##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2009
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from _______ to ________
 Commission File Number: 001-33676
 ENCORE ENERGY PARTNERS LP
  Delaware
    
    20-8456807(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 777 Main Street, Suite 1400, Fort Worth, Texas
    
    76102(Address of principal executive offices)
    
    (Zip Code)
 (817) 877-9955  (Registrants telephone number, including area code)
 Not applicable  (Former name, former address and former fiscal year, if changed since last report)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o(Do not check if a smaller reporting
company)
    
    Smaller reporting company o
 o þ
 Number of common units outstanding as of October 27, 2009
    
    45,267,610




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##### 



ENCORE ENERGY PARTNERS LP
 INDEX
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets as of September 30, 2009 and December 31, 2008
    
    
    1Consolidated Statements of Operations for the three and nine months ended
September 30, 2009 and 2008
    
    
    2Consolidated Statement of Partners Equity and Comprehensive Loss for the
nine months ended September 30, 2009
    
    
    3Consolidated Statements of Cash Flows for the nine months ended September
30, 2009 and 2008
    
    
    4Notes to Consolidated Financial Statements
    
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    23Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    38Item 4. Controls and Procedures
    
    
    38PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    39Item 1A. Risk Factors
    
    
    39Item 6. Exhibits
    
    
    39EX-31.1EX-31.2EX-32.1EX-32.2EX-99.1
  CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
  i




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ENCORE ENERGY PARTNERS LP
 GLOSSARY
  
    
    ASC. FASB Accounting Standards Codification.
    
    Bbl.One stock tank barrel, or 42 U.S. gallons liquid volume, used in reference to oil
or other liquid hydrocarbons.
    
    Bbl/D. One Bbl per day.
    
    BOE.One barrel of oil equivalent, calculated by converting natural gas to oil
equivalent barrels at a ratio of six Mcf of natural gas to one Bbl of oil.
    
    BOE/D. One BOE per day.
    
    Completion.The installation of permanent equipment for the production of hydrocarbons.
    
    Council of Petroleum Accountants Societies (COPAS). A professional organization of
petroleum accountants that maintains consistency in accounting procedures and
interpretations, including the procedures that are part of most joint operating agreements.
These procedures establish a drilling rate and an overhead rate to reimburse the operator
of a well for overhead costs, such as accounting and engineering.
    
    Delay Rentals. Fees paid to the lessor of an oil and natural gas lease during the
primary term of the lease prior to the commencement of production from a well.
    
    Development Well. A well drilled within the proved area of an oil or natural gas
reservoir to the depth of a stratigraphic horizon known to be productive.
    
    Dry Hole or Unsuccessful Well.A well found to be incapable of producing hydrocarbons
in sufficient quantities such that proceeds from the sale of such production would exceed
production costs.
    
    EAC.Encore Acquisition Company, a publicly traded Delaware corporation, together with
its subsidiaries.
    
    ENP. Encore Energy Partners LP, a publicly traded Delaware limited partnership,
together with its subsidiaries.
    
    Exploratory Well. A well drilled to find and produce hydrocarbons in an unproved area,
to find a new reservoir in a field previously producing hydrocarbons in another reservoir,
or to extend a known reservoir.
    
    FASB.Financial Accounting Standards Board.
    
    Field. An area consisting of a single reservoir or multiple reservoirs, all grouped on
or related to the same individual geological structural feature and/or stratigraphic
condition.
    
    GAAP.Accounting principles generally accepted in the United States.
    
    Gross Acres or Gross Wells.The total acres or wells, as the case may be, in which an
entity owns a working interest.
    
    Lease Operating Expense (LOE).All direct and allocated indirect costs of producing
hydrocarbons after the completion of drilling and before the commencement of production.
Such costs include labor, superintendence, supplies, repairs, maintenance, and direct
overhead charges.
    
    LIBOR.London Interbank Offered Rate.
    
    MBbl.One thousand Bbls.
    
    MBOE.One thousand BOE.
    
    Mcf.One thousand cubic feet, used in reference to natural gas.
    
    Mcf/D.One Mcf per day.
    
    MMcf.One million cubic feet, used in reference to natural gas.
    
    Natural Gas Liquids (NGLs).The combination of ethane, propane, butane, and natural
gasolines that when removed from natural gas become liquid under various levels of higher
pressure and lower temperature.
    
    Net Acres or Net Wells.Gross acres or wells, as the case may be, multiplied by the
working interest percentage owned by an entity.
    
    NYMEX.New York Mercantile Exchange.
    
    Oil.Crude oil, condensate, and NGLs.
    
    Operator.The entity responsible for the exploration, development, and production of a
well or lease.
    
    Production Margin.Wellhead revenues less production costs.
    
    Production Taxes.Production expense attributable to production, ad valorem, and
severance taxes.
    
    Productive Well or Successful Well.A well capable of producing hydrocarbons in
commercial quantities, including natural gas wells awaiting pipeline connections to
commence deliveries and oil wells awaiting connection to production facilities.
    
    Proved Developed Reserves.Proved reserves that can be expected to be recovered from
existing wells with existing equipment and operating methods.
 ii




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ENCORE ENERGY PARTNERS LP
 
    
    Proved Reserves.The estimated quantities of hydrocarbons that geological and
engineering data demonstrate with reasonable certainty to be recoverable in future periods
from known reservoirs under existing economic and operating conditions.
    
    Proved Undeveloped Reserves.Proved reserves that are expected to be recovered from new
wells on undrilled acreage for which the existence and recoverability of such reserves can
be estimated with reasonable certainty, or from existing wells where a relatively major
expenditure is required for recompletion. Includes unrealized production response from
enhanced recovery techniques that have been proved effective by actual tests in the area
and in the same reservoir.
    
    Recompletion.The completion for production from an existing wellbore in another
formation from that in which the well has been previously completed.
    
    Reservoir.A porous and permeable underground formation containing a natural
accumulation of producible hydrocarbons that is confined by impermeable rock or water
barriers and is individual and separate from other reservoirs.
    
    Royalty.An interest in an oil and natural gas lease that gives the owner the right to
receive a portion of the production from the leased acreage (or of the proceeds from the
sale thereof), but does not require the owner to pay any portion of the production or
development costs on the leased acreage. Royalties may be either landowners royalties,
which are reserved by the owner of the leased acreage at the time the lease is granted, or
overriding royalties, which are usually reserved by an owner of the leasehold in connection
with a transfer to a subsequent owner.
    
    SFAS.Statement of Financial Accounting Standards.
    
    Working Interest.An interest in an oil or natural gas lease that gives the owner the
right to drill for and produce hydrocarbons on the leased acreage and requires the owner to
pay a share of the production and development costs.
    
    Workover.Operations on a producing well to restore or increase production.
 iii




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1.
    
    Financial Statements
 ENCORE ENERGY PARTNERS LP


CONSOLIDATED BALANCE SHEETS
 September 30,
    
    
    December 31,2009
    
    
    2008 *ASSETSCurrent assets:Cash and cash equivalents
    
    $
    3,437
    
    
    $
    619Accounts receivable:Trade
    
    
    20,591
    
    
    
    18,965Affiliate
    
    
    2,359
    
    
    
    3,896Derivatives
    
    
    27,668
    
    
    
    75,131Other
    
    
    751
    
    
    
    831Total current assets
    
    
    54,806
    
    
    
    99,442Properties and equipment, at cost  successful efforts method:Proved properties, including wells and related equipment
    
    
    851,511
    
    
    
    814,903Unproved properties
    
    
    61
    
    
    
    84Accumulated depletion, depreciation, and amortization
    
    
    (198,138
    )
    
    
    (154,584
    )653,434
    
    
    
    660,403Other property and equipment
    
    
    802
    
    
    
    802Accumulated depreciation
    
    
    (391
    )
    
    
    (240
    )411
    
    
    
    562Goodwill
    
    
    9,290
    
    
    
    9,290Other intangibles, net
    
    
    3,402
    
    
    
    3,662Derivatives
    
    
    23,122
    
    
    
    38,497Other
    
    
    3,737
    
    
    
    1,457Total assets
    
    $
    748,202
    
    
    $
    813,313LIABILITIES AND PARTNERS EQUITYCurrent liabilities:Accounts payable:Trade
    
    $
    898
    
    
    $
    1,036Affiliate
    
    
    2,259
    
    
    
    5,468Accrued liabilities:Lease operating
    
    
    4,106
    
    
    
    4,252Development capital
    
    
    1,835
    
    
    
    2,277Interest
    
    
    370
    
    
    
    126Production, ad valorem, and severance taxes
    
    
    13,270
    
    
    
    10,634Derivatives
    
    
    4,837
    
    
    
    1,297Oil and natural gas revenues payable
    
    
    3,851
    
    
    
    1,287Other
    
    
    2,141
    
    
    
    1,502Total current liabilities
    
    
    33,567
    
    
    
    27,879Derivatives
    
    
    5,626
    
    
    
    3,491Future abandonment cost, net of current portion
    
    
    12,496
    
    
    
    11,987Long-term debt
    
    
    260,000
    
    
    
    150,000Other
    
    
    511
    
    
    
    605Total liabilities
    
    
    312,200
    
    
    
    193,962Commitments and contingencies (see Note 12)Partners equity:Limited partners  45,267,610 and 33,077,610 common units issued and
outstanding, respectively
    
    
    440,024
    
    
    
    616,076General partner  504,851 general partner units issued and outstanding
    
    
    (105
    )
    
