##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2010
 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
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
 Number of common units outstanding as of November 5, 2010
    
    
    45,341,597




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##### 



ENCORE ENERGY PARTNERS LP
 INDEX
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets as of September 30, 2010 and December 31, 2009
    
    
    1Consolidated Statements of Operations for the three and nine months ended
September 30, 2010 and 2009
    
    
    2Consolidated Statement of Partners Equity and Comprehensive Income for
the nine months ended September 30, 2010
    
    
    3Consolidated Statements of Cash Flows for the nine months ended September
30, 2010 and 2009
    
    
    4Notes to Consolidated Financial Statements
    
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    19Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    32Item 4. Controls and Procedures
    
    
    32PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    33Item 1A. Risk Factors
    
    
    33Item 6. Exhibits
    
    
    33EX-3.3EX-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
  
    
    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.
    
    CO2. Carbon dioxide.
    
    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.
    
    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.An exploratory, development, or extension well that proves to be incapable of
producing either oil or natural gas in sufficient quantities to justify completion as an
oil or natural gas well.
    
    Denbury.Denbury Resources Inc., a publicly traded Delaware corporation, together with
its subsidiaries.
    
    EAC.Encore Acquisition Company, together with its subsidiaries. EAC merged with and
into Denbury on March 9, 2010.
    
    ENP. Encore Energy Partners LP, a publicly traded Delaware limited partnership,
together with its subsidiaries.
    
    Exploratory Well. A well drilled to find a new field or to find a new reservoir in a
field previously producing oil or natural gas in another reservoir.
    
    FASB.Financial Accounting Standards Board.
    
    FASC. FASB Accounting Standards Codification.
    
    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 ad valorem taxes, 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.
    
    Productive 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 or in which the cost of the
required equipment is relatively minor compared to the cost of a new well.
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ENCORE ENERGY PARTNERS LP
 
    
    Proved Reserves.The estimated quantities of hydrocarbons, which, by analysis of
geoscience and engineering data, can be estimated with reasonable certainty to be
economically producible from a given date forward from known reservoirs under existing
conditions and operating methods.
    
    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 projects in the same
reservoir or an analogous reservoir, or by other evidence using reliable technology
establishing reasonable certainty.
    
    Recompletion.The completion for production from an existing wellbore in another
formation from that in which the well has been previously completed.
    
    Reliable Technology.A grouping of one or more technologies (including computational
methods) that have been field tested and have been demonstrated to provide reasonably
certain results with consistency and repeatability in the formation being evaluated or in
an analogous formation.
    
    Reserves.Reserves are estimated remaining quantities of oil and natural gas and
related substances anticipated to the economically producible, as of a given date, by
application of development projects to known accumulations. In addition, there must exist,
or there must be a reasonable expectation that there will exist, the legal right to produce
or a revenue interest in the production, installed means of delivering oil and gas or
related substances to market, and all permits and financing required to implement the
project.
    
    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.
    
    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 31,2010
    
    
    2009(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    10,283
    
    
    $
    1,754Accounts receivable:Trade
    
    
    16,753
    
    
    
    24,543Affiliate
    
    
    2,628
    
    
    
    8,213Derivatives
    
    
    15,078
    
    
    
    12,881Other
    
    
    697
    
    
    
    857Total current assets
    
    
    45,439
    
    
    
    48,248Properties and equipment, at cost  successful efforts method:Proved properties, including wells and related equipment
    
    
    856,182
    
    
    
    851,833Unproved properties
    
    
    19
    
    
    
    55Accumulated depletion, depreciation, and amortization
    
    
    (247,750
    )
    
    
    (210,417
    )608,451
    
    
    
    641,471Other property and equipment
    
    
    991
    
    
    
    863Accumulated depreciation
    
    
    (575
    )
    
    
    (419
    )416
    
    
    
    444Goodwill
    
    
    9,290
    
    
    
    9,290Other intangibles, net
    
    
    3,088
    
    
    
    3,316Derivatives
    
    
    10,023
    
    
    
    13,423Other
    
    
    2,207
    
    
    
    3,459Total assets
    
    $
    678,914
    
    
    $
    719,651LIABILITIES AND PARTNERS EQUITYCurrent liabilities:Accounts payable:Trade
    
    $
    418
    
    
    $
    577Affiliate
    
    
    2,356
    
    
    
    2,780Accrued liabilities:Lease operating
    
    
    6,363
    
    
    
    4,157Development capital
    
    
    1,576
    
    
    
    1,484Interest
    
    
    312
    
    
    
    429Production taxes and marketing
    
    
    10,988
    
    
    
    10,218Derivatives
    
    
    5,643
    
    
    
    9,815Oil and natural gas revenues payable
    
    
    1,611
    
    
    
    1,598Other
    
    
    1,691
    
    
    
    1,632Total current liabilities
    
    
    30,958
    
    
    
    32,690Derivatives
    
    
    9,929
    
    
    
    13,401Future abandonment cost, net of current portion
    
    
    12,950
    
    
    
    12,556Deferred taxes
    
    
    39
    
    
    
    Long-term debt
    
    
    240,000
    
    
    
    255,000Total liabilities
    
    
    293,876
    
    
    
    313,647Commitments and contingencies (see Note 11)Partners equity:Limited partners - 45,341,597 and 45,285,347 common units issued and
outstanding, respectively
    
    
    386,752
    
    
    
    409,777General partner - 504,851 general partner units issued and outstanding
    
    
    317
    
    
    
    (353
    )Accumulated other comprehensive loss
    
    
    (2,031
    )
    
    
    (3,420
    )Total partners equity
    
    
    385,038
    
    
    
    406,004Total liabilities and partners equity
    
    $
    678,914
    
    
    $
    719,651
  1




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ENCORE ENERGY PARTNERS LP
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
   Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues:Oil
    
    $
    36,286
    
    
    $
    35,494
    
    
    $
    114,733
    
    
    $
    88,952Natural gas
    
    
    6,497
    
    
    
    5,436
    
    
    
    21,407
    
    
    
    14,624Marketing
    
    
    60
    
    
    
    102
    
    
    
    207
    
    
    
    381Total revenues
    
    
    42,843
    
    
    
    41,032
    
    
    
    136,347
    
    
    
    103,957Expenses:Production:Lease operating
    
    
    9,607
    
    
    
    9,717
    
    
    
    31,701
    
    
    
    32,614Production taxes and marketing
    
    
    4,413
    
    
    
    4,523
    
    
    
    14,157
    
    
    
