters to a Vote of Security Holders.   36




---



##### Table of Contents



PART II
  Item 5.
    Market
    for Registrants Common Equity, Related Unitholder Matters
    and Issuer Purchases of Equity Securities.    Distributionsper CommonQuarter Ended

High


Low


Unit(1)


Record Date(2)


Payment Date(2)Through December 2006

$
20.70


$
17.50


$
0.27



Feb. 7, 2007



Feb. 15, 2007     (1)
    
    Represents a prorated distribution to the common unitholders
    from the IPO date of October 24, 2006 through
    December 31, 2006.(2)
    
    Approved by the Board of the Partnership on January 24,
    2007.      Cash
    Distribution Policy
    
    provide for the proper conduct of our business;
    comply with applicable law or any partnership debt instrument or
    other agreement; or
    provide funds for distributions to unitholders and the general
    partner in respect of any one or more of the next four quarters.     37




---



##### Table of Contents



Sales of
    Unregistered Securities
    1-for-0.719
 38




---



##### Table of Contents



Item 6.
    Selected
    Financial Data.  page F-1
    Eagle Rock Energy Partners, L.P.For the Year Ended December 31,2006


2005


2004($ in thousands)Statement of Operations
    Data:Operating revenues

$
502,394


$
66,382


$
10,636Unrealized derivative
    gains/(losses)


(26,306
)


7,308



Realized derivative gains


2,302







Total operating revenues


478,390



73,690



10,636Cost of natural gas and NGLs


377,580



55,272



8,811Operating and maintenance expense


32,905



2,955



34General and administrative expense


13,161



4,765



2,406Advisory termination fee


6,000







Depreciation and amortization
    expense


43,220



4,088



619Operating Income
    (loss)


5,524



6,610



(1,234
)Interest and other (income)


(996
)


(171
)


(24
)Interest and other expense


28,604



4,031



(Loss) income before income
    taxes


(22,084
)


2,750



(1,210
)Income tax provision


1,230







(Loss) income from continuing
    operations


(23,314
)


2,750



(1,210
)Income from discontinued operations










22,192Net (loss) income

$
(23,314
)

$
2,750


$
20,982Earnings (loss) per unit from
    continuing operations 
    basicCommon units

$
(1.26
)

$
0.11


$
(0.05
)Subordinated units

$
(0.43
)

$



$
General partner

$
(0.80
)

$
4.06


$
(0.05
)Balance Sheet Data (at period
    end):Property plant and equipment, net

$
554,063


$
441,588


$
19,564Total assets


779,901



700,659



28,017Long-term debt


405,731



408,466



Net equity


291,987



208,096



27,655Cash Flow Data:Net cash flows provided by (used
    in):Operating activities

$
54,992


$
(1,667
)

$
3,652Investing activities


(134,873
)


(543,501
)


16,918Financing activities


71,088



556,304



(13,955
)Other Financial Data:Segment profit(1)

$
100,810


$
18,418


$
1,825Adjusted EBITDA(2)

$
81,192


$
3,390


$
(615
)     (1)
    
    Defined as operating revenues minus the cost of natural gas and
    NGLs and other cost of sales. Operating revenues include both
    realized and unrealized risk management activities.(2)
    
    Defined as net income (loss) plus income tax, interest-net,
    depreciation and amortization expense, other non-cash operating
    expenses less non realized revenues risk management loss (gain)
    activities and less net income from discontinued operations. 39




---



##### Table of Contents



GAAP to
    Non GAAP Reconciliations for the Years 2006, 2005 and
    2004
  Segment
    Profit reconciliation to Net Income (Loss)
  year-to-year
  For the Year Ending December 31,2006


2005


2004($ in thousands)Segment Profit:

$
100,810


$
18,418


$
1,825LessOperating and maintenance expense


32,905



2,955



34General and administrative expense


13,161



4,765



2,406Depreciation and amortization
    expense


43,220



4,088



619Interest-net
    including realized risk management instrument


30,383



5,459



(24
)Unrealized risk management
    interest related instrument


(2,775
)


(1,599
)


Advisory termination fee


6,000







Income tax provision


1,230







Income from discontinued operations










22,192Net (loss) income as
    reported

$
(23,314
)

$
2,750


$
20,982   Adjusted
    EBITDA reconciliation to Net Income (Loss)
  year-to-year
  For the Year Ending December 31,2006


2005


2004($ in thousands)Adjusted EBITDA:

$
81,192


$
3,390


$
(615
)LessIncome tax provision


1,230







Interest-net
    including realized risk management instrument


30,383



5,459



(24
)Unrealized risk management
    interest related instrument


(2,775
)


(1,599
)


Depreciation and amortization
    expense


43,220



4,088



619Restricted units amortization
    expense


142







Advisory termination fee


6,000







Income from discontinued operations










22,192PlusRisk management
    instrument-unrealized


(26,306
)


7,308



Net (loss) income as
    reported

$
(23,314
)

$
2,750


$
20,982  40




---



##### Table of Contents



For the Quarters EndedDecember 31,


September 30,


June 30,


March 31,2006


2006


2006


2006($ in thousands)Sales of natural gas, NGLs and
    condensate

$
113,909


$
132,830


$
123,250


$
116,922Gathering and treating services


4,367



4,549



4,192



1,754Risk management
    instrument  realized transactions


2,180



(449
)


(240
)


811Risk management
    instrument  unrealized


(4,975
)


14,480



(14,931
)


(20,881
)Other revenues


185



109



147



180Total operating
    revenues


115,666



151,519



112,418



98,787Cost of natural gas and NGLs


88,699



100,645



93,807



94,429Segment profit


26,967



50,873



18,610



4,358Operating and maintenance expense


9,013



9,227



8,881



5,784General and administrative expense


4,052



2,965



3,683



2,461Advisory termination fee


6,000











Depreciation and amortization
    expense


11,762



11,244



11,001



9,214Interest  net including
    realized risk management instrument


7,490



7,881



7,541



7,471Unrealized risk management
    interest related instrument


(136
)


6,449



(4,113
)


(4,975
)Income tax provision


486



236



508



Net (loss) income

$
(11,700
)

$
12,872


$
(8,889
)

$
(15,597
)Adjusted EBITDA

$
19,019


$
24,202


$
20,978


$
16,994Earnings per unit 
    basicCommon units

$
(0.09
)

$
0.44


$
(0.31
)

$
(0.63
)Subordinated units

$
(0.46
)

$
0.44


$
(0.31
)

$
(0.63
)General partner

$
(0.46
)

$
0.44


$
(0.31
)

$
(0.63
)  41




---



##### Table of Contents



For the Quarters EndedDecember 31,


September 30,


June 30,


March 31,2005


2005


2005


2005($ in thousands)Sales of natural gas, NGLs and
    condensate

$
43,839


$
6,255


$
5,030


$
4,797Gathering and treating services


6,070



(292
)


239



230Risk management
    instrument  realized transactions














Risk management
    instrument  unrealized


7,308











Other revenues


214











Total operating
    revenues


57,431



5,963



5,269



5,027Cost of natural gas and NGLs


41,530



4,896



4,720



4,126Segment profit


15,901



1,067



549



901Operating and maintenance expense


2,085



530



124



216General and administrative expense


3,364



475



493



433Advisory termination fee














Depreciation and amortization
    expense


3,310



258



260



260Interest  net including
    realized risk management instrument


5,693



(15
)


(12
)


(36
)Unrealized risk management
    interest related instrument


(1,599
)










Income tax provision














Other (income)


(171
)










Net income (loss)

$
3,219


$
(181
)

$
(316
)

$
28Adjusted EBITDA

$
3,144


$
62


$
(68
)

$
252Earnings per unit 
    basicCommon units

$
0.13


$
(0.01
)

$
(0.01
)

$
0.00Subordinated units

$



$



$



$
General partner

$
1.02


$



$



$
  42




---



##### Table of Contents



Eagle
    Rock Predecessor  Texas Panhandle
    Acquisition
    Eagle Rock PredecessorPeriod fromJanuary 1,2005 to


Year Ended


Year Ended


Year EndedNovember 30,


December 31,


December 31,


December 31,2005


2004


2003


2002($ in thousands)Statement of Operations
    Data:Operating revenues

$
396,953


$
335,519


$
297,290


$
194,898Unrealized derivative
    gains/(losses)














Realized derivative gains














Total operating revenues


396,953



335,519



297,290



194,898Cost of natural gas and NGLs


316,979



263,840



249,284



155,757Operating and maintenance expense


27,518



27,427



23,905



22,276General and administrative expense














Depreciation and amortization
    expense


8,157



8,268



7,187



7,457Operating Income


44,299



35,984



16,914



9,408Interest (income) expense


(859
)


(646
)


(189
)


Other (income)


(17
)


(23
)


(52
)


(944
)Income before income
    taxes


45,175



36,653



17,155



10,352Income tax provision


15,811



12,731



6,071



(6,465
)Income from continuing
    operations


29,364



23,922



11,084



16,817Discontinued operations














Cumulative effect of change in
    accounting principle










227



Net income

$
29,364


$
23,922


$
10,857


$
16,817Balance Sheet Data (at period
    end):Property plant and equipment, net

$
242,487


$
243,939


$
246,640


$
248,624Total assets


376,447



304,631



259,577



339,489Long-term debt














Net equity


233,708



204,344



180,422



159,281Cash Flow Data:Net cash flows provided by (used
    in):Operating activities

$
47,603


$
41,813


$
32,219


$
13,326Investing activities


(6,708
)


(5,567
)


(5,203
)


(12,992
)Financing activities


(40,895
)


(36,246
)


(27,016
)


(334
)  43




---



##### Table of Contents



Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations.  The following discussion analyzes our financial condition and
    results of operations. The following discussion of our financial
    condition and results of operations should be read in
    conjunction with our historical consolidated financial
    statements and notes included elsewhere in this Annual
    Report.
  Overview
  2
  
    our Texas Panhandle Systems from ONEOK Texas Field Services,
    L.P.;
    our Brookeland processing plant and system and Masters Creek
    system from Duke Energy Field Services, L.P. and Swift Energy
    Corporation;
    our pro-rata undivided interests in the Indian Springs
    processing plant and Camp Ruby gathering system, both of which
    are operated by an affiliate of Enterprise Products Partners,
    L.P.; and
    Midstream Gas Services, L.P.      Our
    Operations
  percent-of-proceeds
  Percent-of-proceeds
  