    
    7,534Accumulated other comprehensive loss
    
    
    (3,917
    )
    
    
    (4,259
    )Total partners equity
    
    
    436,002
    
    
    
    619,351Total liabilities and partners equity
    
    $
    748,202
    
    
    $
    813,313
 
 *
    
    Recast as discussed in Note 2.  1




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ENCORE ENERGY PARTNERS LP


CONSOLIDATED STATEMENTS OF OPERATIONS
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2009
    
    
    2008 *
    
    
    2009
    
    
    2008 *Revenues:Oil
    
    $
    35,280
    
    
    $
    67,221
    
    
    $
    88,433
    
    
    $
    197,587Natural gas
    
    
    5,650
    
    
    
    15,444
    
    
    
    15,143
    
    
    
    45,410Marketing
    
    
    102
    
    
    
    1,445
    
    
    
    381
    
    
    
    5,207Total revenues
    
    
    41,032
    
    
    
    84,110
    
    
    
    103,957
    
    
    
    248,204Expenses:Production:Lease operating
    
    
    9,017
    
    
    
    12,967
    
    
    
    31,120
    
    
    
    34,069Production, ad valorem, and severance taxes
    
    
    4,693
    
    
    
    8,210
    
    
    
    11,586
    
    
    
    23,711Depletion, depreciation, and amortization
    
    
    14,458
    
    
    
    13,820
    
    
    
    43,684
    
    
    
    42,496Exploration
    
    
    3,034
    
    
    
    47
    
    
    
    3,074
    
    
    
    115General and administrative
    
    
    2,912
    
    
    
    3,772
    
    
    
    9,135
    
    
    
    11,899Marketing
    
    
    54
    
    
    
    1,316
    
    
    
    245
    
    
    
    5,318Derivative fair value loss (gain)
    
    
    (4,822
    )
    
    
    (70,443
    )
    
    
    21,711
    
    
    
    21,572Other operating
    
    
    1,303
    
    
    
    440
    
    
    
    2,730
    
    
    
    1,294Total expenses
    
    
    30,649
    
    
    
    (29,871
    )
    
    
    123,285
    
    
    
    140,474Operating income (loss)
    
    
    10,383
    
    
    
    113,981
    
    
    
    (19,328
    )
    
    
    107,730Other income (expenses):Interest
    
    
    (2,984
    )
    
    
    (1,767
    )
    
    
    (7,551
    )
    
    
    (5,316
    )Other
    
    
    23
    
    
    
    10
    
    
    
    29
    
    
    
    92Total other expenses
    
    
    (2,961
    )
    
    
    (1,757
    )
    
    
    (7,522
    )
    
    
    (5,224
    )Income (loss) before income taxes
    
    
    7,422
    
    
    
    112,224
    
    
    
    (26,850
    )
    
    
    102,506Income tax benefit (provision)
    
    
    38
    
    
    
    (332
    )
    
    
    (163
    )
    
    
    (194
    )Net income (loss)
    
    $
    7,460
    
    
    $
    111,892
    
    
    $
    (27,013
    )
    
    $
    102,312Net income (loss) allocation (see Note 9):Limited partners interest in net income (loss)
    
    $
    5,904
    
    
    $
    89,716
    
    
    $
    (26,745
    )
    
    $
    47,767General partners interest in net income (loss)
    
    $
    63
    
    
    $
    1,444
    
    
    $
    (444
    )
    
    $
    762Net income (loss) per common unit:Basic
    
    $
    0.13
    
    
    $
    2.86
    
    
    $
    (0.72
    )
    
    $
    1.58Diluted
    
    $
    0.13
    
    
    $
    2.86
    
    
    $
    (0.72
    )
    
    $
    1.58Weighted average common units outstanding:Basic
    
    
    44,653
    
    
    
    31,356
    
    
    
    37,373
    
    
    
    30,300Diluted
    
    
    44,675
    
    
    
    31,356
    
    
    
    37,373
    
    
    
    30,305Cash distributions declared per common unit
    
    $
    0.5125
    
    
    $
    0.6881
    
    
    $
    1.5125
    
    
    $
    1.6511
 
 *
    
    Recast as discussed in Note 2.  2




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ENCORE ENERGY PARTNERS LP

CONSOLIDATED STATEMENT OF PARTNERS EQUITY AND COMPREHENSIVE LOSS
 AccumulatedOther
    
    
    TotalLimited Partners
    
    
    General Partner
    
    
    Comprehensive
    
    

PartnersUnits
    
    
    Amount
    
    
    Units
    
    
    Amount
    
    
    Loss
    
    
    EquityBalance at December 31, 2008 *
    
    
    33,078
    
    
    $
    616,076
    
    
    
    505
    
    
    $
    7,534
    
    
    $
    (4,259
    )
    
    $
    619,351Net distributions to owner
    
    
    
    
    
    
    (11,284
    )
    
    
    
    
    
    
    (274
    )
    
    
    
    
    
    
    (11,558
    )Deemed distributions in connection with acquisition of the Arkoma Basin Assets
    
    
    
    
    
    
    (45,333
    )
    
    
    
    
    
    
    (1,088
    )
    
    
    
    
    
    
    (46,421
    )Deemed distributions in connection with acquisition of the Williston Basin Assets
    
    
    
    
    
    
    (24,593
    )
    
    
    
    
    
    
    (593
    )
    
    
    
    
    
    
    (25,186
    )Deemed distributions in connectoin with acquisition of the Rockies and Permian Basin Assets
    
    
    
    
    
    
    (182,421
    )
    
    
    
    
    
    
    (4,401
    )
    
    
    
    
    
    
    (186,822
    )Proceeds from issuance of common units, net of offering costs
    
    
    12,190
    
    
    
    170,059
    
    
    
    
    
    
    
    (113
    )
    
    
    
    
    
    
    169,946Non-cash unit-based compensation
    
    
    
    
    
    
    400
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    404Cash distributions to unitholders ($1.5125 per unit)
    
    
    
    
    
    
    (56,277
    )
    
    
    
    
    
    
    (764
    )
    
    
    
    
    
    
    (57,041
    )Components of comprehensive loss:Net loss attributable to owners prior to acquisition of the Williston Basin Assets
    
    
    
    
    
    
    (188
    )
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    (193
    )Net income attributable to owners prior to acquisition of the Rockies and Permian Basin Assets
    
    
    
    
    
    
    360
    
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    369Net loss attributable to unitholders
    
    
    
    
    
    
    (26,775
    )
    
    
    
    
    
    
    (414
    )
    
    
    
    
    
    
    (27,189
    )Change in deferred hedge loss on interest rate swaps, net of tax of $1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    342
    
    
    
    342Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,671
    )Balance at September 30, 2009
    
    
    45,268
    
    
    $
    440,024
    
    
    
    505
    
    
    $
    (105
    )
    
    $
    (3,917
    )
    
    $
    436,002
 
 *
    
    Recast as discussed in Note 2.  3




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ENCORE ENERGY PARTNERS LP


CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine months endedSeptember 30,2009
    
    
    2008*Cash flows from operating activities:Net income (loss)
    
    $
    (27,013
    )
    
    $
    102,312Adjustments to reconcile net income (loss) to net cash provided
by operating activities:Depletion, depreciation, and amortization
    
    
    43,684
    
    
    
    42,496Non-cash exploration expense
    
    
    2,991
    
    
    
    52Deferred taxes
    
    
    (342
    )
    
    
    (110
    )Non-cash unit-based compensation expense
    
    
    404
    
    
    
    3,528Non-cash derivative loss
    
    
    79,948
    
    
    
    19,943Other
    
    
    1,829
    
    
    
    856Changes in operating assets and liabilities, net of effects from acquisitions:Accounts receivable
    
    
    (744
    )
    
    
    (525
    )Current derivatives
    
    
    (2,020
    )
    
    
    (8,100
    )Other current assets
    
    
    (196
    )
    
    
    (45
    )Long-term derivatives
    
    
    (9,072
    )
    
    
    (5,308
    )Other assets
    
    
    (18
    )
    
    
    712Accounts payable
    
    
    (2,755
    )
    
    
    (3,867
    )Other current liabilities
    
    
    5,846
    
    
    
    7,180Net cash provided by operating activities
    
    
    92,542
    
    
    
    159,124Cash flows from investing activities:Purchases of other property and equipment
    
    
    
    
    
    
    (302
    )Acquisition of oil and natural gas properties
    
    
    (31,984
    )
    
    
    (157
    )Development of oil and natural gas properties
    
    
    (7,330
    )
    
    
    (27,540
    )Net cash used in investing activities
    
    
    (39,314
    )
    
    
    (27,999
    )Cash flows from financing activities:Proceeds from long-term debt, net of issuance costs
    
    
    203,061
    
    
    
    205,310Payments on long-term debt
    
    
    (96,000
    )
    
    
    (113,000
    )Deemed distributions to affiliates in connection with acquisitions
    
    
    (258,429
    )
    
    
    (125,027
    )Proceeds from issuance of common units, net of offering costs
    
    
    170,149
    
    
    
    Cash distributions to unitholders
    
    
    (57,041
    )
    
    
    (52,239
    )Other
    
    
    (12,150
    )
    
    
    (46,015
    )Net cash used in financing activities
    
    
    (50,410
    )
    
    
    (130,971
    )Increase in cash and cash equivalents
    
    
    2,818
    
    
    
    154Cash and cash equivalents, beginning of period
    
    
    619
    
    
    