    11,865Depletion, depreciation, and amortization
    
    
    12,782
    
    
    
    14,640
    
    
    
    38,472
    
    
    
    44,226Exploration
    
    
    53
    
    
    
    3,034
    
    
    
    129
    
    
    
    3,074General and administrative
    
    
    2,817
    
    
    
    3,557
    
    
    
    10,088
    
    
    
    9,800Derivative fair value loss (gain)
    
    
    7,609
    
    
    
    (4,822
    )
    
    
    (14,347
    )
    
    
    21,711Total expenses
    
    
    37,281
    
    
    
    30,649
    
    
    
    80,200
    
    
    
    123,290Operating income (loss)
    
    
    5,562
    
    
    
    10,383
    
    
    
    56,147
    
    
    
    (19,333
    )Other income (expenses):Interest
    
    
    (3,277
    )
    
    
    (2,984
    )
    
    
    (9,912
    )
    
    
    (7,551
    )Other
    
    
    9
    
    
    
    23
    
    
    
    47
    
    
    
    34Total other expenses
    
    
    (3,268
    )
    
    
    (2,961
    )
    
    
    (9,865
    )
    
    
    (7,517
    )Income (loss) before income taxes
    
    
    2,294
    
    
    
    7,422
    
    
    
    46,282
    
    
    
    (26,850
    )Income tax benefit (provision)
    
    
    147
    
    
    
    38
    
    
    
    36
    
    
    
    (163
    )Net income (loss)
    
    $
    2,441
    
    
    $
    7,460
    
    
    $
    46,318
    
    
    $
    (27,013
    )Net income (loss) allocation (see Note 8):Limited partners interest in net income (loss)
    
    $
    2,419
    
    
    $
    5,904
    
    
    $
    45,813
    
    
    $
    (26,745
    )General partners interest in net income (loss)
    
    $
    22
    
    
    $
    63
    
    
    $
    505
    
    
    $
    (444
    )Net income (loss) per common unit:Basic
    
    $
    0.05
    
    
    $
    0.13
    
    
    $
    1.01
    
    
    $
    (0.72
    )Diluted
    
    $
    0.05
    
    
    $
    0.13
    
    
    $
    1.01
    
    
    $
    (0.72
    )Weighted average common units outstanding:Basic
    
    
    45,342
    
    
    
    44,653
    
    
    
    45,328
    
    
    
    37,373Diluted
    
    
    45,342
    
    
    
    44,675
    
    
    
    45,336
    
    
    
    37,373Cash distributions declared per common unit
    
    $
    0.5000
    
    
    $
    0.5125
    
    
    $
    1.5375
    
    
    $
    1.5125
  2




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ENCORE ENERGY PARTNERS LP
 
 CONSOLIDATED STATEMENT OF PARTNERS EQUITY AND COMPREHENSIVE INCOME
   AccumulatedOther
    
    
    TotalLimited Partners
    
    
    General Partner
    
    
    Comprehensive
    
    
    PartnersUnits
    
    
    Amount
    
    
    Units
    
    
    Amount
    
    
    Loss
    
    
    EquityBalance at December 31, 2009
    
    
    45,285
    
    
    $
    409,777
    
    
    
    505
    
    
    $
    (353
    )
    
    $
    (3,420
    )
    
    $
    406,004Owner contributions
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    935
    
    
    
    
    
    
    
    931Non-cash equity-based compensation
    
    
    
    
    
    
    1,035
    
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    1,043Vesting of phantom units
    
    
    57
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    (186
    )
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    (188
    )Cash distributions to unitholders ($1.5375 per unit)
    
    
    
    
    
    
    (69,683
    )
    
    
    
    
    
    
    (776
    )
    
    
    
    
    
    
    (70,459
    )Components of comprehensive income:Net income attributable to unitholders
    
    
    
    
    
    
    45,813
    
    
    
    
    
    
    
    505
    
    
    
    
    
    
    
    46,318Change in deferred hedge loss on 
interest rate swaps,
net of tax of $6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,389
    
    
    
    1,389Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47,707Balance at September 30, 2010
    
    
    45,342
    
    
    $
    386,752
    
    
    
    505
    
    
    $
    317
    
    
    $
    (2,031
    )
    
    $
    385,038
  3




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ENCORE ENERGY PARTNERS LP
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
   Nine months endedSeptember 30,2010
    
    
    2009Cash flows from operating activities:Net income (loss)
    
    $
    46,318
    
    
    $
    (27,013
    )Adjustments to reconcile net income (loss) to net cash provided
by operating activities:Depletion, depreciation, and amortization
    
    
    38,472
    
    
    
    44,226Deferred taxes
    
    
    (55
    )
    
    
    (342
    )Non-cash exploration expense
    
    
    
    
    
    
    2,991Non-cash equity-based compensation expense
    
    
    1,043
    
    
    
    404Non-cash derivative loss (gain)
    
    
    (5,046
    )
    
    
    79,948Other
    
    
    2,182
    
    
    
    1,287Changes in operating assets and liabilities:Accounts receivable
    
    
    13,169
    
    
    
    (744
    )Current derivatives
    
    
    
    
    
    
    (2,020
    )Other current assets
    
    
    (36
    )
    
    
    (196
    )Long-term derivatives
    
    
    
    
    
    
    (9,072
    )Other assets
    
    
    (15
    )
    
    
    (18
    )Accounts payable
    
    
    (583
    )
    
    
    (2,755
    )Other current liabilities
    
    
    2,981
    
    
    
    5,846Net cash provided by operating activities
    
    
    98,430
    
    
    
    92,542Cash flows from investing activities:Purchase of other property and equipment
    
    
    (125
    )
    
    
    Acquisition of oil and natural gas properties
    
    
    (280
    )
    
    
    (31,984
    )Development of oil and natural gas properties
    
    
    (3,843
    )
    
    
    (7,330
    )Net cash used in investing activities
    
    
    (4,248
    )
    
    
    (39,314
    )Cash flows from financing activities:Proceeds from issuance of common units, net of offering costs
    
    
    
    
    
    
    170,149Proceeds from long-term debt
    
    
    10,000
    
    
    
    203,061Payments on long-term debt
    
    
    (25,000
    )
    
    
    (96,000
    )Deemed distributions to affiliates in connection with acquisitions
    
    
    
    
    
    
    (258,429
    )Cash distributions to unitholders
    
    
    (70,459
    )
    
    
    (57,041
    )Other
    
    
    (194
    )
    
    
    (12,150
    )Net cash used in financing activities
    
    
    (85,653
    )
    