    Fee-Based Arrangements.  Under these
    arrangements, we generally are paid a fixed cash fee for
    performing the gathering and processing service. This fee is
    directly related to the volume of natural gas that flows through
    our systems and is not directly dependent on commodity prices. A
    sustained decline, however, in commodity prices could result in
    a decline in volumes and, thus, a decrease in our 44




---



##### Table of Contents



fee revenues. These arrangements provide stable cash flows, but
    minimal, if any, upside in higher commodity price environments.
    As of December 31, 2006, these arrangements accounted for
    approximately 11% of our natural gas volumes.  
    Percent-of-Proceeds
    Arrangements.  Under these arrangements, we
    generally gather raw natural gas from producers at the wellhead,
    transport the gas through our gathering system, process the gas
    and sell the processed gas
    and/or NGLs
    at prices based on published index prices. These arrangements
    provide upside in high commodity price environments, but result
    in lower margins in low commodity price environments. We regard
    the margin from this type of arrangement, that is, the sale
    proceeds less amounts remitted to the producers, as an important
    analytical measure of these arrangements. The price paid to
    producers is based on an agreed percentage of one of the
    following: (1) the actual sale proceeds; (2) the
    proceeds based on an index price; or (3) the proceeds from
    the sale of processed gas or NGLs or both. We refer to contracts
    in which we share only in specified percentages of the proceeds
    from the sale of NGLs and in which the producer receives 100% of
    the proceeds from natural gas sales, as
    percent-of-liquids
    arrangements. Under
    percent-of-proceeds
    arrangements, our margin correlates directly with the prices of
    natural gas and NGLs and under
    percent-of-liquids
    arrangements, our margin correlates directly with the prices of
    NGLs (although there is often a fee-based component to both of
    these forms of contracts in addition to the commodity sensitive
    component). As of December 31, 2006, these arrangements
    accounted for about 77% of our natural gas volumes.
    Approximately 76% of the
    percent-of-proceeds
    volumes as of December 31, 2006 also have fee components.
    Keep-Whole Arrangements.  Under these
    arrangements, we process raw natural gas to extract NGLs and pay
    to the producer the full thermal equivalent volume of raw
    natural gas received from the producer in the form of either
    processed gas or its cash equivalent. We are generally entitled
    to retain the processed NGLs and to sell them for our account.
    Accordingly, our margin is a function of the difference between
    the value of the NGLs produced and the cost of the processed gas
    used to replace the thermal equivalent value of those NGLs. The
    profitability of these arrangements is subject not only to the
    commodity price risk of natural gas and NGLs, but also to the
    price of natural gas relative to NGL prices. These arrangements
    can provide large profit margins in favorable commodity price
    environments, but also can be subject to losses if the cost of
    natural gas exceeds the value of its thermal equivalent of NGLs.
    Many of our keep-whole contracts include provisions that reduce
    our commodity price exposure, including (1) conditioning
    floors that require the keep-whole contract to convert to a
    fee-based arrangement if the NGLs have a lower value than their
    thermal equivalent in natural gas, (2) embedded discounts
    to the applicable natural gas index price under which we may
    reimburse the producer an amount in cash for the thermal
    equivalent volume of raw natural gas acquired from the producer,
    or (3) fixed cash fees for ancillary services, such as
    gathering, treating and compressing. As of December 31,
    2006, these arrangements accounted for about 10% of our natural
    gas volumes. Approximately 74% of these keep-whole arrangements
    have fee components.  percent-of-proceed percent-of-proceed
 45




---



##### Table of Contents



percent-of-proceed
    ONEOK Hydrocarbon.
  Chesapeake Energy Marketing.
  Anadarko E&P.
  Ergon Energy Partners, L.P.
  Cimarex Energy Marketing.
  How We
    Evaluate Our Operations
    Volumes.
 46




---



##### Table of Contents



Margins.
  Risk Management.
  Operating Expenses.
  Adjusted EBITDA. interest-net,
    General
    Trends and Outlook
   47




---



##### Table of Contents



Natural Gas Supply, Demand and
    Outlook.
      Impact of Interest Rates and Inflation.
    Financial
    Statement Presentation and Comparability of Financial
    Results
    
    The financial statements of Eagle Rock Pipeline, L.P., as the
    accounting acquirer of ONEOK Texas Field Services, L.P., and the
    entity contributed to Eagle Rock Energy Partners, L.P., in
    connection with our initial public offering. For a discussion of
    the results of operations of Eagle Rock Pipeline, please read
    Item 7. Managements Discussion and Analysis of
    Financial Condition and Results of Operations  Eagle
    Rock Pipeline Results of Operations. The financial statements of
    Eagle Rock Pipeline, together with the notes thereto, are also
    included elsewhere in this report.    
    We have grown rapidly through acquisitions. Our acquisitions
    were completed at different dates and with numerous sellers and
    were accounted for using the purchase method of accounting.
    Under the purchase method of accounting, results from such
    acquisitions are recorded in the financial statements only from
    the date of acquisition. 48




---



##### Table of Contents




    On December 5, 2003, Eagle Rock Pipeline commenced
    operations by acquiring the Dry Trail plant from Williams Field
    Service Company for approximately $18.0 million, and in
    July 2004, Eagle Rock Pipeline sold the Dry Trail plant to
    Celero Energy, L.P. for approximately $37.4 million,
    resulting in a pre-tax realized gain on the disposition of
    approximately $19.5 million in 2004. The Dry Trail
    operations are reflected as discontinued operations for Eagle
    Rock Pipeline for 2003 and 2004.
    In connection with our acquisition of Eagle Rock Predecessor on
    December 1, 2005, the book basis of the assets of Eagle
    Rock Predecessor was increased to reflect the purchase price,
    which had the effect of increasing the depreciation expense
    associated with the assets of Eagle Rock Energy Partners, L.P.
    As a result of our increased debt related to the acquisition of
    Eagle Rock Predecessor, our interest expense increased
    subsequent to December 1, 2005.
    After our acquisition of Eagle Rock Predecessor, we initiated a
    risk management program comprised of NGL puts, costless collars
    and swaps, crude costless collars and natural gas calls, as well
    as interest rate swaps that we accounted for using
    mark-to-market
    accounting. These amounts are included in unrealized/realized
    gain (loss) from risk management activities.
    We completed construction of the Tyler County pipeline on
    February 28, 2006, which was flowing 28.4 MMcf/d of
    natural gas to the Indian Springs processing plant as of
    December 31, 2006. As a result, our historical financial
    results for periods prior to March 31, 2006, do not include
    the financial results from the operation of this asset.
    On March 27, 2006, Eagle Rock Pipeline completed a private
    placement of 5,455,050 common units for $98.3 million to
    fund our Brookeland/Masters Creek acquisition. These common
    units in Eagle Rock Pipeline were converted into common units in
    us upon consummation of our initial public offering on
    approximately a
    1-for-0.719
    common unit basis.
    On March 31, 2006, we purchased an 80% interest in the
    Brookeland gathering and processing facility, a 76.3% interest
    in the Masters Creek gathering system and 100% of the Jasper NGL
    line from Duke Energy Field Services. On April 7, 2006, we
    purchased the remaining interest in the Brookeland and Masters
    Creek facilities owned by Swift Energy Corporation for a total
    purchase price of approximately $95.7 million. The acquired
    assets are located in southeast Texas and complement our
    existing southeast Texas assets. As a result, our historical
    financial results for periods prior to March 31, 2006 do
    not include the financial results from our ownership of these
    assets.
    On June 2, 2006, we purchased all of the partnership
    interests in Midstream Gas Services, L.P. for approximately
    $4.7 million in cash and 1,125,416 common units in Eagle
    Rock Pipeline. These common units in Eagle Rock Pipeline were
    converted into common units in us upon consummation of our
    initial public offering on approximately a
    1-for-0.719
    common unit basis. We will issue up to 798,155 of our common
    units (pre-IPO units), which we refer to as the Deferred Common
    Units, to Natural Gas Partners VII, L.P., the primary equity
    owner of MGS, as a contingent earn-out payment if MGS achieves
    certain financial objectives for the year ending
    December 31, 2007. The acquired operations are located in
    Roberts County in the Texas Panhandle within our East Panhandle
    System. We expect this acquisition to provide significant
    synergies and gathering and processing capacity and to enhance
    our strategic presence in the area. As a result, our historical
    financial results for the periods prior to June 2, 2006, do
    not include the financial results from our ownership of these
    interests.  Critical
    Accounting Policies and Estimates
   49




---



##### Table of Contents



Revenue and Cost of Sales Recognition.
    Risk Management Activities.
  mark-to-market mark-to-market
  Depreciation Expense and Cost Capitalization
    Policies.
      Impairment of Long-Lived Assets Accounting for the Impairment or
    Disposal of Long-Lived Assets.
 50




---



##### Table of Contents




    a significant decrease in the market price of a long-lived asset
    or asset group;
    a significant adverse change in the extent or manner in which a
    long-lived asset or asset group is being used or in its physical
    condition;
    a significant adverse change in legal factors or in the business
    climate could affect the value of a long-lived asset or asset
    group, including an adverse action or assessment by a regulator
    which would exclude allowable costs from the rate-making process;
    an accumulation of costs significantly in excess of the amount
    originally expected for the acquisition or construction of a
    long-lived asset or asset group;
    a current-period operating cash flow loss combined with a
    history of operating cash flow losses or a projection or
    forecast that demonstrates continuing losses associated with the
    use of a long-lived asset or asset group; and
    a current expectation that, more likely than not, a long-lived
    asset or asset group will be sold or otherwise disposed of
    significantly before the end of its previously estimated useful
    life.  Environmental Remediation.
  Accounting for Asset
    Retirement Obligations,
 51




---



##### Table of Contents



Eagle
    Rock Pipeline Results of Operations
    Year Ended


Year Ended


Year EndedDecember 31,


December 31,


December 31,2006


2005


2004($ in thousands)Operating Revenues:Sales of natural gas, NGLs and
    condensate

$
486,910


$
59,921


$
9,837Compressing, gathering and
    processing services


14,862



6,247



799Gain (loss) on risk management
    instruments


(24,004
)


7,308



Other


621



214



Total operating revenues


478,389



73,690



10,636Cost of natural gas and cost of
    natural gas and NGLs


377,580



55,272



8,811Segment gross margin(a)