    3Cash and cash equivalents, end of period
    
    $
    3,437
    
    
    $
    157
 
 *
    
    Recast as discussed in Note 2.  4




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ENCORE ENERGY PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1. Description of Business
  
    
    the Big Horn Basin in Wyoming and Montana;
    
    the Permian Basin in West Texas and New Mexico;
    
    the Williston Basin in North Dakota and Montana; and
    
    the Arkoma Basin in Arkansas and Oklahoma.
 Note 2. Basis of Presentation
      5




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
 Supplemental Disclosures of Non-cash Investing and Financing Activities
  Nine months ended September 30,2009
    
    2008(in thousands)Non-cash investing and financing activities:Issuance of
common units in connection with acquisition of the Permian and Williston Basin 
Assets (a)
    
    $
    
    
    
    $
    125,027Issuance of
common units in connection with acquisition of net profits interest in certain Crockett County properties
    
    
    
    
    
    
    5,748
 
 (a)
    
    Please read Note 3. Acquisitions for additional discussion. Reclassifications
  FASB Launches Accounting Standards Codification
 The FASB Accounting Standards Codification and
the Hierarchy of Generally Accepted Accounting Principles
   New Accounting Pronouncements
 FSP No. FAS 157-2, Effective Date of FASB Statement No. 157 (FSP FAS 157-2 or ASC 820-10)
 Fair Value Measurements
 SFAS No. 141 (revised 2007), Business Combinations (SFAS 141R or ASC 805)
 Business
Combinations
 6




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
 Accounting for Assets Acquired and Liabilities Assumed in a Business Combination
That Arises from Contingencies
 SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities  an amendment of
FASB Statement No. 133 (SFAS 161 or ASC 815-10-65-1)
 Accounting for Derivative Instruments and Hedging Activities
 EITF Issue No. 07-4, Application of the Two-Class Method under FASB Statement No. 128,
Earnings per Share, to Master Limited Partnerships (EITF 07-4 or ASC 260-10)
 Earnings per Share
 FSP No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions
Are Participating Securities (FSP EITF 03-6-1 or ASC 260-10)
  SEC Release No. 33-8995, Modernization of Oil and Gas Reporting (Release 33-8995)
  7




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
  FSP No. FAS 107-1 and APB 28-1, Disclosure of Fair Value of Financial Instruments in Interim
Statements (FSP FAS 107-1 and APB 28-1 or ASC 825-10-65-1)
  SFAS No. 165, Subsequent Events (SFAS 165 or ASC 855-10)
  ASU No. 2009-05, Fair Value Measurement and Disclosure: Measuring Liabilities at Fair Value (ASU
2009-05 or ASC 820-10)
  Note 3. Acquisitions
 Rockies and Permian Basin Assets
  Williston Basin Assets
  8




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
  Vinegarone Assets
  Arkoma Basin Assets
  Permian and Williston Basin Assets
  Note 4. Proved Properties
  September 30,
    
    
    December 31,2009
    
    
    2008(in thousands)Proved leasehold costs
    
    $
    609,666
    
    
    $
    580,695Wells and related equipment  Completed
    
    
    241,701
    
    
    
    227,970Wells and related equipment  In process
    
    
    144
    
    
    
    6,238Total proved properties
    
    $
    851,511
    
    
    $
    814,903
 9




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
 Note 5. Fair Value Measurements
  September 30, 2009
    
    December 31, 2008Book
    
    Fair
    
    Book
    
    FairValue
    
    Value
    
    Value
    
    Value(in thousands)Assets:Cash and cash equivalents
    
    $
    3,437
    
    
    $
    3,437
    
    
    $
    619
    
    
    $
    619Accounts receivable  trade
    
    
    20,591
    
    
    
    20,591
    
    
    
    18,965
    
    
    
    18,965Accounts receivable  affiliate
    
    
    2,359
    
    
    
    2,359
    
    
    
    3,896
    
    
    
    3,896Commodity derivative contracts
    
    
    50,790
    
    
    
    50,790
    
    
    
    113,628
    
    
    
    113,628Liabilities:Accounts payable  trade
    
    
    898
    
    
    
    898
    
    
    
    1,036
    
    
    
    1,036Accounts payable  affiliate
    
    
    2,259
    
    
    
    2,259
    
    
    
    5,468
    
    
    
    5,468Revolving credit facility
    
    
    260,000
    
    
    
    260,000
    
    
    
    150,000
    
    
    
    150,000Commodity derivative contracts
    
    
    6,313
    
    
    
    6,313
    
    
    
    229
    
    
    
    229Interest rate swaps
    
    
    4,150
    
    
    
    4,150
    
    
    
    4,559
    
    
    
    4,559
  Derivative Policy
     Commodity Derivative Contracts
  10




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
   Oil Derivative Contracts
 Average
    
    
    Weighted
    
    
    
    Average
    
    
    Weighted
    
    
    
    Average
    
    
    WeightedDaily
    
    
    Average
    
    
    
    Daily
    
    
    Average
    
    
    
    Daily
    
    
    Average
    
    
    
    AssetFloor
    
    
    Floor
    
    
    
    Cap
    
    
    Cap
    
    
    
    Swap
    
    
    Swap
    
    
    
    Fair MarketPeriod
    
    Volume
    
    
    Price
    
    
    
    Volume
    
    
    Price
    
    
    
    Volume
    
    
    Price
    
    
    
    Value(Bbls)
    
    
    (per Bbl)
    
    
    
    (Bbls)
    
    
    (per Bbl)
    
    
    
    (Bbls)
    
    
    (per Bbl)
    
    
    
    (in thousands)Oct.  Dec. 2009 (a)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    10,9403,130
    
    
    $
    110.00
    
    
    
    
    440
    
    
    $
    97.75
    
    
    
    
    1,000
    
    
    $
    68.702010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,501880
    
    
    
    80.00
    
    
    
    
    440
    
    
    
    93.80
    
    
    
    
    760
    
    
    
    75.432,000
    
    
    
    75.00
    
    
    
    
    1,000
    
    
    
    77.23
    
    
    
    
    250
    
    
    
    65.95760
    
    
    
    67.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,6261,880
    
    
    
    80.00
    
    
    
    
    1,440
    
    
    
    95.41
    
    
    
    
    760
    
    
    
    78.461,000
    
    
    
    70.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    760
    
    
    
    65.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    250
    
    
    
    69.652012
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,394750
    
    
    
    70.00
    
    
    
    
    500
    
    
    
    82.05
    
    
    
    
    210
    
    
    
    81.621,510
    
    
    
    65.00
    
    
    
    
    250
    
    
    
    79.25
    
    
    
    
    1,300
    
    
    
    76.54$
    34,461
 
 (a)
    
    In addition, ENP has a floor contract for 1,000 Bbls/D at $63.00 per Bbl and a short
floor contract for 1,000 Bbls/D at $65.00 per Bbl. 11




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
 Natural Gas Derivative Contracts
 Average
    
    
    Weighted
    
    
    
    Average
    
    
    Weighted
    
    
    
    Average
    
    
    Weighted
    
    
    
    AssetDaily
    
    
    Average
    
    
    
    Daily
    
    
    Average
    
    
    
    Daily
    
    
    Average
    
    
    
    (Liability)Floor
    
    
    Floor
    
    
    
    Cap
    
    
    Cap
    
    
    
    Swap
    
    
    Swap
    
    
    
    Fair MarketPeriod
    
    Volume
    
    
    Price
    
    
    
    Volume
    
    
    Price
    
    
    
    Volume
    
    
    Price
    
    
    
    Value(Mcf)
    
    
    (per Mcf)
    
    
    
    (Mcf)
    
    
    (per Mcf)
    
    
    
    (Mcf)
    
    
    (per Mcf)
    
    
    
    (in thousands)Oct.  Dec. 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,5463,800
    
    
    $
    8.20
    
    
    
    
    3,800
    
    
    $
    9.83
    
    
    
    
    
    
    
    $
    3,800
    
    
    
    7.20
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,800
    
    
    
    6.76
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,8603,800
    
    
    
    8.20
    
    
    
    
    3,800
    
    
    
    9.58
    
    
    
    
    5,452
    
    
    
    6.204,698
    
    
    
    7.26
    
    
    
    
    
    
    
    
    
    
    
    
    
    550
    
    
    
    5.862011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7033,398
    
    
    
    6.31
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,952
    
    
    
    6.36
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    550
    
    
    
    5.862012
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (93
    )898
    
    
    
    6.76
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,452
    
    
    
    6.26
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    550
    
    
    
    5.86$
    10,016
 Counterparty Risk.
 Percentage of
    
    Percentage ofOil Derivative
    
    Natural GasContracts
    
    Derivative ContractsCounterparty
    
    Committed
    
    CommittedBNP Paribas
    
    
    50
    %
    
    
    26
    %Calyon
    
    
    28
    %
    
    
    48
    %RBC
    
    
    14
    %
    
    
    3
    %Wachovia Bank
    
    
    8
    %
    
    
    24
    %
  Interest Rate Swaps
  12




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
 Notional
    
    Fixed
    
    FloatingTerm
    
    Amount
    
    Rate
    
    Rate(in thousands)Oct. 2009  Jan. 2011
    
    $
    50,000
    
    
    
    3.1610
    %
    
    1-month LIBOROct. 2009  Jan. 2011
    
    
    25,000
    
    
    
    2.9650
    %
    
    1-month LIBOROct. 2009  Jan. 2011
    
    
    25,000
    
    
    