    
    (50,410
    )Increase in cash and cash equivalents
    
    
    8,529
    
    
    
    2,818Cash and cash equivalents, beginning of period
    
    
    1,754
    
    
    
    619Cash and cash equivalents, end of period
    
    $
    10,283
    
    
    $
    3,437
  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.
 EACs Merger with Denbury
  Strategic Alternatives and Asset Transaction Processes
 2
  Note 2. Basis of Presentation
    5




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
  Reclassifications
  Note 3. Proved Properties
  September 30,
    
    
    December 31,2010
    
    
    2009(in thousands)Proved leasehold costs
    
    $
    609,910
    
    
    $
    609,692Wells and related equipment  Completed
    
    
    246,162
    
    
    
    241,953Wells and related equipment  In process
    
    
    110
    
    
    
    188Total proved properties
    
    $
    856,182
    
    
    $
    851,833
 Note 4. Fair Value Measurements
  September 30, 2010
    
    December 31, 2009Book
    
    Fair
    
    Book
    
    FairValue
    
    Value
    
    Value
    
    Value(in thousands)Assets:Cash and cash equivalents
    
    $
    10,283
    
    
    $
    10,283
    
    
    $
    1,754
    
    
    $
    1,754Accounts receivable  trade
    
    
    16,753
    
    
    
    16,753
    
    
    
    24,543
    
    
    
    24,543Accounts receivable  affiliate
    
    
    2,628
    
    
    
    2,628
    
    
    
    8,213
    
    
    
    8,213Commodity derivative contracts
    
    
    25,101
    
    
    
    25,101
    
    
    
    26,304
    
    
    
    26,304Liabilities:Accounts payable  trade
    
    
    418
    
    
    
    418
    
    
    
    577
    
    
    
    577Accounts payable  affiliate
    
    
    2,356
    
    
    
    2,356
    
    
    
    2,780
    
    
    
    2,780Revolving credit facility
    
    
    240,000
    
    
    
    237,636
    
    
    
    255,000
    
    
    
    252,047Commodity derivative contracts
    
    
    13,164
    
    
    
    13,164
    
    
    
    19,547
    
    
    
    19,547Interest rate swaps
    
    
    2,408
    
    
    
    2,408
    
    
    
    3,669
    
    
    
    3,669
  Derivative Policy
  6




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
     Commodity Derivative Contracts
   7




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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
    
    
    Weighted
    
    
    
    AssetDaily
    
    
    Average
    
    
    
    Daily
    
    
    Average
    
    
    
    Daily
    
    
    Average
    
    
    
    (Liability)Floor
    
    
    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. 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (853
    )880
    
    
    $
    80.00
    
    
    
    
    440
    
    
    $
    93.80
    
    
    
    
    760
    
    
    $
    75.432,000
    
    
    
    75.00
    
    
    
    
    1,000
    
    
    
    77.23
    
    
    
    
    250
    
    
    
    65.95760
    
    
    
    67.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,0841,880
    
    
    
    80.00
    
    
    
    
    1,440
    
    
    
    95.41
    
    
    
    
    760
    
    
    
    78.461,000
    
    
    
    70.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    760
    
    
    
    65.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    250
    
    
    
    69.652012
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,566
    )750
    
    
    
    70.00
    
    
    
    
    500
    
    
    
    82.05
    
    
    
    
    210
    
    
    
    81.621,510
    
    
    
    65.00
    
    
    
    
    250
    
    
    
    79.25
    
    
    
    
    1,300
    
    
    
    76.54$
    (5,335
    )
 Natural Gas 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(Mcf)
    
    
    (per Mcf)
    
    
    
    (Mcf)
    
    
    (per Mcf)
    
    
    
    (Mcf)
    
    
    (per Mcf)
    
    
    
    (in thousands)Oct.  Dec. 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4,3013,800
    
    
    $
    8.20
    
    
    
    
    3,800
    
    
    $
    9.58
    
    
    
    
    5,452
    
    
    $
    6.204,698
    
    
    
    7.26
    
    
    
    
    
    
    
    
    
    
    
    
    
    550
    
    
    
    5.862011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,0833,398
    
    
    
    6.31
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,952
    
    
    
    6.36
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    550
    
    
    
    5.862012
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,888898
    
    
    
    6.76
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,452
    
    
    
    6.26
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    550
    
    
    
    5.86$
    17,272
 Counterparty Risk.
 Fair Market Value of
    
    Fair Market Value ofOil Derivative
    
    Natural GasContracts
    
    Derivative ContractsCounterparty
    
    Committed
    
    Committed(in thousands)BNP Paribas
    
    $
    3,610
    
    
    $
    4,084Calyon
    
    
    2,082
    
    
    
    8,462RBC
    
    
    2,157
    
    
    
    4,372
  8




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
  Interest Rate Swaps
  Notional
    
    Fixed
    
    FloatingTerm
    
    Amount
    
    Rate
    
    Rate(in thousands)Oct. 2010 - Jan. 2011
    
    $
    50,000
    
    
    
    3.1610
    %
    
    1-month LIBOROct. 2010 - Jan. 2011
    
    
    25,000
    
    
    
    2.9650
    %
    
    1-month LIBOROct. 2010 - Jan. 2011
    
    
    25,000
    
    
    
    2.9613
    %
    
    1-month LIBOROct. 2010 - Mar. 2012
    
    
    50,000
    
    
    
    2.4200
    %
    
    1-month LIBOR
 Current Period Impact
  Three months ended September 30,
    
    
    Nine months ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(in thousands)
    
    
    (in thousands)Ineffectiveness on interest rate swaps
    
    $
    29
    
    
    $
    18
    
    
    $
    133
    
    
    $
    (16
    )Mark-to-market loss (gain)
    
    
    8,922
    
    
    
    4,957
    
    
    
    (12,521
    )
    
    
    62,638Premium amortization
    
    
    2,474
    
    
    
    5,918
    
    
    
    7,342
    
    
    
    17,326Receipts, net of settlements
    
    
    (3,816
    )
    
    
    (15,715
    )
    
    
    (9,301
    )
    
    
    (58,237
    )Total derivative fair value loss (gain)
    
    $
    7,609
    
    
    $
    (4,822
    )
    
    $
    (14,347
    )
    
    $
    21,711
 Accumulated Other Comprehensive Loss
  9




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
 Tabular Disclosures of Fair Value Measurements
  Asset Derivatives
    
    
    
    Liability DerivativesFair Value
    
    
    