100,810



18,419



1,825Operating and maintenance expense


32,905



2,955



34General and administrative expense


13,161



4,765



2,406Advisory termination fee


6,000Depreciation and amortization
    expense


43,220



4,088



619Interest and other income


(996
)


(171
)


(24
)Interest and other expense


28,604



4,031



Income tax provision


1,230







(Loss) income from continuing
    operations


(23,314
)


2,750



(1,210
)Income from discontinued operations










22,192Net (loss) income

$
(23,314
)

$
2,750


$
20,982Adjusted EBITDA(b)

$
81,192


$
3,390


$
(615
)     (a)
    
    Segment gross margin consists of total revenues less cost of
    natural gas and NGLs. Please read Summary 
    Non-GAAP Financial Matters.(b)
    
    Adjusted EBITDA consists of net income plus income tax,
    interest-net,
    depreciation and amortization expense, other non-cash operating
    expenses less non realized revenues risk management loss (gain)
    activities and less net income from discontinued operations.  Year
    Ended December 31, 2006 Compared with Year Ended
    December 31, 2005
      mark-to-market
 52




---



##### Table of Contents



mark-to-market
      mark-to-market
              mark-to-market mark-to-market
   53




---



##### Table of Contents



Year
    Ended December 31, 2005 Compared with Year Ended
    December 31, 2004
    Other
    Matters
  Hurricanes Katrina and Rita.
  Wild fires in Texas Panhandle.
  Environmental. on-site clean-up
 54




---



##### Table of Contents



Liquidity
    and Capital Resources
      
    cash generated from operations;
    borrowings under our credit facilities;
    debt offerings; and
    issuance of additional partnership units.    Cash
    Flows
    
    the acquisition of the midstream assets in the Texas Panhandle
    on December 1, 2005 for approximately $531.1 million,
    which was financed through an additional equity contribution of
    $133.0 million and debt of $400.0 million, not
    including $27.5 million in risk management costs related to
    option premiums; and
    the acquisition of the Brookeland gathering and processing
    facility and related assets on March 31, 2006 and
    April 7, 2006 for approximately $95.8 million, which
    we financed entirely with equity.
    the acquisition of all of the partnership interests in Midstream
    Gas Services, L.P. on June 2, 2006 for approximately
    $25.0 million which we paid with $4.7 million in cash
    and $20.3 million in Eagle Rock Pipeline, L.P. units.  Working Capital (Deficit).
    
    cash balances decreased overall by $8.8 million and was
    impacted from the results of operations, timing of cash receipts
    and disbursements, as well as capital expenditures levels;
    risk management net working capital balance decreased by a net
    $8.0 million as a result of the changes in the
    mark-to-market
    unrealized positions and fair value changing of the option
    premiums;
    prepayments and other current assets increased by
    $1.4 million primarily from the property and liability
    prepaid insurance balances;
    accounts payable decreased by $2.7 million from
    December 31, 2006, primarily as a result of timing of
    payments and impacts from commodity price changes for natural
    gas and NGLs; and
    accrued liabilities increase of $14.6 million primarily
    reflects accrued interest for the credit agreement, property tax
    accruals, employee paid absence liability and other accruals.  Cash
    Flows Year Ended 2006 Compared to Year Ended 2005
  Cash Flow from Operating Activities.
 55




---



##### Table of Contents



Cash Flows From Investing Activities. rights-of-way
  Cash Flows From Financing Activities.
  Capital
    Requirements
    
    growth capital expenditures, which are made to acquire
    additional assets to increase our business, to expand and
    upgrade existing systems and facilities or to construct or
    acquire similar systems or facilities; or
    maintenance capital expenditures, which are made to replace
    partially or fully depreciated assets, to meet regulatory
    requirements, to maintain the existing operating capacity of our
    assets and extend their useful lives or to maintain existing
    system volumes and related cash flows.       56




---



##### Table of Contents



Amended
    and Restated Credit Agreement
          
    an interest coverage ratio (the ratio of our consolidated
    Adjusted EBITDA to our consolidated interest expense, in each
    case as defined in the credit agreement) of not less than 2.5 to
    1.0, determined as of the last day of each quarter for the four
    quarter period ending on the date of determination; and a
    leverage ratio (the ratio of our consolidated indebtedness to
    our consolidated Adjusted EBITDA, in each case as defined in the
    credit agreement) of not more than 5.0 to 1.0 (or, on a
    temporary basis for not more than three consecutive quarters
    following the consummation of certain acquisitions, not more
    than 5.25 to 1.0).    Off-Balance Sheet Obligations.
 57




---



##### Table of Contents



Debt Covenants.
  Total Contractual Cash Obligations.
  Payments Due by PerioContractual Obligations

Total


2007


2008


2009


2010-2011


Thereafter($ in millions)Long-term debt (including
    interest)(1)

$
554.8


$
31.1


$
31.1


$
31.1


$
461.5


$
0.0Operating leases


4.4



0.7



0.7



0.7



0.3



2.0Purchase obligations(2)






















Total contractual obligations

$
559.2


$
31.8


$
31.8


$
31.8


$
461.8


$
2.0     (1)
    
    Assumes our fixed swapped average interest rate of 4.92% plus
    the applicable margin under our amended and restated credit
    agreement, which remains constant in all periods.(2)
    
    Excludes physical and financial purchases of natural gas, NGLs,
    and other energy commodities due to the nature of both the price
    and volume components of such purchases, which vary on a daily
    or monthly basis. Additionally, we do not have contractual
    commitments for fixed price
    and/or fixed
    quantities of any material amount.  Recent
    Accounting Pronouncements
  Accounting for
    Certain Hybrid Financial Instruments Accounting for Transfers and
    Servicing of Financial Assets and Extinguishments of
    Liabilities
  Fair Value Measurements.
  The
    Fair Value Option for Financial Assets and Financial
    Liabilities
 58




---



##### Table of Contents



FAS 13-1 rights-of-way
  Accounting for Uncertainty in Income Taxes  an
    interpretation of FASB Statement No. 109
  Recent
    Developments
            Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk.  Risk and
    Accounting Policies
   59




---



##### Table of Contents



Commodity
    Price Risk
    percent-of-proceed percent-of-proceed percent-of-proceed
   60




---



##### Table of Contents



Cap

FloorNotional



Strike

StrikeVolumes



Price

Price


FairCommodity

Period


(Bbls)

Type

($/gal)

($/gal)


Value($ in thousands)Ethane


Jan-Dec 2007


408,000

Puts



$
0.5396


$
989Jan-Dec 2008


102,000

Costless Collar

0.6500


0.5500



115Jan-Dec 2009


42,000

Costless Collar

0.5800


0.4800



0Jan-Dec 2010


108,000

Costless Collar

0.5300


0.4300



(94
)Propane


Jan-Dec 2007


636,000

Puts



$
0.9000


$
3,019Jan-Dec 2009


126,000

Costless Collar

0.8700


0.7650



(400
)Jan-Dec 2010


120,000

Costless Collar

0.8100


0.7050



(505
)Normal Butane


Jan-Dec 2007


384,000

Puts



$
1.0900


$
2,174Jan-Dec 2009


66,000

Costless Collar

1.0350


0.9350



(244
)Jan-Dec 2010


132,000

Costless Collar

1.0200


0.8200



(636
)Iso Butane


Jan-Dec 2007


156,000

Puts



$
1.0888


$
951Jan-Dec 2009


30,000

Costless Collar

1.0350


0.9350



(119
)Jan-Dec 2010


60,000

Costless Collar

1.0200


0.8200



(302
)Natural Gasoline


Jan-Dec 2007


564,000

Puts



$
1.2413


$
3,566Total















$
8,514     NotionalVolumes

Wt. Avg. $/Gallon

Fair MarketCommodity

Period


(MBbls)

We Receive


We Pay

Value($ in thousands)Ethane


Jan-Dec 2007



96


$
0.6950


OPIS avg

$
494Jan-Dec 2008



102



0.6000


OPIS avg


162Jan-Dec 2009



120



0.5300


OPIS avg


45Jan-Dec 2010



108



0.4800


OPIS avg


(65
)Propane


Jan-Dec 2007



60


$
0.9300


OPIS avg

$
(23
)Jan-Dec 2009



126



0.8150


OPIS avg


(413
)Jan-Dec 2010



120



0.7550


OPIS avg


(519
)Normal Butane


Jan-Dec 2007



24


$
1.1400


OPIS avg

$
19Jan-Dec 2009



66



0.9850


OPIS avg


(244
)Iso Butane


Jan-Dec 2007



12


$
1.1400


OPIS avg

$
5Jan-Dec 2009



30



0.9850


OPIS avg


(119
)Total















$
(658
)  61




---



##### Table of Contents



Cap


FloorNotional




Strike


Strike


FairVolumes




Price


Price


MarketPeriod

Commodity

(Bbls)


Type

($/Bbl)


($/Bbl)


Value($ in thousands)Jan-Dec 2007

NYMEX WTI


528,000


Puts






$ 50.00


$
1,645Jan-Dec 2007

NYMEX WTI


720,000


Costless Collar


81.66



75.00



7,971Jan-Dec 2008

NYMEX WTI


960,000


Costless Collar


67.39



50.00



(5,281
)Jan-Dec 2009

NYMEX WTI


480,000


Costless Collar


66.40



50.00



(2,614
)Jan-Dec 2010

NYMEX WTI


480,000


Costless Collar


67.86



50.00



(2,154
)Jan-Dec 2007

NYMEX WTI   WTS


240,000


Swap


WTS



WTI   $  6.05



(334
)DifferentialTotal

















$
(767
)     Wt. Avg.Notional




Strike


FairVolumes




Price


MarketPeriod

Commodity

(MMBtu)


Type

($ MMBtu)


Value($ in thousands)Jan-Dec 2007

NYMEX Henry Hub


1,200,000


Calls


9.63



1,135Total













$
1,135       Year Ended


Year Ended12/31/2006


12/31/2005($ in thousands)Net risk management assets at
    beginning of period

$
33,160


$
Investment premium payments
    (amortization)


(19,227
)


27,452Cash received from settled
    contracts


(2,824
)


Settlements of positions


2,824



Unrealized
    mark-to-market
    valuations of positions


(4,305
)


5,708Balance of risk management assets
    at end of period

$
9,628


$
33,160   Credit
    Risk
    Interest
    Rate Risk
   62




---



##### Table of Contents



Fair ValueExpiration


Notional





Amounts Paid


December 31,Effective Date

Date


Amount


Fixed Rate


in 2005


2006(Millions)01/03/2006


01/03/2011


$
100



4.9500



0.00


$
(318,782
)01/03/2006


01/03/2011



100



4.9625



0.00



(267,129
)01/03/2006


01/03/2011



50



4.8800



0.00



(294,612
)01/03/2006


01/03/2011



50



4.8800



0.00



(294,612
)   Item 8.
    Financial
    Statements and Supplementary Data.  page F-1
  Item 9.
    Changes
    in and Disagreements With Accountants on Accounting and
    Financial Disclosure.    Item 9A.
    Controls
    and Procedures.  Disclosure
    Controls
      Internal
    Control over Financial Reporting
   63




---



##### Table of Contents



Rule 13a-15 Rule 13a-14.
    Item 9B.
    Other
    Information.    PART III
  Item 10.
    Directors,
    Executive Officers and Corporate Governance.    Name

Age

Position with Eagle Rock Energy G&P, LLCAlex A. Bucher, Jr.