    2.9613
    %
    
    1-month LIBOROct. 2009  Mar. 2012
    
    
    50,000
    
    
    
    2.4200
    %
    
    1-month LIBOR
  Current Period Impact
  Three months ended September 30,
    
    
    Nine months ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands)Ineffectiveness
    
    $
    18
    
    
    $
    (6
    )
    
    $
    (16
    )
    
    $
    (349
    )Mark-to-market loss (gain)
    
    
    4,957
    
    
    
    822
    
    
    
    62,638
    
    
    
    1,978Premium amortization
    
    
    5,918
    
    
    
    2,275
    
    
    
    17,326
    
    
    
    6,662Settlements
    
    
    (15,715
    )
    
    
    (73,534
    )
    
    
    (58,237
    )
    
    
    13,281Total derivative fair value loss (gain)
    
    $
    (4,822
    )
    
    $
    (70,443
    )
    
    $
    21,711
    
    
    $
    21,572
 Accumulated Other Comprehensive Loss
  Tabular Disclosures of Fair Value Measurements
  Asset Derivatives
    
    
    
    Liability DerivativesSeptember 30, 2009
    
    
    December 31, 2008
    
    
    
    September 30, 2009
    
    
    December 31, 2008Balance Sheet
    
    
    Fair
    
    
    Balance Sheet
    
    
    Fair
    
    
    
    Balance Sheet
    
    
    
    
    
    
    Balance SheetLocation
    
    
    Value
    
    
    Location
    
    
    Value
    
    
    
    Location
    
    
    Fair Value
    
    
    Location
    
    
    Fair ValueDerivatives not designated as
hedging instruments under SFAS 133(ASC 815)Commodity derivative contracts
    

Derivatives
 current
    
    $
    27,668
    
    

Derivatives
 current
    
    $
    75,131
    
    
    

Derivatives
 current
    
    $
    1,367
    
    

Derivatives
 current
    
    $
    Commodity derivative contracts
    

Derivatives
 noncurrent
    
    
    23,122
    
    

Derivatives
 noncurrent
    
    
    38,497
    
    
    

Derivatives
 noncurrent
    
    
    4,946
    
    

Derivatives
 noncurrent
    
    
    229Total derivatives not designated as
hedging instruments under SFAS 133 (ASC 815)
    
    
    
    
    
    $
    50,790
    
    
    
    
    
    
    $
    113,628
    
    
    
    
    
    
    
    $
    6,313
    
    
    
    
    
    
    $
    229Derivatives designated as hedging
instruments under SFAS 133 (ASC 815)Interest rate swaps
    

Derivatives
 current
    
    $
    
    
    
    Derivatives  current
    
    $
    
    
    
    
    Derivatives  current
    
    $
    3,470
    
    
    Derivatives
 current
    
    $
    1,297Interest rate swaps
    
    Derivatives         noncurrent
    
    
    
    
    
    Derivatives         noncurrent
    
    
    
    
    
    
    Derivatives         noncurrent
    
    
    680
    
    
    Derivatives 
       noncurrent
    
    
    3,262Total derivatives designated as
hedging instruments under SFAS 133 (ASC 815)
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    $
    4,150
    
    
    
    
    
    
    $
    4,559Total derivatives
    
    
    
    
    
    $
    50,790
    
    
    
    
    
    
    $
    113,628
    
    
    
    
    
    
    
    $
    10,463
    
    
    
    
    
    
    $
    4,788
 13




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
  Amount of Loss (Gain) Recognized In IncomeDerivatives Not Designated as
    
    Location of Loss
    
    Three Months Ended September 30,
    
    Nine Months Ended September 30,Hedges Under SFAS 133 (ASC815)
    
    Recognized In Income
    
    2009
    
    2008
    
    2009
    
    2008Commodity derivative contracts
    
    Derivative fair value loss (gain)
    
    $
    (4,840
    )
    
    $
    (70,437
    )
    
    $
    21,727
    
    
    $
    21,921
  Amount of LossAmount of Loss
    
    
    
    
    
    Reclassified from
    
    
    
    
    
    Amount of Loss (Gain)Recognized in Accumulated OCI
    
    Location of Loss
    
    Accumulated OCI into
    
    
    
    
    
    Recognized In Income(Effective Portion)
    
    (Gain) Reclassified
    
    Income (Effective Portion)
    
    
    
    
    
    as IneffectiveThree months ended
    
    from Accumulated
    
    Three months ended
    
    Location of Loss (Gain)
    
    Three months endedDerivatives Designated as
    
    September 30,
    
    OCI into Income
    
    September 30,
    
    Recognized in Income
    
    September 30,Hedges Under SFAS 133 (ASC 815)
    
    2009
    
    2008
    
    (Effective Portion)
    
    2009
    
    2008
    
    as Ineffective
    
    2009
    
    
    
    
    
    2008Interest rate swaps
    
    $
    1,289
    
    
    $
    714
    
    
    Interest expense
    
    $
    983
    
    
    $
    117
    
    
    Derivative fair value loss (gain)
    
    $
    18
    
    
    
    
    
    

    $
    (6
    )
 Amount of LossAmount of Loss (Gain)
    
    
    
    
    
    Reclassified from
    
    
    
    
    
    Amount of GainRecognized in Accumulated OCI
    
    Location of Loss
    
    Accumulated OCI into
    
    
    
    
    
    Recognized In Income(Effective Portion)
    
    (Gain) Reclassified
    
    Income (Effective Portion)
    
    
    
    
    
    as IneffectiveNine months ended
    
    from Accumulated
    
    Nine months ended
    
    Location of Gain
    
    Nine months endedDerivatives Designated as
    
    September 30,
    
    OCI into Income
    
    September 30,
    
    Recognized in Income
    
    September 30,Hedges Under SFAS 133 (ASC 815)
    
    2009
    
    2008
    
    (Effective Portion)
    
    2009
    
    2008
    
    as Ineffective
    
    2009
    
    2008Interest rate swaps
    
    $
    2,444
    
    
    $
    (163
    )
    
    Interest expense
    
    $
    2,786
    
    
    $
    224
    
    
    Derivative fair value gain
    
    $
    16
    
    
    $
    349
 Fair Value Hierarchy
  
    
    Level 1  Unadjusted quoted prices are available in active markets for identical assets
or liabilities.
    
    Level 2  Pricing inputs, other than quoted prices within Level 1, that are either
directly or indirectly observable.
    
    Level 3  Pricing inputs that are unobservable requiring the use of valuation
methodologies that result in managements best estimate of fair value.
  
    
    Level 2  Fair values of oil and natural gas swaps were estimated using a combined
income-based and market-based valuation methodology based upon forward commodity price
curves obtained from independent pricing services reflecting broker market quotes. Fair
values of interest rate swaps were estimated using a combined income-based and market-based
valuation methodology based upon credit ratings and forward interest rate yield curves
obtained from independent pricing services reflecting broker market quotes.
 
    
    Level 3  ENPs oil and natural gas calls, puts, and short puts are average value
options, which are not exchange-traded contracts. Settlement is determined by the average
underlying price over a predetermined period of time. ENP uses both observable and
unobservable inputs in a Black-Scholes valuation model to determine fair value.
Accordingly, these derivative instruments are classified within the Level 3 valuation
hierarchy. The observable inputs of ENPs valuation model include: (1) current market and
contractual prices for the underlying instruments; (2) quoted forward prices for oil and
natural gas; and (3) interest rates, such as a LIBOR curve for a term similar to the
commodity derivative contract. The unobservable inputs of ENPs valuation model include
volatility. The implied volatilities for ENPs calls, puts, and short puts with comparable
strike prices are based on the settlement values from certain exchange-traded contracts.
The implied volatilities for calls, puts, and short puts where there are no exchange-traded
contracts with the same strike price are extrapolated from exchange-traded implied
volatilities by an independent party.
 14




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
   Fair Value Measurements at Reporting Date UsingQuoted Prices inActive Markets for
    
    
    Significant Other
    
    
    SignificantAsset (Liability) at
    
    
    Identical Assets
    
    
    Observable Inputs
    
    
    Unobservable InputsDescription
    
    September 30, 2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)(in thousands)Oil derivative contracts  swaps
    
    $
    (2,149
    )
    
    $
    
    
    
    $
    (2,149
    )
    
    $
    Oil derivative contracts  floors and caps
    
    
    36,610
    
    
    
    
    
    
    
    
    
    
    
    36,610Natural gas derivative contracts  swaps
    
    
    336
    
    
    
    
    
    
    
    336
    
    
    
    Natural gas derivative contracts  floors and caps
    
    
    9,680
    
    
    
    
    
    
    
    
    
    
    
    9,680Interest rate swaps
    
    
    (4,150
    )
    
    
    
    
    
    
    (4,150
    )
    
    
    Total
    
    $
    40,327
    
    
    $
    
    
    
    $
    (5,963
    )
    
    $
    46,290
  Fair Value Measurements Using SignificantUnobservable Inputs (Level 3)Oil Derivative
    
    
    Natural GasContracts -
    
    
    Derivative Contracts -Floors and Caps
    
    
    Floors and Caps
    
    
    Total(in thousands)Balance at January 1, 2009
    
    $
    95,430
    
    
    $
    12,741
    
    
    $
    108,171Total gains (losses):Included in earnings
    
    
    (13,966
    )
    
    
    7,163
    
    
    
    (6,803
    )Purchases, issuances, and settlements
    
    
    (44,854
    )
    
    
    (10,224
    )
    