    
    
    Fair ValueBalance Sheet Location
    

September 30, 2010
    
    
    December 31, 2009
    
    
    
 Balance Sheet Location
    
    September 30, 2010
    
    
    December 31, 2009Derivatives not designated as hedgesCommodity derivative contracts
    
    Derivatives - current
    
    $
    15,078
    
    
    $
    12,881
    
    
    
    Derivatives - current
    
    $
    3,719
    
    
    $
    6,393Commodity derivative contracts
    
    Derivatives - noncurrent
    
    
    10,023
    
    
    
    13,423
    
    
    
    Derivatives - noncurrent
    
    
    9,445
    
    
    
    13,154Total derivatives not designated as hedges
    
    
    
    $
    25,101
    
    
    $
    26,304
    
    
    
    
    
    $
    13,164
    
    
    $
    19,547Derivatives designated as hedgesInterest rate swaps
    
  Derivatives - current
    
    $
    
    
    
    $
    
    
    
    
  Derivatives - current
    
    $
    1,924
    
    
    $
    3,422Interest rate swaps
    
  Derivatives - noncurrent
    
    
    
    
    
    
    
    
    
    
  Derivatives - noncurrent
    
    
    484
    
    
    
    247Total derivatives designated as hedges
    
  
    
    $
    
    
    
    $
    
    
    
    
  
    
    $
    2,408
    
    
    $
    3,669Total derivatives
    
    
    
    $
    25,101
    
    
    $
    26,304
    
    
    
    
    
    $
    15,572
    
    
    $
    23,216
  Amount of Loss (Gain) Recognized in Income
    
    Amount of Loss (Gain) Recognized in IncomeLocation of Loss (Gain)
    
    Three Months Ended September 30,
    
    Nine Months Ended September 30,Derivatives Not Designated as Hedges
    
    Recognized in Income
    
    2010
    
    2009
    
    2010
    
    2009Commodity derivative contracts
    
    Derivative fair valueloss (gain)
    
    $7,580

    
       $(4,840)
    
       $(14,480)
    
    $
    21,727
  Amount of Loss Recognized in
    
    Amount of Loss Recognized inAccumulated OCI (Effective Portion)
    
    Accumulated OCI (Effective Portion)Three Months Ended September 30,
    
    Nine Months Ended September 30,Derivatives Designated as Hedges
    
    2010
    
    2009
    
    2010
    
    2009Interest rate swaps
    
    $
    401
    
    
    $
    1,289
    
    
    $
    1,536
    
    
    $
    2,444
 Amount of Loss Reclassified from Accumulated
    
    Amount of Loss Reclassified from AccumulatedOCI into Income (Effective Portion)
    
    OCI into Income (Effective Portion)Location of Loss Reclassified from Accumulated
    
    Three Months Ended September 30,
    
    Nine Months Ended September 30,OCI into Income (Effective Portion)
    
    2010
    
    2009
    
    2010
    
    2009Interest expense
    
    $
    974
    
    
    $
    983
    
    
    $
    2,925
    
    
    $
    2,786
 Amount of Loss Recognized
    
    Amount of Loss (Gain) Recognizedin Income as Ineffective
    
    in Income as IneffectiveThree Months Ended September 30,
    
    Nine Months Ended September 30,Location of Loss Recognized in Income as Ineffective
    
    2010
    
    2009
    
    2010
    
    2009Derivative fair value loss (gain)
    
    $29
    
    $18

    $133
    
 $(16)
 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.
 10




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
  
    
    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.
   Fair Value Measurements at Reporting Date UsingQuoted Prices inActive Markets for
    
    
    Significant Other
    
    
    SignificantIdentical Assets
    
    
    Observable Inputs
    
    
    Unobservable InputsDescription
    
    Asset (Liability)
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)(in thousands)Oil derivative contracts  swaps
    
    $
    (9,254
    )
    
    $
    
    
    
    $
    (9,254
    )
    
    $
    Oil derivative contracts  floors and caps
    
    
    3,919
    
    
    
    
    
    
    
    
    
    
    
    3,919Natural gas derivative contracts  swaps
    
    
    11,056
    
    
    
    
    
    
    
    11,056
    
    
    
    Natural gas derivative contracts  floors and caps
    
    
    6,216
    
    
    
    
    
    
    
    
    
    
    
    6,216Interest rate swaps
    
    
    (2,408
    )
    
    
    
    
    
    
    (2,408
    )
    
    
    Total
    
    $
    9,529
    
    
    $
    
    
    
    $
    (606
    )
    
    $
    10,135
 11




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
  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, 2010
    
    $
    8,585
    
    
    $
    8,528
    
    
    $
    17,113Total gains (losses):Included in earnings
    
    
    (4,996
    )
    
    
    (9,566
    )
    
    
    (14,562
    )Settlements
    
    
    330
    
    
    
    7,254
    
    
    
    7,584Balance at September 30, 2010
    
    $
    3,919
    
    
    $
    6,216
    
    
    $
    10,135The amount of total gains (losses) for the period included in
earnings attributable to the change in unrealized gains (losses)
relating to assets still held at the reporting date
    
    $
    (4,996
    )
    
    $
    (9,566
    )
    
    $
    (14,562
    )
   Note 5. Asset Retirement Obligations
  Future abandonment liability at January 1, 2010
    
    $
    13,130Accretion of discount
    
    
    548Revision of previous estimates
    
    
    66Plugging and abandonment costs incurred
    
    
    (96
    )Future abandonment liability at September 30, 2010
    
    $
    13,648
  Note 6. Long-Term Debt
  12




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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, as defined in
the OLLC Credit Agreement, 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.
   13




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
 
    
    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;
    
    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, as defined in the OLLC Credit Agreement.
  Note 7. Partners Equity and Distributions
 Distributions
   Cash DistributionDate
    
    Declared per
    
    
    
    
    
    TotalDeclared
    
    Common Unit
    
    Date Paid
    
    Distribution(in thousands)2010Quarter ended September 30
    
    
    10/28/2010
    
    
    $
    0.5000
    
    
    
    11/12/2010
    (a)
    
    $
    22,923
    (a)Quarter ended June 30
    
    
    7/29/2010
    
    
    $
    0.5000
    
    
    
    8/13/2010
    
    
    
    22,923Quarter ended March 31
    
    
    4/30/2010
    
    
    $
    0.5000
    
    
    
    5/14/2010
    
    
    
    22,9232009Quarter ended December 31
    
    
    1/25/2010
    
    
    $
    0.5375
    
    
    