52


President and Chief Executive
    Officer, DirectorRichard W. FitzGerald


52


Senior Vice President, Chief
    Financial Officer and TreasurerAlfredo Garcia


41


Senior Vice President, Corporate
    DevelopmentWilliam E. Puckett


51


Senior Vice President, Commercial
    OperationsJ. Stacy Horn


45


Vice President, Commercial
    DevelopmentStephen O. McNair


44


Vice President, Operations and
    Technical ServicesWilliam J. Quinn


36


Director, Chairman of the BoardKenneth A. Hersh


43


DirectorPhilip B. Smith


55


DirectorJohn A. Weinzierl


38


DirectorWilliam K. White


64


Director     Alex A. Bucher, Jr.
 64




---



##### Table of Contents



Richard W. FitzGerald
  Alfredo Garcia start-up
  William E. Puckett
  J. Stacy Horn
  Stephen McNair
  William J. Quinn
  Kenneth A. Hersh
 65




---



##### Table of Contents



Philip B. Smith
  John A. Weinzierl
  William K. White
    Item 11.
    Executive
    Compensation.  Reimbursement
    of Expenses of Our General Partner
    Executive
    Compensation
   66




---



##### Table of Contents



Employment
    and Severance Agreements
      Compensation
    of Directors
  out-of-pocket
 67




---



##### Table of Contents



Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Unitholder Matters.    
    each person or group of persons who then will beneficially own
    5% or more of the then outstanding units;
    each member of the board of directors of Eagle Rock Energy
    G&P, LLC;
    each named executive officer of Eagle Rock Energy G&P,
    LLC; and
    all directors and officers of Eagle Rock Energy G&P, LLC as
    a group.  Percentage of





Percentage of


Percentage of TotalCommon


Common


Subordinated


Subordinated


Common andUnits to be


Units to be


Units to be


Units to be


Subordinated UnitsBeneficially


Beneficially


Beneficially


Beneficially


to be BeneficiallyName of Beneficial Owner(1)

Owned


Owned


Owned


Owned


OwnedEagle Rock Holdings, L.P.(2)


2,187,871



10.5
%


20,691,495



100.0
%


55.1
%Robert J. Raymond(3)


1,348,581



6.5
%







%


3.2
%Williams, Jones &
    Associates, Inc.(4)


1,334,950



6.4
%







%


3.2
%Alex A. Bucher, Jr.(2)(7)


175,989



*
%


1,615,212



7.8
%


4.3
%Joan A. W. Schnepp(2)(5)(7)


113,210



*
%


1,065,944



5.2
%


2.8
%Richard W. FitzGerald(2)(7)


32,986



*
%


170,097



*
%


*
%Alfredo Garcia(2)(7)


80,691



*
%


763,122



3.7
%


2.0
%William E. Puckett(2)(7)


28,337



*
%


173,416



*
%


*
%J. Stacy Horn(2)(7)


24,674



*
%


124,590



*
%


*
%Stephen O. McNair(2)(7)


21,905



*
%


107,867



*
%


*
%Kenneth A. Hersh(6)







%







%



%William J. Quinn


10,000



*
%






*
%


*
%John A. Weinzierl


8,800



*
%






*
%


*
%William K. White


7,700



*
%






*
%


*
%Philip B. Smith


5,000



*
%






*
%


*
%All directors and executive
    officers as a group (12 persons)


509,292



2.4
%


4,020,248



19.4
%


10.9
%     *
    
    Less than 1%(1)
    
    Unless otherwise indicated, the address for all beneficial
    owners in this table is 16701 Greenspoint Park Drive,
    Suite 200 Houston, Texas 77060.(2)
    
    Natural Gas Partners VII, L.P., Natural Gas Partners VIII, L.P.,
    Alex A. Bucher, Jr., Joan A. W. Schnepp, Richard W.
    FitzGerald, Alfredo Garcia, William E. Puckett, J. Stacy Horn
    and Stephen O. McNair have approximately a 31.09%, 47.94%,
    7.80%, 5.15%, 0.82%, 3.69%, 0.84%, 0.60% and 0.52% limited
    partner interest, respectively, in Eagle Rock Holdings, L.P.
    Eagle Rock GP, L.L.C., which is owned 39.14%, 60.35%, 0.35% and
    0.16% by Natural Gas Partners VII, L.P., Natural Gas Partners
    VIII, L.P., Mr. Bucher and Ms. Schnepp, respectively,
    owns a 1.0% general partner interest in Eagle Rock Holdings,
    L.P. The units held by Eagle Rock Holdings, L.P., are reported
    in this table as beneficially owned by Mr. Bucher,
    Ms. Schnepp, Mr. Garcia, Mr. Puckett,
    Mr. FitzGerald, Mr. McNair and Mr. Horn in
    proportion to their beneficial ownership in Eagle Rock Holdings,
    L.P., and Eagle Rock GP, L.L.C.(3)
    
    RR Advisors, LLC, RCH Energy MLP Fund GP, L.P., RCH Energy
    MLP Fund, L.P., RCH Energy MLP Fund-A, L.P., RCH Energy
    Opportunity Fund I GP, L.P., and RCH Energy Opportunity
    Fund I, L.P. all beneficially own units of Eagle Rock
    Energy Partners, L.P. Robert J. Raymond is the sole member of RR
    Advisors, LLC, which is the general partner of RCH Energy
    Opportunity Fund I GP, L.P., which is the 68




---



##### Table of Contents



general partner of RCH Energy Opportunity Fund I, L.P., and
    RCH Energy MLP Fund GP, L.P., which is the general partner
    of RCH Energy MLP Fund, L.P., and RCH Energy MLP Fund-A, L.P.
    and, as sole member of each entity, Mr. Raymond holds
    voting and dispositive power over the units owned by each such
    entity.(4)
    
    Kenneth A. Paulo, Senior Vice President of Williams,
    Jones & Associates, Inc., has voting and dispositive
    power over the units beneficially owned by Williams,
    Jones & Associates, Inc.(5)
    
    Effective January 31, 2007, Ms. Schnepp resigned from
    all offices and her position as a member of the board of
    directors of Eagle Rock Energy G&P, LLC.(6)
    
    G.F.W. Energy VII, L.P., GFW VII, L.L.C., G.F.W. Energy VIII,
    L.P. and GFW VIII, L.L.C. may be deemed to beneficially own the
    units held by Eagle Rock Holdings, L.P., that are attributable
    to Natural Gas Partners VII, L.P. and Natural Gas Partners VIII,
    L.P. by virtue of GFW VII, L.L.C. being the sole general partner
    of G.F.W. Energy VII, L.P. and GFW VIII, L.L.C. being the sole
    general partner of G.F.W. Energy VIII, L.P. Kenneth A. Hersh,
    who is a member of each of GFW VII, L.L.C. and GFW VIII, L.L.C.,
    may also be deemed to share the power to vote, or to direct the
    vote, and to dispose, or to direct the disposition of, the
    units. Mr. Hersh disclaims any deemed beneficial ownership
    of the units held by Eagle Rock Holdings, L.P.(7)
    
    In addition to the units he holds through his ownership of Eagle
    Rock Holdings, L.P., and Eagle Rock G&P, LLC, Alex A.
    Bucher, Jr. also owns 5,200 units through our directed
    unit program. In addition to the units she holds through her
    ownership of Eagle Rock Holdings, L.P., and Eagle Rock G&P,
    LLC, Joan A.W. Schnepp also owns 500 units through our
    directed unit program. In addition to the units he holds through
    his ownership of Eagle Rock Holdings, L.P., Richard W.
    FitzGerald also beneficially owns 5,000 units through our
    directed unit program, plus 10,000 units that are subject
    to a three-year vesting schedule pursuant to our long-term
    incentive plan. In addition to the units he holds through his
    ownership of Eagle Rock Holdings, L.P., William E. Puckett also
    beneficially owns 10,000 units that are subject to a
    three-year vesting schedule pursuant to our long-term incentive
    plan. In addition to the units he holds through his ownership of
    Eagle Rock Holdings, L.P., J. Stacy Horn also beneficially owns
    1,500 units through our directed unit program plus
    10,000 units that are subject to a three-year vesting
    schedule pursuant to our long-term incentive plan. In addition
    to the units he holds through his ownership of Eagle Rock
    Holdings, L.P., Stephen O. McNair also beneficially owns
    500 units through our directed unit program plus
    10,000 units that are subject to a three-year vesting
    schedule pursuant to our long-term incentive plan.  Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence.     69




---



##### Table of Contents



month-to-month
    Item 14.
    Principal
    Accountant Fees and Services.    December 312006


2005


2004Audit fees(1)

$
1,762,006


$
1,180,000


$
234,000Audit related fees(2)






60,000



Tax fees(3)


16,660



53,000



164,000All other fees










Total

$
1,778,666


$
1,293,000


$
398,000     (1)
    
    Includes fees for audits of annual financial statements of our
    companies, reviews of the related quarterly financial
    statements, and services that are normally provided by the
    independent accountants in connection with statutory and
    regulatory filings or engagements, including reviews of interim
    financial statements, audits of businesses acquired and other
    customary documents filed with the Securities and Exchange
    Commission.(2)
    
    Includes fees related to consultations concerning financial
    accounting and reporting standards and services related to the
    implementation of our internal controls over financial reporting.(3)
    