    
    (55,078
    )Balance at September 30, 2009
    
    $
    36,610
    
    
    $
    9,680
    
    
    $
    46,290The amount of total gains or losses for the period included in
earnings attributable to the change in unrealized gains or losses
relating to assets still held at the reporting date
    
    $
    (13,966
    )
    
    $
    7,163
    
    
    $
    (6,803
    )
    15




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
  
    
    Level 3 Fair values of asset retirement obligations are determined using discounted
cash flow methodologies based on inputs, such as plugging costs and reserve lives, which
are not readily available in public markets. Please read Note 6. Asset Retirement
Obligations for additional discussion of ENPs asset retirement obligations.
  Fair Value Measurements UsingQuoted Prices inActive Markets for
    
    Significant Other
    
    SignificantLiability at
    
    Identical Assets
    
    Observable Inputs
    
    Unobservable Inputs
    
    Total GainsDescription
    
    September 30, 2009
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)
    
    (Losses)(in thousands)Asset retirement obligations
    
    $
    89
    
    
    $
    
    
    
    $
    
    
    
    $
    89
    
    
    $
    
 Note 6. Asset Retirement Obligations
  Future abandonment liability at January 1, 2009
    
    $
    12,375Wells drilled
    
    
    22Acquisition of properties
    
    
    67Accretion of discount
    
    
    532Revision of previous estimates
    
    
    145Plugging and abandonment costs incurred
    
    
    (141
    )Future abandonment liability at September 30, 2009
    
    $
    13,000
  Note 7. Long-Term Debt
    16




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
   Applicable Margin for
    
    Applicable Margin forRatio of Outstanding Borrowings to Borrowing Base
    
    Eurodollar Loans
    
    Base Rate LoansLess than .50 to 1
    
    
    2.250
    %
    
    
    1.250
    %Greater than or equal to .50 to 1 but less than .75 to 1
    
    
    2.500
    %
    
    
    1.500
    %Greater than or equal to .75 to 1 but less than .90 to 1
    
    
    2.750
    %
    
    
    1.750
    %Greater than or equal to .90 to 1
    
    
    3.000
    %
    
    
    2.000
    %
    
    
    a prohibition against incurring debt, subject to permitted exceptions;
    
    a prohibition against purchasing or redeeming capital stock, or prepaying indebtedness,
subject to permitted exceptions;
    
    a restriction on creating liens on the assets of ENP, OLLC, and OLLCs restricted
subsidiaries, subject to permitted exceptions;
    
    restrictions on merging and selling assets outside the ordinary course of business;
    
    restrictions on use of proceeds, investments, transactions with affiliates, or change of
principal business;
    
    a provision limiting oil and natural gas hedging transactions (other than puts) to a
volume not exceeding 75 percent of anticipated production from proved producing reserves;
    
    a requirement that ENP and OLLC maintain a ratio of consolidated current assets to
consolidated current liabilities of not less than 1.0 to 1.0;
    
    a requirement that ENP and OLLC maintain a ratio of consolidated EBITDA to the sum of
consolidated net interest expense plus letter of credit fees of not less than 2.5 to 1.0;
and
    
    a requirement that ENP and OLLC maintain a ratio of consolidated funded debt to
consolidated adjusted EBITDA of not more than 3.5 to 1.0.
   
    
    failure to pay principal on any loan when due;
    
    failure to pay accrued interest on any loan or fees when due and such failure continues
for more than three days;
    
    failure to observe or perform covenants and agreements contained in the OLLC Credit
Agreement, subject in some cases to a 30-day grace period after discovery or notice of such
failure;
    
    failure to make a payment when due on any other debt in a principal amount equal to or
greater than $3 million or any other event or condition occurs which results in the
acceleration of such debt or entitles the holder of such debt to accelerate the maturity of
such debt;
 17




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
 
    
    the commencement of liquidation, reorganization, or similar proceedings with respect to
OLLC or any guarantor under bankruptcy or insolvency law, or the failure of OLLC or any
guarantor generally to pay its debts as they become due;
    
    the entry of one or more judgments in excess of $3 million (to the extent not covered by
insurance) and such judgment(s) remain unsatisfied and unstayed for 30 days;
    
    the occurrence of certain ERISA events involving an amount in excess of $3 million;
    
    there cease to exist liens covering at least 80 percent of the borrowing base
properties; or
    
    the occurrence of a change in control.
  Note 8. Partners Equity and Distributions
 Distributions
   Cash DistributionDate
    
    Declared per
    
    
    
    
    
    TotalDeclared
    
    Common Unit
    
    Date Paid
    
    Distribution(in thousands)2009Quarter ended September 30
    
    
    10/26/2009
    
    
    $
    0.5375
    
    
    
    11/13/2009
    (a)
    
    $
    24,639Quarter ended June 30
    
    
    7/27/2009
    
    
    $
    0.5125
    
    
    
    8/14/2009
    
    
    
    23,481Quarter ended March 31
    
    
    4/27/2009
    
    
    $
    0.5000
    
    
    
    5/15/2009
    
    
    
    16,8132008Quarter ended December 31
    
    
    1/26/2009
    
    
    $
    0.5000
    
    
    
    2/13/2009
    
    
    
    16,813Quarter ended September 30
    
    
    11/7/2008
    
    
    $
    0.6600
    
    
    
    11/14/2008
    
    
    
    22,191Quarter ended June 30
    
    
    8/11/2008
    
    
    $
    0.6881
    
    
    
    8/14/2008
    
    
    
    23,119Quarter ended March 31
    
    
    5/9/2008
    
    
    $
    0.5755
    
    
    
    5/15/2008
    
    
    
    19,3162007Quarter ended December 31
    
    
    2/6/2008
    
    
    $
    0.3875
    
    
    
    2/14/2008
    
    
    
    9,843
 
 (a)
    
    Represents the date the distribution is expected to be paid. Shelf Registration Statement on Form S-3
  Public Offerings of Common Units
   18




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
  Note 9. Earnings Per Unit
   Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands, except per unit amounts)Net income (loss)
    
    $
    7,460
    
    
    $
    111,892
    
    
    $
    (27,013
    )
    
    $
    102,312Less: net income for pre-partnership operations of
assets acquired from affiliates
    
    
    (1,493
    )
    
    
    (15,775
    )
    
    
    (176
    )
    
    
    (50,509
    )Net income (loss) attributable to unitholders
    
    $
    5,967
    
    
    $
    96,117
    
    
    $
    (27,189
    )
    
    $
    51,803Numerator:Numerator for basic EPU:Net income (loss) attributable to unitholders
    
    $
    5,967
    
    
    $
    96,117
    
    
    $
    (27,189
    )
    
    $
    51,803Less: distributions earned by participating securities
    
    
    (271
    )
    
    
    (1,463
    )
    
    
    (783
    )
    
    
    (4,245
    )Plus: cash distributions in excess of
income allocated to the general partner
    
    
    208
    
    
    
    (4,938
    )
    
    
    1,227
    
    
    
    209Net income (loss) allocated to limited partners
    
    $
    5,904
    
    
    $
    89,716
    
    
    $
    (26,745
    )
    
    $
    47,767Denominator:Denominator for basic EPU:Weighted average common units outstanding
    
    
    44,653
    
    
    
    31,356
    
    
    
    37,373
    
    
    
    30,300Effect of dilutive phantom units (a)
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    5Denominator for diluted EPU (b)
    
    
    44,675
    
    
    
    31,356
    
    
    
    37,373
    
    
    
    30,305Net income (loss) per common unit:Basic
    
    $
    0.13
    
    
    $
    2.86
    
    
    $
    (0.72
    )
    
    $
    1.58Diluted
    
    $
    0.13
    
    
    $
    2.86
    
    
    $
    (0.72
    )
    
    $
    1.58
 
 (a)
    
    For the nine months ended months ended September 30, 2009, 43,750 phantom units were
outstanding but were excluded from the diluted EPU calculations because their effect would
have been antidilutive. For the three months ended September 30, 2008, 25,000 phantom
units were outstanding and excluded from the diluted EPU calculation because their effect
would have been antidilutive. Please read Note 10. Unit-Based Compensation Plans for
additional discussion of phantom units.(b)
    
    For the three and nine months ended September 30, 2008, 550,000 management incentive
units were outstanding but were excluded from the diluted EPU calculations because their
effect would have been antidilutive. Please read Note 10. Unit-Based Compensation Plans
for additional discussion of management incentive units. 19




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
 Note 10. Unit-Based Compensation Plans
 Management Incentive Units
   Long-Term Incentive Plan
   Phantom Units.
  WeightedAverageNumber of
    
    Grant DateShares
    
    Fair ValueOutstanding at January 1, 2009
    
    
    43,750
    
    
    $
    18.67Granted
    
    
    
    
    
    
    Vested
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding at September 30, 2009
    
    
    43,750
    
    
    
    18.67
  20




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
 Note 11. Comprehensive Income (Loss)
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands)Net income (loss)
    
    $
    7,460
    
    
    $
    111,892
    
    
    $
    (27,013
    )
    
    $
    102,312Change in deferred hedge loss on interest rate swaps
    
    
    (306
    )
    
    
    (597
    )
    
    
    342
    
    
    
    387Comprehensive income (loss)
    
    $
    7,154
    
    
    $
    111,295
    
    
    $
    (26,671
    )
    