    2/12/2010
    
    
    
    24,642Quarter ended September 30
    
    
    10/26/2009
    
    
    $
    0.5375
    
    
    
    11/13/2009
    
    
    
    24,642Quarter 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
    
    
    
    16,813
 
 (a)
    
    Represents the date the distribution is expected to be paid and the total amount of the
distribution that is expected to be paid. Note 8. Earnings Per Unit
  14




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
   Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(in thousands, except per unit amounts)Net income (loss)
    
    $
    2,441
    
    
    $
    7,460
    
    
    $
    46,318
    
    
    $
    (27,013
    )Less: net income for pre-partnership operations of
assets acquired from affiliates
    
    
    
    
    
    
    (1,493
    )
    
    
    
    
    
    
    (176
    )Net income (loss) attributable to unitholders
    
    $
    2,441
    
    
    $
    5,967
    
    
    $
    46,318
    
    
    $
    (27,189
    )Numerator:Numerator for basic earnings per unit:Net income (loss) attributable to unitholders
    
    $
    2,441
    
    
    $
    5,967
    
    
    $
    46,318
    
    
    $
    (27,189
    )Less: distributions earned by participating securities
    
    
    (253
    )
    
    
    (271
    )
    
    
    (757
    )
    
    
    (783
    )Plus: cash distributions in excess of (less than)
income allocated to the general partner
    
    
    231
    
    
    
    208
    
    
    
    252
    
    
    
    1,227Net income (loss) allocated to limited partners
    
    $
    2,419
    
    
    $
    5,904
    
    
    $
    45,813
    
    
    $
    (26,745
    )Denominator:Denominator for basic earnings per unit:Weighted average common units outstanding
    
    
    45,342
    
    
    
    44,653
    
    
    
    45,328
    
    
    
    37,373Effect of dilutive phantom units (a)
    
    
    
    
    
    
    22
    
    
    
    8
    
    
    
    Denominator for diluted earnings per unit
    
    
    45,342
    
    
    
    44,675
    
    
    
    45,336
    
    
    
    37,373Net income (loss) per common unit:Basic
    
    $
    0.05
    
    
    $
    0.13
    
    
    $
    1.01
    
    
    $
    (0.72
    )Diluted
    
    $
    0.05
    
    
    $
    0.13
    
    
    $
    1.01
    
    
    $
    (0.72
    )
 
 (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. Please read Note 9. Unit-Based Compensation Plans for additional
discussion of phantom units. Note 9. Unit-Based Compensation Plans
 Long-Term Incentive Plan
   Phantom Units.
 15




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
  Note 10. Comprehensive Income (Loss)
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(in thousands)Net income (loss)
    
    $
    2,441
    
    
    $
    7,460
    
    
    $
    46,318
    
    
    $
    (27,013
    )Change in deferred hedge loss on interest rate swaps
    
    
    573
    
    
    
    (306
    )
    
    
    1,389
    
    
    
    342Comprehensive income (loss)
    
    $
    3,014
    
    
    $
    7,154
    
    
    $
    47,707
    
    
    $
    (26,671
    )
 Note 11. Commitments and Contingencies
   Note 12. 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 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.
 16




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
   Three Months Ended September 30,
    
    Nine Months Ended September 30,2010
    
    2009
    
    2010
    
    2009(in thousands)Administrative fees (including COPAS recovery)
    
    $
    2,276
    
    
    $
    1,325
    
    
    $
    7,717
    
    
    $
    4,150Third-party expenses
    
    
    1,212
    
    
    
    1,059
    
    
    
    4,527
    
    
    
    4,031
  Acquisitions
   Distributions
  17




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
 Note 13. Subsequent Events
  18




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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 2009 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.
 Introduction
  
    
    Recent Developments
    
    Overview of Business
    
    Third Quarter 2010 Highlights
    
    Results of Operations
 o
    
    Comparison of Quarter Ended September 30, 2010 to Quarter Ended September 30, 2009o
    
    Comparison of Nine Months Ended September 30, 2010 to Nine Months Ended September 30, 2009
 
    
    Capital Commitments, Capital Resources, and Liquidity
    
    Critical Accounting Policies and Estimates
 Recent Developments
 2
  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.
 19




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
  Third Quarter 2010 Highlights
  
    
    Our oil and natural gas revenues increased five percent to $42.8 million as compared to
$40.9 million in the third quarter of 2009. Oil represented approximately 70 percent and
68 percent of our total production in the third quarter of 2010 and 2009, respectively.
    
    Our average realized oil price increased eight percent to $65.69 per Bbl as compared to
$60.58 per Bbl in the third quarter of 2009. Our average realized natural gas price
increased 37 percent to $4.48 per Mcf as compared to $3.27 per Mcf in the third quarter of
2009.
    
    Our production margin increased eight percent to $28.8 million as compared to $26.7
million in the third quarter of 2009. Total oil and natural gas wellhead revenues per BOE
increased by 14 percent while total production expenses per BOE increased by only seven
percent. On a per BOE basis, our production margin increased 17 percent to $36.23 per BOE
as compared to $30.92 per BOE for the third quarter of 2009.
    
    We invested $2.1 million in development and exploitation activities.
    
    Our net income decreased to $2.4 million ($0.05 per common unit) as compared to a net
income of $7.5 million ($0.13 per common unit) for the third quarter of 2009 primarily due
to $4.0 million increase in mark-to-market loss on our commodity derivative contracts.
  20




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ENCORE ENERGY PARTNERS LP
 Results of Operations
 Comparison of Quarter Ended September 30, 2010 to Quarter Ended September 30, 2009
 Revenues.
 Three months ended September 30,
    
    
    Increase / (Decrease)2010
    
    
    2009 (a)
    
    
    $
    
    
    %Revenues (in thousands):Oil
    
    $
    36,286
    
    
    $
    35,494
    
    
    $
    792
    
    
    
    2
    %Natural gas
    
    
    6,497
    
    
    
    5,436
    
    
    
    1,061
    
    
    
    20
    %Total oil and natural gas revenues
    
    
    42,783
    
    
    
    40,930
    
    
    
    1,853
    
    
    
    5
    %Marketing
    
    
    60
    
    
    
    102
    
    
    
    (42
    )
    
    
    -41
    %Total revenues
    
    $
    42,843
    
    
    $
    41,032
    
    
    $
    1,811
    
    
    
    4
    %Average realized prices:Oil ($/Bbl)
    
    $
    65.69
    
    
    $
    60.58
    
    
    $
    5.11
    
    
    