    Includes fees related to professional services for tax
    compliance, tax advice, and tax planning.   70




---



##### Table of Contents




    the auditors internal quality-control procedures;
    any material issues raised by the most recent internal
    quality-control review, or peer review, of the external auditors;
    the independence of the external auditors;
    the aggregate fees billed by our external auditors for each of
    the previous two fiscal years; and
    the rotation of the lead partner.  PART IV
  Item 15.
    Exhibits
    and Financial Statement Schedules.  Financial Statements:
    Financial Statement Schedules:
    Exhibits:
    ExhibitNumber

Description3
.1

Certificate of Limited Partnership
    of Eagle Rock Energy Partners, L.P. (incorporated by reference
    to Exhibit 3.1 of the registrants registration
    statement on
    Form S-1
    (File
    No. 333-134750))3
.2

Amended and Restated Agreement of
    Limited Partnership of Eagle Rock Energy Partners, L.P.
    (included as Appendix A to the Prospectus and including
    specimen unit certificate for the common units) (incorporated by
    reference to Exhibit 3.2 of the registrants
    registration statement on
    Form S-1
    (File
    No. 333-134750))3
.3

Certificate of Limited Partnership
    of Eagle Rock Energy GP, L.P. (incorporated by reference to
    Exhibit 3.3 of the registrants registration statement
    on
    Form S-1
    (File
    No. 333-134750))3
.4

Limited Partnership Agreement of
    Eagle Rock Energy GP, L.P. (incorporated by reference to
    Exhibit 3.4 of the registrants registration statement
    on
    Form S-1
    (File
    No. 333-134750))3
.5

Certificate of Formation of Eagle
    Rock Energy G&P, LLC (incorporated by reference to
    Exhibit 3.5 of the registrants registration statement
    on
    Form S-1
    (File
    No. 333-134750)) 71




---



##### Table of Contents



ExhibitNumber

Description3
.6

Amended and Restated Limited
    Liability Company Agreement of Eagle Rock Energy G&P, LLC
    (incorporated by reference to Exhibit 3.6 of the
    registrants registration statement on
    Form S-1
    (File
    No. 333-134750))4
.1

Registration Rights Agreement
    dated March 27, 2006, among Eagle Rock Pipeline, L.P. and
    the Purchasers listed thereto (incorporated by reference to
    Exhibit 4.1 of the registrants registration statement
    on
    Form S-1
    (File
    No. 333-134750))4
.2

Tag Along Agreement dated
    March 27, 2006, among Eagle Rock Pipeline, L.P., Eagle Rock
    Pipeline GP, LLC, Eagle Rock Holdings, L.P., and the Purchasers
    listed thereto. (incorporated by reference to Exhibit 4.2
    of the registrants registration statement on
    Form S-1
    (File
    No. 333-134750))4
.3

Form of Registration Rights
    Agreement between Eagle Rock Energy Partners, L.P. and Eagle
    Rock Holdings, L.P. (incorporated by reference to
    Exhibit 4.3 of the registrants registration statement
    on
    Form S-1
    (File
    No. 333-134750))4
.4

Form of Common Unit Certificate
    (included as Exhibit A to the Amended and Restated
    Partnership Agreement of Eagle Rock Energy Partners, L.P., which
    is included as Appendix A to the Prospectus) (incorporated
    by reference to Exhibit 3.2 of the registrants
    registration statement on
    Form S-1
    (File
    No. 333-134750))10
.1

Amended and Restated Credit and
    Guaranty Agreement (incorporated by reference to
    Exhibit 3.1 of the registrants registration statement
    on
    Form S-1
    (File
    No. 333-134750))10
.2

Form of Omnibus Agreement
    (incorporated by reference to Exhibit 3.1 of the
    registrants registration statement on
    Form S-1
    (File
    No. 333-134750))10
.3**

Form of Eagle Rock Energy
    Partners, L.P. Long-Term Incentive Plan (incorporated by
    reference to Exhibit 10.3 of the registrants
    registration statement on
    Form S-1
    (File
    No. 333-134750))10
.4

Sale, Contribution and Exchange
    Agreement by and among the general and limited partners of
    Midstream Gas Services, L.P., Eagle Rock Energy Services, L.P.
    and Eagle Rock Pipeline, L.P. (incorporated by reference to
    Exhibit 10.4 of the registrants registration
    statement on
    Form S-1
    (File
    No. 333-134750))10
.5

Natural Gas Liquids Exchange
    Agreement by and between ONEOK Hydrocarbon, L.P. and ONEOK Texas
    Field Services, L.P. (incorporated by reference to
    Exhibit 10.5 of the registrants registration
    statement on
    Form S-1
    (File
    No. 333-134750))10
.6

Gas Sales and Purchase Agreement
    between MC Panhandle, Inc. (Chesapeake Energy Marketing Inc.)
    and MidCon Gas Services Corp. (Eagle Rock Field Services, L.P.)
    (incorporated by reference to Exhibit 10.6 of the
    registrants registration statement on
    Form S-1
    (File
    No. 333-134750))10
.7

Brookeland Gas Facilities Gas
    Gathering and Processing Agreement between Union Pacific
    Resources Company (Anadarko E&P Company LP) and Sonat
    Exploration Company (Eagle Rock Field Services, L.P.)
    (incorporated by reference to Exhibit 10.7 of the
    registrants registration statement on
    Form S-1
    (File
    No. 333-134750))10
.8

Minimum Volume Agreement between
    ONEOK Texas Field Services L.P. and Peak Operating of Texas, LLC
    (incorporated by reference to Exhibit 10.8 of the
    registrants registration statement on
    Form S-1
    (File
    No. 333-134750))10
.9

Gas Purchase Agreement between
    ONEOK Texas Field Services L.P. and Peak Operating of Texas, LLC
    (incorporated by reference to Exhibit 10.9 of the
    registrants registration statement on
    Form S-1
    (File
    No. 333-134750))10
.10

Gas Purchase Contract between
    Warren Petroleum Company (Eagle Rock Field Services, L.P.) and
    Wallace Oil & Gas, Inc. (Cimarex Energy Co.)
    (incorporated by reference to Exhibit 10.10 of the
    registrants registration statement on
    Form S-1
    (File
    No. 333-134750))10
.11

Form of Contribution, Conveyance
    and Assumption Agreement (incorporated by reference to
    Exhibit 10.11 of the registrants registration
    statement on
    Form S-1
    (File
    No. 333-134750))10
.12**

Employment Agreement dated
    August 2, 2006 between Eagle Rock Energy G&P, LLC and
    Richard W. FitzGerald (incorporated by reference to
    Exhibit 10.12 of the registrants registration
    statement on
    Form S-1
    (File
    No. 333-134750)) 72




---



##### Table of Contents



ExhibitNumber

Description10
.13

Base Contract for Sale and
    Purchase of Natural Gas between Eagle Rock Field Services, L.P.
    and Odyssey Energy Services, LLC (incorporated by reference to
    Exhibit 10.13 of the registrants registration
    statement on
    Form S-1
    (File
    No. 333-134750))14
.1

Code of Ethics posted on the
    Companys website at www.eaglerockenergy.com.21
.1

List of Subsidiaries of Eagle Rock
    Energy Partners, L.P. (incorporated by reference to
    Exhibit 21.1 of the registrants registration
    statement on
    Form S-1
    (File
    No. 333-134750))23
.1*

Consent of Deloitte &
    Touche LLP24
.1*

Powers of Attorney31
.1*

Certification of Periodic
    Financial Reports by Alex A. Bucher, Jr. in satisfaction of
    Section 302 of the Sarbanes-Oxley Act of 200231
.2*

Certification of Periodic
    Financial Reports by Richard W. FitzGerald in satisfaction of
    Section 302 of the Sarbanes-Oxley Act of 200232
.2*

Certification of Periodic
    Financial Reports by Alex A. Bucher, Jr. in satisfaction of
    Section 906 of the Sarbanes-Oxley Act of 200232
.2*

Certification of Periodic
    Financial Reports by Richard W. FitzGerald in satisfaction of
    Section 906 of the Sarbanes-Oxley Act of 2002     *
    
    Filed herewith**
    
    Management contract or compensatory plan or arrangement required
    to be filed as an exhibit hereto.
    
    Portions of this exhibit have been omitted pursuant to a request
    for confidential treatment. 73




---



##### Table of Contents



SIGNATURES
    EAGLE ROCK ENERGY PARTNERS, L.P.
  By:
    /s/  Alex
    A. Bucher, Jr.   Title:
    President and Chief Executive Officer  EAGLE ROCK ENERGY PARTNERS, L.P.
  By:
    /s/  Richard
    W. FitzGerald   Title:
    Senior Vice President, Chief Financial Officer and Treasurer    Signature

Title

Date/s/  Alex
    A. BucherAlex
    A. Bucher

President and Chief Executive
    Officer (Principal Executive Officer)

April 2, 2007/s/  Richard
    W. FitzGeraldRichard
    W. FitzGerald

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

April 2, 2007/s/  Alfredo
    GarciaAlfredo
    Garcia

Senior Vice President, 
    Corporate Development

April 2, 2007/s/  William
    J. QuinnWilliam
    J. Quinn

Chairman of the Board and Director

April 2, 2007 74




---



##### Table of Contents



Signature

Title

Date/s/  Kenneth
    A. HershKenneth
    A. Hersh

Director

April 2, 2007/s/  Philip
    B. SmithPhilip
    B. Smith

Director

April 2, 2007/s/  John
    A. WeinzierlJohn
    A. Weinzierl

Director

April 2, 2007/s/  William
    K. WhiteWilliam
    K. White

Director

April 2, 2007  75




---



##### Table of Contents



CONSOLIDATED
    FINANCIAL STATEMENTS
    OF EAGLE ROCK ENERGY PARTNERS, L.P.
    INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
  PageReport of
    Independent Registered Public Accounting Firm


F-2Consolidated
    Balance Sheets as of December 31, 2006 and
    2005


F-3Consolidated
    Statements of Operations for the years ended December 2006, 2005
    and 2004


F-4Consolidated
    Statements of Cash Flows for the years ended December 31,
    2006, 2005 and 2004


F-5Consolidated
    Statements of Members Equity for the years ended 2006,
    2005 and 2004


F-6Notes to
    Consolidated Financial StatementsNote 1. Organization
    and Description of Business


F-7Note 2. Summary
    of Significant Accounting Policies


F-7Note 3. New
    Accounting Pronouncements


F-11Note 4. Acquisitions


F-12Note 5. Fixed
    Assets and Asset Retirement Obligations


F-14Note 6. Long-term
    Debt


F-15Note 7. Members
    Equity


F-17Note 8. Related
    Party Transactions


F-18Note 9. Fair
    Value of Financial Instruments


F-19Note 10. Risk
    Management Activities


F-19Note 11.
    Commitments and Contingent Liabilities


F-20Note 12.
    Segments


F-21Note 13.
    Discontinued Operations


F-23Note 14.
    Employee Benefit Plans


F-23Note 15.
    Income Taxes


F-23Note 16.
    Equity-Based Compensation


F-24Note 17.
    Earnings Per Unit


F-24Note 18.
    Subsequent Events


F-25




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                F-2




---



##### Table of Contents



EAGLE
    ROCK ENERGY PARTNERS, L.P.