    $
    102,699
 Note 12. Commitments and Contingencies
   Note 13. Related Party Transactions
 Administrative Services Agreement
    
    
    beginning on the first day of April in each year by an amount equal to the product of
the then-current administrative fee multiplied by the COPAS Wage Index Adjustment for that
year;
    
    if ENP or one of its subsidiaries acquires additional assets, Encore Operating may
propose an increase in its administrative fee that covers the provision of services for
such additional assets; however, such proposal must be approved by the board of directors
of the General Partner upon the recommendation of its conflicts committee; and
    
    otherwise as agreed upon by Encore Operating and the General Partner, with the approval
of the conflicts committee of the board of directors of the General Partner.
  21




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
  Three Months Ended September 30,
    
    Nine Months Ended September 30,2009
    
    2008
    
    2009
    
    2008(in thousands)Administrative fees (including COPAS recovery)
    
    $
    1,325
    
    
    $
    1,746
    
    
    $
    4,150
    
    
    $
    4,893Third-party expenses
    
    
    1,059
    
    
    
    1,774
    
    
    
    4,031
    
    
    
    5,104
  Acquisitions from EAC
   Distributions
   Note 14. Subsequent Events
    22




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following discussion and analysis contains forward-looking statements, which give our
current expectations or forecasts of future events. Actual results could differ materially from
those discussed in these forward-looking statements due to many factors, including, but not limited
to, those set forth under Item 1A. Risk Factors and elsewhere in our 2008 Annual Report on Form
10-K. The following discussion and analysis should be read in conjunction with the consolidated
financial statements and notes thereto included in Item 1. Financial Statements of this Report
and in Exhibit 99.3 to our Current Report on Form 8-K filed with the SEC on May 7, 2009, which
recast Item 8. Financial Statements and Supplementary Data of our 2008 Annual Report on Form
10-K.
 Introduction
  
    
    Overview of Business
    
    Results of Operations
o Comparison of Quarter Ended September 30, 2009 to Quarter Ended September 30, 2008
o Comparison of Nine Months Ended September 30, 2009 to Nine Months Ended September 30, 2008
    
    Capital Commitments, Capital Resources, and Liquidity
    
    Critical Accounting Policies and Estimates
    
    New Accounting Pronouncements
 Overview of Business
  
    
    the Big Horn Basin in Wyoming and Montana;
    
    the Permian Basin in West Texas and New Mexico;
    
    the Williston Basin in North Dakota and Montana; and
    
    the Arkoma Basin in Arkansas and Oklahoma.
   23




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ENCORE ENERGY PARTNERS LP
 Results of Operations
 Comparison of Quarter Ended September 30, 2009 to Quarter Ended September 30, 2008
 Revenues.
 Three months ended September 30,
    
    
    Increase / (Decrease)2009
    
    
    2008
    
    
    $
    
    
    %Revenues (in thousands):Oil
    
    $
    35,280
    
    
    $
    67,221
    
    
    $
    (31,941
    )
    
    
    -48
    %Natural gas
    
    
    5,650
    
    
    
    15,444
    
    
    
    (9,794
    )
    
    
    -63
    %Total oil and natural gas revenues
    
    
    40,930
    
    
    
    82,665
    
    
    
    (41,735
    )
    
    
    -50
    %Marketing
    
    
    102
    
    
    
    1,445
    
    
    
    (1,343
    )
    
    
    -93
    %Total revenues
    
    $
    41,032
    
    
    $
    84,110
    
    
    $
    (43,078
    )
    
    
    -51
    %Average realized prices:Oil ($/Bbl)
    
    $
    60.98
    
    
    $
    109.80
    
    
    $
    (48.82
    )
    
    
    -44
    %Natural gas ($/Mcf)
    
    $
    3.40
    
    
    $
    9.87
    
    
    $
    (6.47
    )
    
    
    -66
    %Combined ($/BOE)
    
    $
    47.83
    
    
    $
    94.68
    
    
    $
    (46.85
    )
    
    
    -49
    %Total production volumes:Oil (MBbls)
    
    
    579
    
    
    
    612
    
    
    
    (33
    )
    
    
    -5
    %Natural gas (MMcf)
    
    
    1,663
    
    
    
    1,565
    
    
    
    98
    
    
    
    6
    %Combined (MBOE)
    
    
    856
    
    
    
    873
    
    
    
    (17
    )
    
    
    -2
    %Average daily production volumes:Oil (Bbls/D)
    
    
    6,289
    
    
    
    6,654
    
    
    
    (365
    )
    
    
    -5
    %Natural gas (Mcf/D)
    
    
    18,077
    
    
    
    17,014
    
    
    
    1,063
    
    
    
    6
    %Combined (BOE/D)
    
    
    9,301
    
    
    
    9,490
    
    
    
    (189
    )
    
    
    -2
    %Average NYMEX prices:Oil (per Bbl)
    
    $
    68.24
    
    
    $
    118.67
    
    
    $
    (50.43
    )
    
    
    -42
    %Natural gas (per Mcf)
    
    $
    3.40
    
    
    $
    10.27
    
    
    $
    (6.87
    )
    
    
    -67
    %
    24




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ENCORE ENERGY PARTNERS LP
 Three months ended September 30,2009
    
    2008Average realized oil price ($/Bbl)
    
    $
    60.98
    
    
    $
    109.80Average NYMEX ($/Bbl)
    
    $
    68.24
    
    
    $
    118.67Differential to NYMEX
    
    $
    (7.26
    )
    
    $
    (8.87
    )Average realized oil price to NYMEX percentage
    
    
    89
    %
    
    
    93
    %Average realized natural gas price ($/Mcf)
    
    $
    3.40
    
    
    $
    9.87Average NYMEX ($/Mcf)
    
    $
    3.40
    
    
    $
    10.27Differential to NYMEX
    
    $
    
    
    
    $
    (0.40
    )Average realized natural gas price to NYMEX percentage
    
    
    100
    %
    
    
    96
    %
   25




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ENCORE ENERGY PARTNERS LP
 Expenses.
 Three months ended September 30,
    
    
    Increase / (Decrease)2009
    
    
    2008
    
    
    $
    
    
    %Expenses (in thousands):Production:Lease operating
    
    $
    9,017
    
    
    $
    12,967
    
    
    $
    (3,950
    )Production, ad valorem, and severance taxes
    
    
    4,693
    
    
    
    8,210
    
    
    
    (3,517
    )Total production expenses
    
    
    13,710
    
    
    
    21,177
    
    
    
    (7,467
    )
    
    
    -35
    %Other:Depletion, depreciation, and amortization
    
    
    14,458
    
    
    
    13,820
    
    
    
    638Exploration
    
    
    3,034
    
    
    
    47
    
    
    
    2,987General and administrative
    
    
    2,912
    
    
    
    3,772
    
    
    
    (860
    )Marketing
    
    
    54
    
    
    
    1,316
    
    
    
    (1,262
    )Derivative fair value gain
    
    
    (4,822
    )
    
    
    (70,443
    )
    
    
    65,621Other operating
    
    
    1,303
    
    
    
    440
    
    
    
    863Total operating expenses
    
    
    30,649
    
    
    
    (29,871
    )
    
    
    60,520
    
    
    
    -203
    %Interest
    
    
    2,984
    
    
    
    1,767
    
    
    
    1,217Income tax provision (benefit)
    
    
    (38
    )
    
    
    332
    
    
    
    (370
    )Total expenses
    
    $
    33,595
    
    
    $
    (27,772
    )
    
    $
    61,367
    
    
    
    -221
    %Expenses (per BOE):Production:Lease operating
    
    $
    10.54
    
    
    $
    14.85
    
    
    $
    (4.31
    )Production, ad valorem, and severance taxes
    
    
    5.48
    
    
    
    9.40
    
    
    
    (3.92
    )Total production expenses
    
    
    16.02
    
    
    
    24.25
    
    
    
    (8.23
    )
    
    
    -34
    %Other:Depletion, depreciation, and amortization
    
    
    16.89
    
    
    
    15.83
    
    
    
    1.06Exploration
    
    
    3.55
    
    
    
    0.05
    
    
    
    3.50General and administrative
    
    
    3.40
    
    
    
    4.32
    
    
    
    (0.92
    )Marketing
    
    
    0.06
    
    
    
    1.51
    
    
    
    (1.45
    )Derivative fair value gain
    
    
    (5.63
    )
    
    
    (80.68
    )
    
    
    75.05Other operating
    
    
    1.52
    
    
    
    0.50
    
    
    
    1.02Total operating expenses
    
    
    35.81
    
    
    
    (34.22
    )
    
    
    70.03
    
    
    
    -205
    %Interest
    
    
    3.49
    
    
    
    2.02
    
    
    
    1.47Income tax provision (benefit)
    
    
    (0.04
    )
    
    
    0.38
    
    
    
    (0.42
    )Total expenses
    
    $
    39.26
    
    
    $
    (31.82
    )
    
    $
    71.08
    
    
    
    -223
    %
 Production expenses.
   26




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ENCORE ENERGY PARTNERS LP
 Depletion, depreciation, and amortization expense (DD&A).
 Exploration expense.
 General and administrative expense (G&A).
 Marketing expenses.
 Derivative fair value gain.
 Three months ended September 30,2009
    
    
    2008
    
    
    Increase(in thousands)Ineffectiveness
    
    $
    18
    
    
    $
    (6
    )
    
    $
    24Mark-to-market loss
    
    
    4,957
    
    
    
    823
    
    
    
    4,134Premium amortization
    
    
    5,918
    
    
    
    2,274
    
    
    
    3,644Settlements
    
    
    (15,715
    )
    