    8
    %Natural gas ($/Mcf)
    
    $
    4.48
    
    
    $
    3.27
    
    
    $
    1.21
    
    
    
    37
    %Combined ($/BOE)
    
    $
    53.89
    
    
    $
    47.42
    
    
    $
    6.47
    
    
    
    14
    %Total production volumes:Oil (MBbls)
    
    
    552
    
    
    
    586
    
    
    
    (34
    )
    
    
    -6
    %Natural gas (MMcf)
    
    
    1,449
    
    
    
    1,663
    
    
    
    (214
    )
    
    
    -13
    %Combined (MBOE)
    
    
    794
    
    
    
    863
    
    
    
    (69
    )
    
    
    -8
    %Average daily production volumes:Oil (Bbls/D)
    
    
    6,004
    
    
    
    6,369
    
    
    
    (365
    )
    
    
    -6
    %Natural gas (Mcf/D)
    
    
    15,755
    
    
    
    18,077
    
    
    
    (2,322
    )
    
    
    -13
    %Combined (BOE/D)
    
    
    8,630
    
    
    
    9,382
    
    
    
    (752
    )
    
    
    -8
    %Average NYMEX prices:Oil (per Bbl)
    
    $
    76.10
    
    
    $
    68.24
    
    
    $
    7.86
    
    
    
    12
    %Natural gas (per Mcf)
    
    $
    4.24
    
    
    $
    3.40
    
    
    $
    0.84
    
    
    
    25
    %
 
 (a)
    
    In order to conform to the current period presentation, NGL revenues were reclassed from
natural gas revenues to oil revenues.  Three months ended September 30,2010
    
    2009Average realized oil price ($/Bbl)
    
    $
    65.69
    
    
    $
    60.58Average NYMEX ($/Bbl)
    
    $
    76.10
    
    
    $
    68.24Differential to NYMEX
    
    $
    (10.41
    )
    
    $
    (7.66
    )Average realized oil price to NYMEX percentage
    
    
    86
    %
    
    
    89
    %Average realized natural gas price ($/Mcf)
    
    $
    4.48
    
    
    $
    3.27Average NYMEX ($/Mcf)
    
    $
    4.24
    
    
    $
    3.40Differential to NYMEX
    
    $
    0.24
    
    
    $
    (0.13
    )Average realized natural gas price to NYMEX percentage
    
    
    106
    %
    
    
    96
    %
  21




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ENCORE ENERGY PARTNERS LP
    Expenses.
 Three months ended September 30,
    
    
    Increase / (Decrease)2010
    
    
    2009 (a)
    
    
    $
    
    
    %Expenses (in thousands):Production:Lease operating
    
    $
    9,607
    
    
    $
    9,717
    
    
    $
    (110
    )
    
    
    -1
    %Production taxes and marketing
    
    
    4,413
    
    
    
    4,523
    
    
    
    (110
    )
    
    
    -2
    %Total production expenses
    
    
    14,020
    
    
    
    14,240
    
    
    
    (220
    )
    
    
    -2
    %Other:Depletion, depreciation, and amortization
    
    
    12,782
    
    
    
    14,640
    
    
    
    (1,858
    )
    
    
    -13
    %Exploration
    
    
    53
    
    
    
    3,034
    
    
    
    (2,981
    )
    
    
    -98
    %General and administrative
    
    
    2,817
    
    
    
    3,557
    
    
    
    (740
    )
    
    
    -21
    %Derivative fair value loss (gain)
    
    
    7,609
    
    
    
    (4,822
    )
    
    
    12,431
    
    
    
    -258
    %Total operating expenses
    
    
    37,281
    
    
    
    30,649
    
    
    
    6,632
    
    
    
    22
    %Interest
    
    
    3,277
    
    
    
    2,984
    
    
    
    293
    
    
    
    10
    %Income tax benefit
    
    
    (147
    )
    
    
    (38
    )
    
    
    (109
    )
    
    
    287
    %Total expenses
    
    $
    40,411
    
    
    $
    33,595
    
    
    $
    6,816
    
    
    
    20
    %Expenses (per BOE):Production:Lease operating
    
    $
    12.10
    
    
    $
    11.26
    
    
    $
    0.84
    
    
    
    7
    %Production taxes and marketing
    
    
    5.56
    
    
    
    5.24
    
    
    
    0.32
    
    
    
    6
    %Total production expenses
    
    
    17.66
    
    
    
    16.50
    
    
    
    1.16
    
    
    
    7
    %Other:Depletion, depreciation, and amortization
    
    
    16.10
    
    
    
    16.96
    
    
    
    (0.86
    )
    
    
    -5
    %Exploration
    
    
    0.07
    
    
    
    3.52
    
    
    
    (3.45
    )
    
    
    -98
    %General and administrative
    
    
    3.55
    
    
    
    4.12
    
    
    
    (0.57
    )
    
    
    -14
    %Derivative fair value loss (gain)
    
    
    9.58
    
    
    
    (5.59
    )
    
    
    15.17
    
    
    
    -271
    %Total operating expenses
    
    
    46.96
    
    
    
    35.51
    
    
    
    11.45
    
    
    
    32
    %Interest
    
    
    4.13
    
    
    
    3.46
    
    
    
    0.67
    
    
    
    19
    %Income tax benefit
    
    
    (0.19
    )
    
    
    (0.04
    )
    
    
    (0.15
    )
    
    
    375
    %Total expenses
    
    $
    50.90
    
    
    $
    38.93
    
    
    $
    11.97
    
    
    
    31
    %
 
 (a)
    
    In order to conform to the current period presentation, marketing expenses were
reclassed to lease operating expenses, ad valorem taxes were reclassed to lease operating
expenses, and transportation expenses were reclassed to production taxes and marketing. 22




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
 Production expenses.
  Depletion, depreciation, and amortization (DD&A) expense.
 General and administrative (G&A) expense.
 Derivative fair value loss (gain).
 Three months ended September 30,
    
    
    Increase /2010
    
    
    2009
    
    
    (Decrease)(in thousands)Ineffectiveness on interest rate swaps
    
    $
    29
    
    
    $
    18
    
    
    $
    11Mark-to-market loss (gain)
    
    
    8,922
    
    
    
    4,957
    
    
    
    3,964Premium amortization
    
    
    2,474
    
    
    
    5,918
    
    
    
    (3,444
    )Receipts, net of settlements
    
    
    (3,816
    )
    
    
    (15,715
    )
    