CONSOLIDATED
    BALANCE SHEETS

AS OF
    DECEMBER 31, 2006 AND 2005  December 31,


December 31,2006


2005($ in thousands)ASSETSCURRENT ASSETS:Cash and cash equivalents

$
10,581


$
19,372Accounts receivable


43,567



43,557Risk management assets


13,837



21,830Prepayments and other current
    assets


2,679



1,277Total current assets


70,664



86,036PROPERTY, PLANT AND
    EQUIPMENT  Net


554,063



441,588INTANGIBLE ASSETS  Net


130,001



115,000RISK MANAGEMENT ASSETS


17,373



44,023OTHER ASSETS


7,800



14,012TOTAL

$
779,901


$
700,659LIABILITIES AND MEMBERS
    EQUITYCURRENT LIABILITIES:Accounts payable

$
49,558


$
43,401Distributions payable-affiliate






5,000Accrued liabilities


7,996



2,324Risk management liabilities


1,005



2,260Current maturities of long-term
    debt






3,866Total current liabilities


58,559



56,851LONG-TERM DEBT


405,731



404,600ASSET RETIREMENT OBLIGATIONS


1,819



679DEFERRED TAX LIABILITY


1,229



RISK MANAGEMENT LIABILITIES


20,576



30,433COMMITMENTS AND CONTINGENCIESMEMBERS EQUITY:Common Unitholders(1)


116,283



208,013Subordinated Unitholders(2)


176,248



General Partner


(544
)


83Total members equity


291,987



208,096TOTAL

$
779,901


$
700,659     (1)
    20,691,495 and 24,150,739 units were issued and outstanding for
    2006 and 2005, respectively.(2)
    20,691,495 and 0 units were issued and outstanding for 2006 and
    2005, respectively.   F-3




---



##### Table of Contents



EAGLE
    ROCK ENERGY PARTNERS, L.P.



CONSOLIDATED
    STATEMENTS OF OPERATIONS

FOR THE
    YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004  Years Ended December 31,2006


2005


2004($ in thousands, exceptper unit amounts)REVENUE:Natural gas liquids sales

$
234,354


$
29,192


$
8,797Natural gas sales


195,146



26,463



968Condensate


57,411



4,266



72Gathering, compression, and
    processing fees


14,862



6,247



799(Loss) gain on risk management
    instruments


(24,004
)


7,308



Other


621



214



Total revenue


478,390



73,690



10,636COSTS AND EXPENSES:Cost of natural gas and natural
    gas liquids


377,580



55,272



8,811Operations and maintenance


32,905



2,955



34General and administrative


13,161



4,765



2,406Advisory termination fee


6,000







Depreciation and amortization


43,220



4,088



619Total costs and expenses


472,866



67,080



11,870OPERATING INCOME (LOSS)


5,524



6,610



(1,234
)OTHER INCOME (EXPENSE):Interest and other income


996



171



24Interest and other expense


(28,604
)


(4,031
)


Total other (expense) income


(27,608
)


(3,860
)


24INCOME TAX PROVISION


1,230







(LOSS) INCOME FROM CONTINUING
    OPERATIONS


(23,314
)


2,750



(1,210
)INCOME FROM DISCONTINUED OPERATIONS










22,192NET (LOSS) INCOME

$
(23,314
)

$
2,750


$
20,982NET (LOSS) INCOME PER COMMON
    UNIT  BASIC AND DILUTED:(Loss) income from continuing
    operationsCommon units

$
(1.26
)

$
0.11


$
(0.05
)Subordinated units


(0.43
)






General partner units


(0.80
)


4.06



(0.05
)Income from discontinued operationsCommon units

$



$



$
0.87General partner units










Net (loss) income Common units

$
(1.26
)

$
0.11


$
0.92Subordinated units


(0.43
)






General partner units


(0.80
)


4.06



Basic and Diluted (units in
    thousands)Common units


12,123



24,151



24,151Subordinated units


17,873







General partner units


557



20



    F-4




---



##### Table of Contents



EAGLE
    ROCK ENERGY PARTNERS, L.P.



CONSOLIDATED
    STATEMENTS OF CASH FLOWS

FOR THE
    YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004  Years Ended December 31,2006


2005


2004($ in thousands)CASH FLOWS FROM OPERATING
    ACTIVITIES:Net (loss) income

$
(23,314
)

$
2,750


$
20,982Adjustments to reconcile net income
    (loss) to net cash provided by (used in) operating activities:Depreciation and amortization


43,220



4,088



1,174Amortization of debt issuance costs


1,114



76



Net realized gain on derivative
    contracts


(978
)






Gain on sale of assets










(19,465
)Advisory termination fee


6,000







Equity-based compensation


142







Other


1,424



5



Changes in assets and
    liabilities  net of acquisitions:Accounts receivable


(10
)


(42,821
)


688Prepayments and other current assets


(1,422
)


(358
)


214Risk management activities


23,531



(5,709
)


Accounts and distributions payable


3,105



40,094



167Accrued liabilities


5,672



103



2Other assets


(3,492
)


104



111Other current liabilities










(221
)Net cash provided by (used in)
    operating activities


54,992



(1,667
)


3,652CASH FLOWS FROM INVESTING
    ACTIVITIES:Additions to property, plant and
    equipment


(38,416
)


(4,157
)


(20,491
)Sale of fixed assets










37,409Acquisitions, net


(101,182
)


(530,951
)


Escrow cash


7,643



(7,643
)


Purchase of intangible assets


(2,918
)


(750
)


Net cash (used in) provided by
    investing activities


(134,873
)


(543,501
)


16,918CASH FLOWS FROM FINANCING
    ACTIVITIES:(Repayment of) proceeds from
    long-term debt


(4,635
)


400,000



(14,000
)Proceeds from revolver


12,500



7,600



Repayment of revolver


(10,600
)






Payment of debt issuance costs


(2,939
)


(6,535
)


Payment for derivative contracts






(27,452
)


Proceeds from derivative contracts


978







Unit issuance costs for IPO


(3,723
)






Net cash in flow from IPO,
    including overallotment


248,067







Distributions of IPO proceeds to
    pre-IPO members


(245,067
)






Contribution by members


98,540



192,369



45Distributions to members and
    affiliates


(22,033
)


(9,679
)


Net cash provided by (used in)
    financing activities


71,088



556,304



(13,955
)NET (DECREASE) INCREASE IN CASH AND
    CASH EQUIVALENTS


(8,791
)


11,136



6,615CASH AND CASH
    EQUIVALENTS  Beginning of period


19,372



8,235



1,620CASH AND CASH
    EQUIVALENTS  End of period

$
10,581


$
19,372


$
8,235Interest paid  net of
    amounts capitalized

$
30,657


$



$
317Investments in property, plant and
    equipment not paid

$
6,573


$
1,190


$
Distributions payable to member

$



$
5,000


$
Prepayment financed by note payable

$



$
866


$
Issuance of common units for MGS
    acquisition

$
20,280


$



$
    F-5




---



##### Table of Contents



EAGLE
    ROCK ENERGY PARTNERS, L.P.



CONSOLIDATED
    STATEMENTS OF MEMBERS EQUITY

FOR THE
    YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004  Eagle RockNumber of





Number of





Pipeline, L.P.General


Common


Common


Subordinated


Subordinated


PredecessorPartner


Units


Units


Units


Units


Equity


Total($ in thousands, except unit amounts)BALANCE  January 1,
    2004

$




24,150,731
(1)

$







$



$
6,628


$
6,628Net income






















20,982



20,982Capital contributions






















45



45BALANCE 
    December 31, 2004






24,150,731
(1)














27,655



27,655Net income


83







4,067











(1,400
)


2,750Capital contributions










142,688











49,681



192,369Distributions






















(14,679
)


(14,679
)Conversion of predecessor equity to
    common units










61,258











(61,258
)


BALANCE 
    December 31, 2005


83



24,150,731
(1)


208,013















208,096Net loss


(448
)






(15,229
)






(7,637
)






(23,314
)Distributions


(287
)






(4,160
)






(12,587
)






(17,033
)Conversion of common units to
    subordinated units






(20,691,495
)


(193,481
)


20,691,495



193,481







Issuance of common
    units  March 2006






3,922,930
(2)


98,540















98,540Issuance of common units in MGS
    acquisition






809,329
(2)


20,280















20,280IPO and overallotment


4,883



12,500,000



37,144







206,039







248,067Distribution of IPO proceeds


(4,824
)






(35,860
)






(204,382
)






(245,067
)IPO offering costs


(74
)






(1,593
)






(2,056
)






(3,723
)Advisory fee termination


120







2,567







3,313







6,000Restricted units expense


3







61







78







142BALANCE 
    December 31, 2006

$
(544
)


20,691,495


$
116,283



20,691,495


$
176,248


$



$
291,987     (1)
    
    Represents adjusted common units for presentation purposes.
    Based upon units on formation in March 2006, adjusted for IPO
    unit rate conversion.(2)
    
    Units issued adjusted for IPO conversion.   F-6




---



##### Table of Contents



EAGLE
    ROCK ENERGY PARTNERS, L.P.