    
    (73,534
    )
    
    
    57,819Total derivative fair value gain
    
    $
    (4,822
    )
    
    $
    (70,443
    )
    
    $
    65,621
 Interest expense.
 27




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ENCORE ENERGY PARTNERS LP
 Comparison of Nine Months Ended September 30, 2009 to Nine Months Ended September 30, 2008
 Revenues.
 Nine months ended September 30,
    
    
    Decrease2009
    
    
    2008
    
    
    $
    
    
    %Revenues (in thousands):Oil
    
    $
    88,433
    
    
    $
    197,587
    
    
    $
    (109,154
    )
    
    
    -55
    %Natural gas
    
    
    15,143
    
    
    
    45,410
    
    
    
    (30,267
    )
    
    
    -67
    %Total oil and natural gas revenues
    
    
    103,576
    
    
    
    242,997
    
    
    
    (139,421
    )
    
    
    -57
    %Marketing
    
    
    381
    
    
    
    5,207
    
    
    
    (4,826
    )
    
    
    -93
    %Total revenues
    
    $
    103,957
    
    
    $
    248,204
    
    
    $
    (144,247
    )
    
    
    -58
    %Average realized prices:Oil ($/Bbl)
    
    $
    50.35
    
    
    $
    103.08
    
    
    $
    (52.73
    )
    
    
    -51
    %Natural gas ($/Mcf)
    
    $
    3.39
    
    
    $
    9.63
    
    
    $
    (6.24
    )
    
    
    -65
    %Combined ($/BOE)
    
    $
    41.41
    
    
    $
    89.90
    
    
    $
    (48.49
    )
    
    
    -54
    %Total production volumes:Oil (MBbls)
    
    
    1,756
    
    
    
    1,917
    
    
    
    (161
    )
    
    
    -8
    %Natural gas (MMcf)
    
    
    4,470
    
    
    
    4,717
    
    
    
    (247
    )
    
    
    -5
    %Combined (MBOE)
    
    
    2,501
    
    
    
    2,703
    
    
    
    (202
    )
    
    
    -7
    %Average daily production volumes:Oil (Bbls/D)
    
    
    6,433
    
    
    
    6,996
    
    
    
    (563
    )
    
    
    -8
    %Natural gas (Mcf/D)
    
    
    16,375
    
    
    
    17,215
    
    
    
    (840
    )
    
    
    -5
    %Combined (BOE/D)
    
    
    9,162
    
    
    
    9,865
    
    
    
    (703
    )
    
    
    -7
    %Average NYMEX prices:Oil (per Bbl)
    
    $
    57.22
    
    
    $
    113.59
    
    
    $
    (56.37
    )
    
    
    -50
    %Natural gas (per Mcf)
    
    $
    3.93
    
    
    $
    9.74
    
    
    $
    (5.81
    )
    
    
    -60
    %
   28




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ENCORE ENERGY PARTNERS LP
  Nine months ended September 30,2009
    
    2008Average realized oil price ($/Bbl)
    
    $
    50.35
    
    
    $
    103.08Average NYMEX ($/Bbl)
    
    $
    57.22
    
    
    $
    113.59Differential to NYMEX
    
    $
    (6.87
    )
    
    $
    (10.51
    )Average realized oil price to NYMEX percentage
    
    
    88
    %
    
    
    91
    %Average realized natural gas price ($/Mcf)
    
    $
    3.39
    
    
    $
    9.63Average NYMEX ($/Mcf)
    
    $
    3.93
    
    
    $
    9.74Differential to NYMEX
    
    $
    (0.54
    )
    
    $
    (0.11
    )Average realized natural gas price to NYMEX percentage
    
    
    86
    %
    
    
    99
    %
    29




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ENCORE ENERGY PARTNERS LP
 Expenses.
 Nine months ended September 30,
    
    
    Increase / (Decrease)2009
    
    
    2008
    
    
    $
    
    
    %Expenses (in thousands):Production:Lease operating
    
    $
    31,120
    
    
    $
    34,069
    
    
    $
    (2,949
    )Production, ad valorem, and severance taxes
    
    
    11,586
    
    
    
    23,711
    
    
    
    (12,125
    )Total production expenses
    
    
    42,706
    
    
    
    57,780
    
    
    
    (15,074
    )
    
    
    -26
    %Other:Depletion, depreciation, and amortization
    
    
    43,684
    
    
    
    42,496
    
    
    
    1,188Exploration
    
    
    3,074
    
    
    
    115
    
    
    
    2,959General and administrative
    
    
    9,135
    
    
    
    11,899
    
    
    
    (2,764
    )Marketing
    
    
    245
    
    
    
    5,318
    
    
    
    (5,073
    )Derivative fair value loss
    
    
    21,711
    
    
    
    21,572
    
    
    
    139Other operating
    
    
    2,730
    
    
    
    1,294
    
    
    
    1,436Total operating expenses
    
    
    123,285
    
    
    
    140,474
    
    
    
    (17,189
    )
    
    
    -12
    %Interest
    
    
    7,551
    
    
    
    5,316
    
    
    
    2,235Income tax provision
    
    
    163
    
    
    
    194
    
    
    
    (31
    )Total expenses
    
    $
    130,999
    
    
    $
    145,984
    
    
    $
    (14,985
    )
    
    
    -10
    %Expenses (per BOE):Production:Lease operating
    
    $
    12.44
    
    
    $
    12.60
    
    
    $
    (0.16
    )Production, ad valorem, and severance taxes
    
    
    4.63
    
    
    
    8.77
    
    
    
    (4.14
    )Total production expenses
    
    
    17.07
    
    
    
    21.37
    
    
    
    (4.30
    )
    
    
    -20
    %Other:Depletion, depreciation, and amortization
    
    
    17.46
    
    
    
    15.72
    
    
    
    1.74Exploration
    
    
    1.23
    
    
    
    0.04
    
    
    
    1.19General and administrative
    
    
    3.65
    
    
    
    4.40
    
    
    
    (0.75
    )Marketing
    
    
    0.10
    
    
    
    1.97
    
    
    
    (1.87
    )Derivative fair value loss
    
    
    8.68
    
    
    
    7.98
    
    
    
    0.70Other operating
    
    
    1.09
    
    
    
    0.48
    
    
    
    0.61Total operating expenses
    
    
    49.28
    
    
    
    51.96
    
    
    
    (2.68
    )
    
    
    -5
    %Interest
    
    
    3.02
    
    
    
    1.97
    
    
    
    1.05Income tax provision
    
    
    0.07
    
    
    
    0.07
    
    
    
    Total expenses
    
    $
    52.37
    
    
    $
    54.00
    
    
    $
    (1.63
    )
    
    
    -3
    %
 Production expenses.
   30




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ENCORE ENERGY PARTNERS LP
 DD&A expense.
 Exploration expense.
 G&A expense.
 Marketing expenses.
 Derivative fair value loss.
 Nine months ended September 30,
    
    
    Increase /2009
    
    
    2008
    
    
    (Decrease)(in thousands)Ineffectiveness
    
    $
    (16
    )
    
    $
    (349
    )
    
    $
    333Mark-to-market loss
    
    
    62,638
    
    
    
    1,978
    
    
    
    60,660Premium amortization
    
    
    17,326
    
    
    
    6,662
    
    
    
    10,664Settlements
    
    
    (58,237
    )
    
    
    13,281
    
    
    
    (71,518
    )Total derivative fair value loss
    
    $
    21,711
    
    
    $
    21,572
    
    
    $
    139
 Interest expense.
 Capital Commitments, Capital Resources, and Liquidity
 Capital commitments
  
    
    Distributions to unitholders;
    
    Development, exploitation, and exploration of oil and natural gas properties;
    
    Acquisitions of oil and natural gas properties;
    
    Funding of working capital; and
    
    Contractual obligations.
 Distributions to unitholders.
  31




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ENCORE ENERGY PARTNERS LP
   Development, exploitation, and exploration of oil and natural gas properties.
 Three months ended September 30,
    
    
    Nine months ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands)Development and exploitation
    
    $
    1,125
    
    
    $
    20,120
    
    
    $
    6,536
    
    
    $
    42,256Exploration
    
    
    474
    
    
    
    3,482
    
    
    
    768
    
    
    
    5,279Total
    
    $
    1,599
    
    
    $
    23,602
    
    
    $
    7,304
    
    
    $
    47,535
   Acquisitions of oil and natural gas properties.
  Funding of working capital.
  32




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ENCORE ENERGY PARTNERS LP
   Off-balance sheet arrangements.
 Contractual obligations.
 Payments Due by PeriodYears Ending
    
    
    Years EndingContractual Obligations and
    
    
    
    
    
    Three Months Ending
    
    
    December 31, 2010
    
    
    December 31, 2012Commitments
    
    Total
    
    
    December 31, 2009
    
    
    - 2011
    
    
    - 2013
    
    
    Thereafter(in thousands)Revolving credit facility (a)
    
    $
    276,041
    
    
    $
    1,604
    
    
    $
    12,833
    
    
    $
    261,604
    
    
    $
    Commodity derivative contracts (b)
    
    
    1,506
    
    
    
    
    
    
    
    
    
    
    
    1,506
    
    
    
    Interest rate swaps (c)
    
    
    4,239
    
    
    
    942
    
    
    
    3,297
    
    
    
    
    
    
    
    Development commitments (d)
    
    
    1,846
    
    
    
    461
    
    
    
    1,385
    
    
    
    
    