    
    11,900Total derivative fair value loss (gain)
    
    $
    7,609
    
    
    $
    (4,822
    )
    
    $
    12,431
  Interest expense.
 23




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ENCORE ENERGY PARTNERS LP
 Comparison of Nine Months Ended September 30, 2010 to Nine Months Ended September 30, 2009
 Revenues.
 Nine months ended September 30,
    
    
    Increase / (Decrease)2010
    
    
    2009 (a)
    
    
    $
    
    
    %Revenues (in thousands):Oil
    
    $
    114,733
    
    
    $
    88,952
    
    
    $
    25,781
    
    
    
    29
    %Natural gas
    
    
    21,407
    
    
    
    14,624
    
    
    
    6,783
    
    
    
    46
    %Total oil and natural gas revenues
    
    
    136,140
    
    
    
    103,576
    
    
    
    32,564
    
    
    
    31
    %Marketing
    
    
    207
    
    
    
    381
    
    
    
    (174
    )
    
    
    -46
    %Total revenues
    
    $
    136,347
    
    
    $
    103,957
    
    
    $
    32,390
    
    
    
    31
    %Average realized prices:Oil ($/Bbl)
    
    $
    68.51
    
    
    $
    50.11
    
    
    $
    18.40
    
    
    
    37
    %Natural gas ($/Mcf)
    
    $
    4.84
    
    
    $
    3.27
    
    
    $
    1.57
    
    
    
    48
    %Combined ($/BOE)
    
    $
    56.45
    
    
    $
    41.10
    
    
    $
    15.35
    
    
    
    37
    %Total production volumes:Oil (MBbls)
    
    
    1,675
    
    
    
    1,775
    
    
    
    (100
    )
    
    
    -6
    %Natural gas (MMcf)
    
    
    4,421
    
    
    
    4,470
    
    
    
    (49
    )
    
    
    -1
    %Combined (MBOE)
    
    
    2,411
    
    
    
    2,520
    
    
    
    (109
    )
    
    
    -4
    %Average daily production volumes:Oil (Bbls/D)
    
    
    6,134
    
    
    
    6,502
    
    
    
    (368
    )
    
    
    -6
    %Natural gas (Mcf/D)
    
    
    16,196
    
    
    
    16,375
    
    
    
    (179
    )
    
    
    -1
    %Combined (BOE/D)
    
    
    8,833
    
    
    
    9,231
    
    
    
    (398
    )
    
    
    -4
    %Average NYMEX prices:Oil (per Bbl)
    
    $
    77.60
    
    
    $
    57.22
    
    
    $
    20.38
    
    
    
    36
    %Natural gas (per Mcf)
    
    $
    4.54
    
    
    $
    3.93
    
    
    $
    0.61
    
    
    
    16
    %
 
 (a)
    
    In order to conform to the current period presentation, NGL revenues were reclassed from
natural gas revenues to oil revenues.  Nine months ended September 30,2010
    
    2009Average realized oil price ($/Bbl)
    
    $
    68.51
    
    
    $
    50.11Average NYMEX ($/Bbl)
    
    $
    77.60
    
    
    $
    57.22Differential to NYMEX
    
    $
    (9.09
    )
    
    $
    (7.11
    )Average realized oil price to NYMEX percentage
    
    
    88
    %
    
    
    88
    %Average realized natural gas price ($/Mcf)
    
    $
    4.84
    
    
    $
    3.27Average NYMEX ($/Mcf)
    
    $
    4.54
    
    
    $
    3.93Differential to NYMEX
    
    $
    0.30
    
    
    $
    (0.66
    )Average realized natural gas price to NYMEX percentage
    
    
    107
    %
    
    
    83
    %
  24




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ENCORE ENERGY PARTNERS LP
   Expenses.
 Nine months ended September 30,
    
    
    Increase / (Decrease)2010
    
    
    2009 (a)
    
    
    $
    
    
    %Expenses (in thousands):Production:Lease operating
    
    $
    31,701
    
    
    $
    32,614
    
    
    $
    (913
    )
    
    
    -3
    %Production taxes and marketing
    
    
    14,157
    
    
    
    11,865
    
    
    
    2,292
    
    
    
    19
    %Total production expenses
    
    
    45,858
    
    
    
    44,479
    
    
    
    1,379
    
    
    
    3
    %Other:Depletion, depreciation, and amortization
    
    
    38,472
    
    
    
    44,226
    
    
    
    (5,754
    )
    
    
    -13
    %Exploration
    
    
    129
    
    
    
    3,074
    
    
    
    (2,945
    )
    
    
    -96
    %General and administrative
    
    
    10,088
    
    
    
    9,800
    
    
    
    288
    
    
    
    3
    %Derivative fair value loss (gain)
    
    
    (14,347
    )
    
    
    21,711
    
    
    
    (36,058
    )
    
    
    -166
    %Total operating expenses
    
    
    80,200
    
    
    
    123,290
    
    
    
    (43,090
    )
    
    
    -35
    %Interest
    
    
    9,912
    
    
    
    7,551
    
    
    
    2,361
    
    
    
    31
    %Income tax provision (benefit)
    
    
    (36
    )
    
    
    163
    
    
    
    (199
    )
    
    
    -122
    %Total expenses
    
    $
    90,076
    
    
    $
    131,004
    
    
    $
    (40,928
    )
    
    
    -31
    %Expenses (per BOE):Production:Lease operating
    
    $
    13.15
    
    
    $
    12.94
    
    
    $
    0.21
    
    
    
    2
    %Production taxes and marketing
    
    
    5.87
    
    
    
    4.71
    
    
    
    1.16
    
    
    
    25
    %Total production expenses
    
    
    19.02
    
    
    
    17.65
    
    
    
    1.37
    
    
    
    8
    %Other:Depletion, depreciation, and amortization
    
    
    15.95
    
    
    
    17.55
    
    
    
    (1.60
    )
    
    
    -9
    %Exploration
    
    
    0.05
    
    
    
    1.22
    
    
    
    (1.17
    )
    
    
    -96
    %General and administrative
    
    
    4.18
    
    
    
    3.89
    
    
    
    0.29
    
    
    
    7
    %Derivative fair value loss (gain)
    
    
    (5.95
    )
    
    
    8.62
    
    
    
    (14.57
    )
    
    
    -169
    %Total operating expenses
    
    
    33.25
    
    
    
    48.93
    
    
    
    (15.68
    )
    
    
    -32
    %Interest
    
    
    4.11
    
    
    
    3.00
    
    
    
    1.11
    
    
    