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND
    2004  NOTE 1.
    ORGANIZATION
    AND DESCRIPTION OF BUSINESS      Basis of Presentation and Principles of
    Consolidation
    NOTE 2.
    SUMMARY
    OF SIGNIFICANT ACCOUNTING POLICIES   F-7




---



##### Table of Contents



EAGLE
    ROCK ENERGY PARTNERS, L.P.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Use of Estimates
  Cash and Cash Equivalents
  Concentration and Credit Risk
    Certain Other Concentrations
  Property, Plant, and Equipment 20-year
  Pipelines and equipment


20 yearsGas processing and equipment


20 yearsOffice furniture and equipment


5 years       Impairment of Long-Lived Assets
 F-8




---



##### Table of Contents



EAGLE
    ROCK ENERGY PARTNERS, L.P.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    
    significant adverse change in legal factors or in the business
    climate;
    a current-period operating or cash flow loss combined with a
    history of operating or cash flow losses or a projection or
    forecast which demonstrates continuing losses associated with
    the use of a long-lived asset;
    an accumulation of costs significantly in excess of the amount
    originally expected for the acquisition or construction of a
    long-lived asset;
    significant adverse changes in the extent or manner in which an
    asset is used or in its physical condition;
    a significant change in the market value of an asset; or
    a current expectation that, more likely than not, an asset will
    be sold or otherwise disposed of before the end of its estimated
    useful life.    Intangible Assets right-of-ways
  December 31,


December 31,2006


2005($ in thousands)Rights-of-way
    and easements  at cost

$
66,801


$
57,714Less: accumulated amortization


(7,407
)


(237
)Contracts


80,210



58,499Less: accumulated amortization


(9,603
)


(975
)Net Intangible assets

$
130,001


$
115,000   rights-of-way rights-of-way
  Other Assets
  Transportation and Exchange Imbalances
 F-9




---



##### Table of Contents



EAGLE
    ROCK ENERGY PARTNERS, L.P.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  marked-to-market
  Revenue Recognition
  
    sales of natural gas, NGLs and condensate;
    natural gas gathering, processing and transportation, from which
    Eagle Rock Energy generates revenues primarily through the
    compression, gathering, treating, processing and transportation
    of natural gas; and
    NGL transportation from which we generate revenues from
    transportation fees.    percentage-of-proceeds
    Environmental Expenditures and/or clean-ups
  Income Taxes
  Derivatives Accounting for
    Derivative Instruments and Hedging Activities,
 F-10




---



##### Table of Contents



EAGLE
    ROCK ENERGY PARTNERS, L.P.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    NOTE 3.
    NEW
    ACCOUNTING PRONOUNCEMENTS  Accounting Changes and
    Error Corrections.
  Accounting for Certain Hybrid Financial Instruments Accounting for Transfers and
    Servicing of Financial Assets and Extinguishments of
    Liabilities
  Fair Value Measurements.
  The
    Fair Value Option for Financial Assets and Financial
    Liabilities
 F-11




---



##### Table of Contents



EAGLE
    ROCK ENERGY PARTNERS, L.P.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    No. 04-13, Accounting for Purchases and Sales of Inventory with the Same
    Counterparty 04-13), 04-13
  FAS 13-1 rights-of-way
  Accounting for Uncertainty in Income Taxes  an
    interpretation of FASB Statement No. 109
  NOTE 4.
    ACQUISITIONS          F-12




---



##### Table of Contents



EAGLE
    ROCK ENERGY PARTNERS, L.P.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  ($ in thousands)Accounts receivable and other
    current assets

$
673Property, plant, and equipment


420,551Intangibles


115,265Accounts payable


(2,047
)Other current liabilities


(1,931
)Asset retirement obligations


(1,405
)$
531,106       ($ in thousands)Property, plant, and equipment

$
88,858Intangibles


7,992Other current liabilities


(750
)Asset retirement obligations


291$
95,809   (1-for-0.719),
 F-13




---



##### Table of Contents



EAGLE
    ROCK ENERGY PARTNERS, L.P.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     2006


2005($ in thousands)Pro forma earnings data:Revenues

$
492,507


$
508,904Costs and expenses


(489,723
)


(478,066
)Operating (loss) income


2,784



30,838Other income (expense), net


(27,786
)


(31,078
)Income tax provision


(1,230
)


Loss from continuing operations

$
(26,232
)

$
(240
)     NOTE 5.
    FIXED
    ASSETS AND ASSET RETIREMENT OBLIGATIONS    December 31,2006


2005($ in thousands)Land

$
853


$
327Plant


81,485



63,718Gathering and pipeline


433,779



345,296Equipment and machinery


37,185



24,386Vehicles and transportation
    equipment


2,740



1,970Office equipment, furniture, and
    fixtures


511



133Computer equipment and software


4,623



508Corporate


126



126Linefill


3,923



3,674Construction in progress


19,677



4,888584,902



445,025Less: accumulated depreciation


(30,839
)


(3,438
)Net fixed assets

$
554,063


$
441,588     Asset Retirement Obligations Accounting for Conditional Asset Retirement
    Obligations, an interpretation of FASB Statement No. 143
    (FIN 47). FIN 47 clarified that the term
    conditional asset retirement obligation, as used in
    SFAS No. 143, Accounting for Asset Retirement
    Obligations and/or and/or
 F-14




---



##### Table of Contents



EAGLE
    ROCK ENERGY PARTNERS, L.P.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      ($ in thousands)Asset retirement
    obligations  January 1, 2005

$
Addition, primarily Panhandle
    acquisitions


674Accretion expense


5Asset retirement
    obligations  December 31, 2005


679Additions for Brookeland and MGS
    acquisitions


297Purchase price allocation
    adjustment on Panhandle assets


698Additional liability on newly
    built assets


17Accretion expense


128Asset retirement
    obligations  December 31, 2006

$
1,819     NOTE 6.
    LONG-TERM
    DEBT    December 31,


December 31,2006


2005($ in thousands)Revolver

$
106,481


$
7,600Term loan


299,250



400,000Other






866Total debt


405,731



408,466Less: current portion






3,866Total long-term debt

$
405,731


$
404,600      F-15




---



##### Table of Contents



EAGLE
    ROCK ENERGY PARTNERS, L.P.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
           
    Adjusted EBITDA (as defined) to interest expense of not less
    than 2.0 to 1.0 through December 31, 2006, and 2.50 to 1.0
    thereafter; and
    Total consolidated funded debt to Adjusted EBITDA (as defined)
    of not more than 6.0 to 1.0 through December 31, 2006, and
    5.0 to 1.0 thereafter and 5.25 to 1.0 for the three quarters
    following a material acquisition;       F-16




---



##### Table of Contents



EAGLE
    ROCK ENERGY PARTNERS, L.P.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          PrincipalAmount($ in thousands)2007

$
02008


02009


02010


02011


405,731$
405,731     NOTE 7.
    MEMBERS
    EQUITY   F-17




---



##### Table of Contents



EAGLE
    ROCK ENERGY PARTNERS, L.P.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     one-for-one
      NOTE 8.
    RELATED
    PARTY TRANSACTIONS       F-18




---



##### Table of Contents



EAGLE
    ROCK ENERGY PARTNERS, L.P.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          NOTE 9.
    FAIR
    VALUE OF FINANCIAL INSTRUMENTS      NOTE 10.
    RISK
    MANAGEMENT ACTIVITIES    Fair ValueRoll Forward

Expiration


Notional


Fixed


December 31,Effective Date

Date


Amount


Rate


2006($ in thousands)01/03/2006


01/03/2011


$
100,000,000



4.9500
%

$
(319
)01/03/2006


01/03/2011



100,000,000



4.9625



(267
)01/03/2006


01/03/2011



50,000,000



4.8800



(295
)01/03/2006


01/03/2011



50,000,000



4.8800



(295
)      F-19




---



##### Table of Contents



EAGLE
    ROCK ENERGY PARTNERS, L.P.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      
    Over-the-counter
    NGL puts, costless collar and swap transactions for the sale of
    Mont Belvieu gas liquids with a combined notional amount of
    530,000 Bbls per month for a term from January 2006 through
    December 2010;
    Condensate puts and costless collar transactions for the sale of
    West Texas Intermediate crude oil with a combined notional
    amount of 250,000 Bbls per month for a term from January 2006
    through December 2010; and
    Natural gas calls for the sale of Henry Hub natural gas with a
    notional amount of 200,000 MMBtu per month for a term from
    January 2006 through December 2007.    
    Costless collar transactions for West Texas Intermediate crude
    oil with a combined notional amount of 50,000 Bbls per
    month for a term of October through December 2006; and,
    60,000 Bbls per month for a term of January 2007 through
    December 2007.
    Fixed swap agreements to hedge WTS-WTI basis differential in
    amount of 20,000 Bbls per month for a term of
    October-December 2006; and, 20,000 Bbls per month for a
    term of January through December 2007.
    Natural gas fixed swap agreements to hedge short natural gas
    positions with a combined notional amount of 100,000 MMBtu
    per month for the term of August 2006 through September 2006.    mark-to-market
  NOTE 11.
    COMMITMENTS
    AND CONTINGENT LIABILITIES  Litigation
 F-20




---



##### Table of Contents



EAGLE
    ROCK ENERGY PARTNERS, L.P.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Insurance
    Regulatory Compliance
  Environmental
  Other Commitments and Contingencies
  NOTE 12.
    SEGMENTS   F-21




---



##### Table of Contents



EAGLE
    ROCK ENERGY PARTNERS, L.P.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      SoutheastTexas andYear Ended December 31, 2006

Panhandle


Louisiana


Corporate


Total($ in millions)Sales to external customers

$
422.1


$
79.4


$
(23.1
)(a)

$
478.4Interest expense and other
    financing costs










28.6



28.6Depreciation and amortization


36.3



5.9



1.0



43.2Segment profit (loss)(b)


104.5



19.4



(23.1
)


100.8Capital expenditures


12.2



20.7



5.5



38.4Segment assets


573.6



148.9



57.4



779.9   SoutheastTexas andYear Ended December 31, 2005

Panhandle


Louisiana


Corporate


Total($ in millions)Sales to external customers

$
43.0


$
23.4


$
7.3
(a)

$
73.7Interest expense and other
    financing costs










4.0



4.0Depreciation and amortization


2.9



1.0



0.1



4.1Segment profit(b)


7.8



3.3



7.3



18.4Capital expenditures






4.1



0.1



4.2Segment assets


525.4



82.0



93.3



700.7   SoutheastTexas andYear Ended December 31, 2004

Panhandle


Louisiana


Corporate


Total($ in millions)Sales to external customers

$



$
10.6


$



$
10.6Interest expense and other
    financing costs














Depreciation and amortization






0.6







0.6Segment profit(b)