    
    
    Operating leases (e)
    
    
    2,060
    
    
    
    172
    
    
    
    1,373
    
    
    
    515
    
    
    
    Asset retirement obligations (f)
    
    
    44,071
    
    
    
    125
    
    
    
    994
    
    
    
    994
    
    
    
    41,958Total
    
    $
    329,763
    
    
    $
    3,304
    
    
    $
    19,882
    
    
    $
    264,619
    
    
    $
    41,958
 
 (a)
    
    Includes principal and projected interest payments. Please read Note 7 of Notes to
Consolidated Financial Statements included in Item 1. Financial Statements for additional
information regarding our revolving credit facility.(b)
    
    Represents net liabilities for commodity derivative contracts, the ultimate settlement
of which are unknown because they are subject to continuing market risk. Please read Item
3. Quantitative and Qualitative Disclosures about Market Risk and Note 5 of Notes to
Consolidated Financial Statements included in Item 1. Financial Statements for additional
information regarding our commodity derivative contracts.(c)
    
    Represents net liabilities for interest rate swaps, the ultimate settlement of which
are unknown because they are subject to continuing market risk. Please read Item 3.
Quantitative and Qualitative Disclosures about Market Risk and Note 5 of Notes to
Consolidated Financial Statements included in Item 1. Financial Statements for additional
information regarding our interest rate swaps.(d)
    
    Represents authorized purchases for work in process. Also at September 30, 2009, we
had approximately $18.7 million of authorized purchases not placed to vendors (authorized
AFEs), which were not accrued and are excluded from the above table but are budgeted for
and expected to be made unless circumstances change.(e)
    
    Represents equipment obligations that have non-cancelable initial lease terms in excess
of one year.(f)
    
    Represents the undiscounted future plugging and abandonment expenses on oil and natural
gas properties and related facilities disposal at the end of field life. Please read Note
6 of Notes to Consolidated Financial Statements included in Item 1. Financial Statements
for additional information regarding our asset retirement obligations. Other contingencies and commitments
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ENCORE ENERGY PARTNERS LP
  
    
    beginning on the first day of April in each year by an amount equal to the product of
the then-current administrative fee multiplied by the COPAS Wage Index Adjustment for that
year;
    
    if we or one of our subsidiaries acquires additional assets, Encore Operating may
propose an increase in its administrative fee that covers the provision of services for
such additional assets; however, such proposal must be approved by the board of directors
of our General Partner upon the recommendation of its conflicts committee; and
    
    otherwise as agreed upon by Encore Operating and our General Partner, with the approval
of the conflicts committee of the board of directors of our General Partner.
 Capital resources
 Cash flows from operating activities
 Cash flows from investing activities
 Cash flows from financing activities
   Liquidity
   34




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ENCORE ENERGY PARTNERS LP
 Internally generated cash flows.
 Revolving credit facility.
      Applicable Margin for
    
    Applicable Margin forRatio of Outstanding Borrowings to Borrowing Base
    
    Eurodollar Loans
    
    Base Rate LoansLess than .50 to 1
    
    
    2.250
    %
    
    
    1.250
    %Greater than or equal to .50 to 1 but less than .75 to 1
    
    
    2.500
    %
    
    
    1.500
    %Greater than or equal to .75 to 1 but less than .90 to 1
    
    
    2.750
    %
    
    
    1.750
    %Greater than or equal to .90 to 1
    
    
    3.000
    %
    
    
    2.000
    %
  35




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ENCORE ENERGY PARTNERS LP
   
    
    a prohibition against incurring debt, subject to permitted exceptions;
    
    a prohibition against purchasing or redeeming capital stock, or prepaying indebtedness,
subject to permitted exceptions;
    
    a restriction on creating liens on our assets and the assets of OLLC and its
subsidiaries, subject to permitted exceptions;
    
    restrictions on merging and selling assets outside the ordinary course of business;
    
    restrictions on use of proceeds, investments, transactions with affiliates, or change of
principal business;
    
    a provision limiting oil and natural gas hedging transactions (other than puts) to a
volume not exceeding 75 percent of anticipated production from proved producing reserves;
    
    a requirement that we and OLLC maintain a ratio of consolidated current assets to
consolidated current liabilities of not less than 1.0 to 1.0 (the Current Ratio);
    
    a requirement that we and OLLC maintain a ratio of consolidated EBITDA to the sum of
consolidated net interest expense plus letter of credit fees of not less than 2.5 to 1.0
(the Interest Coverage Ratio); and
    
    a requirement that we and OLLC maintain a ratio of consolidated funded debt to
consolidated adjusted EBITDA of not more than 3.5 to 1.0 (the Leverage Ratio).
   Actual Ratio as ofFinancial Covenant
    
    Required Ratio
    
    September 30, 2009Current Ratio
    
    Minimum 1.0 to 1.0
    
    5.1 to 1.0Interest Coverage Ratio
    
    Minimum 2.5 to 1.0
    
    10.8 to 1.0Leverage Ratio
    
    Maximum 3.5 to 1.0
    
    2.2 to 1.0
  Current assets
    
    $
    54,806Availability under the OLLC Credit Agreement
    
    
    115,000Consolidated current assets
    
    $
    169,806Divided by: consolidated current liabilities
    
    $
    33,567Current Ratio
    
    
    5.1
  Consolidated EBITDA (a)
    
    $
    98,721Divided by:Consolidated interest expense and letter of credit fees
    
    $
    9,204Consolidated interest income
    
    
    (36
    )Consolidated net interest expense and letter of credit fees
    
    $
    9,168Interest Coverage Ratio
    
    
    10.8
 
 (a)
    
    Consolidated EBITDA is defined in the OLLC Credit Agreement and generally means
earnings before interest, income taxes, depletion, depreciation, and amortization, and
exploration expense. Consolidated EBITDA is a non-GAAP financial measure, which is
reconciled to its most directly comparable GAAP measure below. 36




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ENCORE ENERGY PARTNERS LP
  Consolidated funded debt
    
    $
    260,000Divided by: Consolidated Adjusted EBITDA (a)
    
    $
    116,179Leverage Ratio
    
    
    2.2
 
 (a)
    
    Consolidated Adjusted EBITDA is defined in the OLLC Credit Agreement and generally
means earnings before interest, income taxes, depletion, depreciation, and amortization,
and exploration expense, after giving pro forma effect to one or more acquisitions or
dispositions in excess of $20 million in the aggregate. Consolidated Adjusted EBITDA is a
non-GAAP financial measure, which is reconciled to its most directly comparable GAAP
measure below.  Consolidated net income
    
    $
    90,122Unrealized non-cash hedge gain
    
    
    (51,881
    )Consolidated net interest expense
    
    
    9,168Income and franchise taxes
    
    
    638Depletion, depreciation, amortization, and
exploration expense
    
    
    47,282Non-cash unit-based compensation
    
    
    2,108Other non-cash
    
    
    1,284Consolidated EBITDA
    
    
    98,721Pro forma effect of acquisitions
    
    
    17,458Consolidated Adjusted EBITDA
    
    $
    116,179
    Capitalization.
 Critical Accounting Policies and Estimates
  37




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ENCORE ENERGY PARTNERS LP
 New Accounting Pronouncements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
   Commodity Price Sensitivity
  Interest Rate Sensitivity
   
 Item 4. Controls and Procedures
   38




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ENCORE ENERGY PARTNERS LP
 
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 6. Exhibits
 Exhibit No.
    
    Description3.1
    
    Certificate of Limited Partnership of Encore Energy Partners LP (incorporated by reference
from Exhibit 3.1 to Form S-1 (File No. 333-142847) for Encore Energy Partners LP, filed with
the SEC on May 11, 2007).3.2
    
    Second Amended and Restated Agreement of Limited Partnership of Encore Energy Partners LP,
dated as of September 17, 2007 (incorporated by reference from Exhibit 3.1 of ENPs Current
Report on Form 8-K, filed with the SEC on September 21, 2007).3.2.1
    
    Amendment No. 1 to Second Amended and Restated Agreement of Limited Partnership of Encore
Energy Partners LP, dated as of May 10, 2007 (incorporated by reference from Exhibit 3.1 to
ENPs Current Report on Form 8-K, filed with the SEC on April 18, 2008).10.1
    
    Third Amendment to Credit Agreement, dated as of August 11, 2009, by and among Encore Energy
Partners Operating LLC, Encore Energy Partners LP, Bank of America, N.A., as the
administrative agent and L/C issuer, and the lenders party thereto (incorporated by
reference from Exhibit 10.1 of ENPs Current Report on Form 8-K filed on August 13, 2009).31.1*
    
    Rule 13a-14(a)/15d-14(a) Certification (Principal Executive Officer of our General Partner).31.2*
    
    Rule 13a-14(a)/15d-14(a) Certification (Principal Financial Officer of our General Partner).32.1*
    
    Section 1350 Certification (Principal Executive Officer of our General Partner).32.2*
    
    Section 1350 Certification (Principal Financial Officer of our General Partner).99.1*
    
    Statement showing computation of ratios of earnings (loss) to fixed charges.
 
 *
    
    Filed herewith. 39




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ENCORE ENERGY PARTNERS LP
 SIGNATURE
  ENCORE ENERGY PARTNERS LPBy: Encore Energy Partners GP LLC, its General PartnerDate: October 30, 2009
    
    /s/ Andrea Hunter

Andrea HunterVice President, Controller,
and Principal Accounting Officer(Duly Authorized Signatory)
 40