    37
    %Income tax provision (benefit)
    
    
    (0.01
    )
    
    
    0.06
    
    
    
    (0.07
    )
    
    
    -117
    %Total expenses
    
    $
    37.35
    
    
    $
    51.99
    
    
    $
    (14.64
    )
    
    
    -28
    %
 
 (a)
    
    In order to conform to the current period presentation, marketing expenses were
reclassed to lease operating expenses, ad valorem taxes were reclassed to lease operating
expenses, and transportation expenses were reclassed to production taxes and marketing. Production expenses.
 25




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
  DD&A expense.
 G&A expense.
 Derivative fair value loss (gain).
 Nine months ended September 30,
    
    
    Increase /2010
    
    
    2009
    
    
    (Decrease)(in thousands)Ineffectiveness on interest rate swaps
    
    $
    133
    
    
    $
    (16
    )
    
    $
    149Mark-to-market loss (gain)
    
    
    (12,521
    )
    
    
    62,638
    
    
    
    (75,159
    )Premium amortization
    
    
    7,342
    
    
    
    17,326
    
    
    
    (9,984
    )Receipts, net of settlements
    
    
    (9,301
    )
    
    
    (58,237
    )
    
    
    48,936Total derivative fair value loss (gain)
    
    $
    (14,347
    )
    
    $
    21,711
    
    
    $
    (36,058
    )
  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.
  26




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
   Cash DistributionDate
    
    Declared per
    
    
    
    
    
    TotalDeclared
    
    Common Unit
    
    Date Paid
    
    Distribution(in thousands)2010Quarter ended September 30
    
    
    10/28/2010
    
    
    $
    0.5000
    
    
    
    11/12/2010
    (a)
    
    $
    22,923
    (a)Quarter ended June 30
    
    
    7/29/2010
    
    
    $
    0.5000
    
    
    
    8/13/2010
    
    
    
    22,923Quarter ended March 31
    
    
    4/30/2010
    
    
    $
    0.5000
    
    
    
    5/14/2010
    
    
    
    22,9232009Quarter ended December 31
    
    
    1/25/2010
    
    
    $
    0.5375
    
    
    
    2/12/2010
    
    
    
    24,642Quarter ended September 30
    
    
    10/26/2009
    
    
    $
    0.5375
    
    
    
    11/13/2009
    
    
    
    24,642Quarter 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
    
    
    
    16,813
 
 (a)
    
    Represents the date the distribution is expected to be paid and the total amount of the
distribution that is expected to be paid. Development, exploitation, and exploration of oil and natural gas properties.
 Three months ended September 30,
    
    
    Nine months ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(in thousands)Development and exploitation
    
    $
    1,996
    
    
    $
    1,125
    
    
    $
    4,236
    
    
    $
    6,536Exploration
    
    
    105
    
    
    
    474
    
    
    
    171
    
    
    
    768Total
    
    $
    2,101
    
    
    $
    1,599
    
    
    $
    4,407
    
    
    $
    7,304
  Acquisitions of oil and natural gas properties.
 Funding of working capital.
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ENCORE ENERGY PARTNERS LP
  Off-balance sheet arrangements.
 Contractual obligations.
  Other contingencies and commitments
  
    
    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 acquire 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
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ENCORE ENERGY PARTNERS LP
   Liquidity
   Internally generated cash flows.
 Revolving credit facility.
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ENCORE ENERGY PARTNERS LP
    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 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, as defined in
the OLLC Credit Agreement, 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).
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ENCORE ENERGY PARTNERS LP
 Actual Ratio as ofFinancial Covenant
    
    Required Ratio
    
    September 30, 2010Current Ratio
    
    Minimum 1.0 to 1.0
    
    
    5.8 to 1.0Interest Coverage Ratio
    
    Minimum 2.5 to 1.0
    
    
    9.0 to 1.0Leverage Ratio
    
    Maximum 3.5 to 1.0
    
    
    2.0 to 1.0
  Current assets
    
    $
    45,439Availability under the OLLC Credit Agreement
    
    
    135,000Consolidated current assets
    
    $
    180,439Divided by: consolidated current liabilities
    
    $
    30,958Current Ratio
    
    
    5.8
  Consolidated EBITDA (a)
    
    $
    119,485Divided by: Consolidated net interest expense and letter of credit fees
    
    $
    13,297Interest Coverage Ratio
    
    
    9.0
 
 (a)
    
    Consolidated EBITDA is defined in the OLLC Credit Agreement and generally means
earnings before interest, income taxes, DD&A, and exploration expense. Consolidated EBITDA
is a non-GAAP financial measure, which is reconciled to its most directly comparable GAAP
measure below.  Consolidated funded debt
    
    $
    240,000Divided by: Consolidated Adjusted EBITDA (a)
    
    $
    119,485Leverage Ratio
    
    
    2.0
 
 (a)
    
    Consolidated Adjusted EBITDA is defined in the OLLC Credit Agreement and generally
means earnings before interest, income taxes, DD&A, and amortization, and exploration
expense, after giving pro forma effect to 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
    
    $
    33,002Unrealized non-cash hedge loss
    
    
    19,431Consolidated net interest expense
    
    
    13,297Income and franchise taxes
    
    
    (185
    )DD&A and exploration expense
    
    
    51,914Non-cash unit-based compensation
    
    
    1,204Other non-cash
    
    
    822Consolidated EBITDA
    
    
    119,485Pro forma effect of acquisitions
    
    
    Consolidated Adjusted EBITDA
    
    $
    119,485
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ENCORE ENERGY PARTNERS LP
  Capitalization.
 Critical Accounting Policies and Estimates
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
   Commodity Price Sensitivity
  Interest Rate Sensitivity
   
 Item 4. Controls and Procedures
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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 to
Exhibit 3.1 to ENPs Registration Statement on Form S-1 (File No. 333-142847), 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 to 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 to Exhibit 3.1 to
ENPs Current Report on Form 8-K, filed with the SEC on April 18, 2008).3.3*
    
    Amendment No. 1 to  Limited
Liability Company Agreement of Encore Energy Partners GP LLC,
effective August 30, 2010.31.1*
    
    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. 33




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ENCORE ENERGY PARTNERS LP
 SIGNATURES
  ENCORE ENERGY PARTNERS LPBy:
    Encore Energy Partners GP LLC, its General Partner/s/ Mark C. AllenMark C. AllenSenior Vice President and Chief Financial Officer/s/ Alan RhoadesAlan RhoadesVice President, Accounting  34