1.8







1.8Capital expenditures






20.5







20.5Segment assets






19.7



8.3



28.0     (a)
    
    Represents results of our derivatives activity.(b)
    
    Segment profit (loss) is defined as sales to external customers
    minus cost of natural gas and natural gas liquids and other cost
    of sales. Sales to external customers for the corporate column
    include the impact of the risk management activities. F-22




---



##### Table of Contents



EAGLE
    ROCK ENERGY PARTNERS, L.P.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Year Ended


Year Ended


Year EndedDecember 31,


December 31,


December 31,2006


2005


2004($ in millions)Segment profit

$
100.8


$
18.4


$
1.8Operations and maintenance


(32.9
)


(2.9
)


General and administrative


(13.2
)


(4.8
)


(2.4
)Advisory termination fee


(6.0
)






Depreciation and amortization


(43.2
)


(4.1
)


(0.6
)Interest expense, net


(27.6
)


(3.9
)


Provision for income taxes


(1.2
)






(Loss) income from continuing
    operations

$
(23.3
)

$
2.7


$
(1.2
)   NOTE 13.
    DISCONTINUED
    OPERATIONS  2
  NOTE 14.
    EMPLOYEE
    BENEFIT PLAN    NOTE 15.
    INCOME
    TAXES       F-23




---



##### Table of Contents



EAGLE
    ROCK ENERGY PARTNERS, L.P.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  NOTE 16.
    EQUITY-BASED
    COMPENSATION      Number of


Weighted AverageRestricted


Grant - DateUnits


Fair ValueOutstanding at beginning of period





$
0Granted


124,250



18.75Vested


Forfeitures


(1,800
)


18.75Outstanding at end of period


122,450


$
18.75        NOTE 17.
    EARNINGS
    PER UNIT  (1-for-0.7139),
   F-24




---



##### Table of Contents



EAGLE
    ROCK ENERGY PARTNERS, L.P.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
       For the Year Ended December 31,2006


2005


2004($ in thousands)Net (loss) income:

$
(23,314
)

$
2,750


$
20,982Net (loss) income allocated:Common units


(15,229
)


2,667



20,982Subordinated units


(7,637
)






General partner units


(448
)


83



Weighted average unit outstanding
    during period:Common units


12,123



24,151



24,151Subordinated units


17,873







General partner units


557



20



Earnings Per Unit 
    continuing operations:Common units

$
(1.26
)

$
0.11


$
(0.05
)Subordinated units

$
(0.43
)

$



$
General partner units

$
(0.80
)

$
4.06


$
(0.05
)   NOTE 18.
    SUBSEQUENT
    EVENTS             F-25




---



##### Table of Contents



Index to
    Exhibits
  ExhibitNumber

Description3
.1

Certificate of Limited Partnership
    of Eagle Rock Energy Partners, L.P. (incorporated by reference
    to Exhibit 3.1 of the registrants registration
    statement on
    Form S-1
    (File
    No. 333-134750))3
.2

Amended and Restated Agreement of
    Limited Partnership of Eagle Rock Energy Partners, L.P.
    (included as Appendix A to the Prospectus and including specimen
    unit certificate for the common units) (incorporated by
    reference to Exhibit 3.2 of the registrants
    registration statement on
    Form S-1
    (File
    No. 333-134750))3
.3

Certificate of Limited Partnership
    of Eagle Rock Energy GP, L.P. (incorporated by reference to
    Exhibit 3.3 of the registrants registration statement
    on
    Form S-1
    (File
    No. 333-134750))3
.4

Limited Partnership Agreement of
    Eagle Rock Energy GP, L.P. (incorporated by reference to
    Exhibit 3.4 of the registrants registration statement
    on
    Form S-1
    (File
    No. 333-134750))3
.5

Certificate of Formation of Eagle
    Rock Energy G&P, LLC (incorporated by reference to Exhibit
    3.5 of the registrants registration statement on
    Form S-1
    (File
    No. 333-134750))3
.6

Amended and Restated Limited
    Liability Company Agreement of Eagle Rock Energy G&P, LLC
    (incorporated by reference to Exhibit 3.6 of the
    registrants registration statement on
    Form S-1
    (File
    No. 333-134750))4
.1

Registration Rights Agreement
    dated March 27, 2006, among Eagle Rock Pipeline, L.P. and
    the Purchasers listed thereto (incorporated by reference to
    Exhibit 4.1 of the registrants registration statement
    on
    Form S-1
    (File
    No. 333-134750))4
.2

Tag Along Agreement dated
    March 27, 2006, among Eagle Rock Pipeline, L.P., Eagle Rock
    Pipeline GP, LLC, Eagle Rock Holdings, L.P., and the Purchasers
    listed thereto. (incorporated by reference to Exhibit 4.2
    of the registrants registration statement on
    Form S-1
    (File No.
    333-134750))4
.3

Form of Registration Rights
    Agreement between Eagle Rock Energy Partners, L.P. and Eagle
    Rock Holdings, L.P. (incorporated by reference to
    Exhibit 4.3 of the registrants registration statement
    on
    Form S-1
    (File
    No. 333-134750))4
.4

Form of Common Unit Certificate
    (included as Exhibit A to the Amended and Restated
    Partnership Agreement of Eagle Rock Energy Partners, L.P., which
    is included as Appendix A to the Prospectus) (incorporated by
    reference to Exhibit 3.2 of the registrants
    registration statement on
    Form S-1
    (File
    No. 333-134750))10
.1

Amended and Restated Credit and
    Guaranty Agreement (incorporated by reference to
    Exhibit 3.1 of the registrants registration statement
    on
    Form S-1
    (File
    No. 333-134750))10
.2

Form of Omnibus Agreement
    (incorporated by reference to Exhibit 3.1 of the
    registrants registration statement on
    Form S-1
    (File
    No. 333-134750))10
.3**

Form of Eagle Rock Energy
    Partners, L.P. Long-Term Incentive Plan (incorporated by
    reference to Exhibit 10.3 of the registrants
    registration statement on
    Form S-1
    (File
    No. 333-134750))10
.4

Sale, Contribution and Exchange
    Agreement by and among the general and limited partners of
    Midstream Gas Services, L.P., Eagle Rock Energy Services, L.P.
    and Eagle Rock Pipeline, L.P. (incorporated by reference to
    Exhibit 10.4 of the registrants registration
    statement on
    Form S-1
    (File
    No. 333-134750))10
.5

Natural Gas Liquids Exchange
    Agreement by and between ONEOK Hydrocarbon, L.P. and ONEOK Texas
    Field Services, L.P. (incorporated by reference to
    Exhibit 10.5 of the registrants registration
    statement on
    Form S-1
    (File
    No. 333-134750))10
.6

Gas Sales and Purchase Agreement
    between MC Panhandle, Inc. (Chesapeake Energy Marketing Inc.)
    and MidCon Gas Services Corp. (Eagle Rock Field Services, L.P.)
    (incorporated by reference to Exhibit 10.6 of the
    registrants registration statement on
    Form S-1
    (File
    No. 333-134750))10
.7

Brookeland Gas Facilities Gas
    Gathering and Processing Agreement between Union Pacific
    Resources Company (Anadarko E&P Company LP) and Sonat
    Exploration Company (Eagle Rock Field Services, L.P.)
    (incorporated by reference to Exhibit 10.7 of the
    registrants registration statement on
    Form S-1
    (File
    No. 333-134750))




---



##### Table of Contents



ExhibitNumber

Description10
.8

Minimum Volume Agreement between
    ONEOK Texas Field Services L.P. and Peak Operating of Texas, LLC
    (incorporated by reference to Exhibit 10.8 of the
    registrants registration statement on
    Form S-1
    (File
    No. 333-134750))10
.9

Gas Purchase Agreement between
    ONEOK Texas Field Services L.P. and Peak Operating of Texas, LLC
    (incorporated by reference to Exhibit 10.9 of the
    registrants registration statement on
    Form S-1
    (File
    No. 333-134750))10
.10

Gas Purchase Contract between
    Warren Petroleum Company (Eagle Rock Field Services, L.P.) and
    Wallace Oil & Gas, Inc. (Cimarex Energy Co.)
    (incorporated by reference to Exhibit 10.10 of the
    registrants registration statement on
    Form S-1
    (File
    No. 333-134750))10
.11

Form of Contribution, Conveyance
    and Assumption Agreement (incorporated by reference to
    Exhibit 10.11 of the registrants registration
    statement on
    Form S-1
    (File
    No. 333-134750))10
.12**

Employment Agreement dated
    August 2, 2006 between Eagle Rock Energy G&P, LLC and
    Richard W. FitzGerald (incorporated by reference to
    Exhibit 10.12 of the registrants registration
    statement on
    Form S-1
    (File
    No. 333-134750))10
.13

Base Contract for Sale and
    Purchase of Natural Gas between Eagle Rock Field Services, L.P.
    and Odyssey Energy Services, LLC (incorporated by reference to
    Exhibit 10.13 of the registrants registration
    statement on
    Form S-1
    (File
    No. 333-134750))14
.1

Code of Ethics posted on the
    Companys website at www.eaglerockenergy.com.21
.1

List of Subsidiaries of Eagle Rock
    Energy Partners, L.P. (incorporated by reference to Exhibit 21.1
    of the registrants registration statement on
    Form S-1
    (File
    No. 333-134750))23
.1*

Consent of Deloitte &
    Touche LLP24
.1*

Powers of Attorney31
.1*

Certification of Periodic
    Financial Reports by Alex A. Bucher, Jr. in satisfaction of
    Section 302 of the Sarbanes-Oxley Act of 200231
.2*

Certification of Periodic
    Financial Reports by Richard W. FitzGerald in satisfaction of
    Section 302 of the Sarbanes-Oxley Act of 200232
.2*

Certification of Periodic
    Financial Reports by Alex A. Bucher, Jr. in satisfaction of
    Section 906 of the Sarbanes-Oxley Act of 200232
.2*

Certification of Periodic
    Financial Reports by Richard W. FitzGerald in satisfaction of
    Section 906 of the Sarbanes-Oxley Act of 2002     *
    
    Filed herewith**
    
    Management contract or compensatory plan or arrangement required
    to be filed as an exhibit hereto.
    
    Portions of this exhibit have been omitted pursuant to a request
    for confidential treatment.