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EAGLE ROCK ENERGY GP, L.P.
 INDEX
 PageUnaudited Condensed Consolidated Balance Sheet as of March 31, 2007
    
    
    1Notes to the Unaudited Condensed Consolidated Balance Sheet
    
    
    2Note 1.
    
    Organization and Description of Business
    
    
    2Note 2.
    
    Summary of Significant Accounting Policies
    
    
    2Note 3.
    
    New Accounting Pronouncements
    
    
    5Note 4.
    
    Acquisitions
    
    
    5Note 5.
    
    Fixed Assets and Asset Retirement Obligations
    
    
    6Note 6.
    
    Long-Term Debt
    
    
    6Note 7.
    
    Minority Interest
    
    
    8Note 8.
    
    Members Deficit
    
    
    8Note 9.
    
    Related Party Transactions
    
    
    9Note 10.
    
    Fair Value of Financial Instruments
    
    
    9Note 11.
    
    Risk Management Activities
    
    
    9Note 12.
    
    Commitments and Contingent Liabilities
    
    
    10Note 13.
    
    Segments
    
    
    11Note 14.
    
    Income Taxes
    
    
    11Note 15.
    
    Equity-Based Compensation
    
    
    12Note 16.
    
    Subsequent Events
    
    
    12
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EAGLE ROCK ENERGY GP, L.P.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2007
 March 31,2007($ in thousands)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    2,060Accounts receivable
    
    
    44,567Risk management assets
    
    
    5,629Prepayments and other current assets
    
    
    2,122Total current assets
    
    
    54,378PROPERTY, PLANT AND EQUIPMENT  Net
    
    
    569,147INTANGIBLE ASSETS  Net
    
    
    127,069RISK MANAGEMENT ASSETS
    
    
    14,768OTHER ASSETS
    
    
    7,459TOTAL
    
    $
    772,821LIABILITIES AND MEMBERS DEFICITCURRENT LIABILITIES:Accounts payable
    
    $
    60,813Accrued liabilities
    
    
    13,640Risk management liabilities
    
    
    2,639Total current liabilities
    
    
    77,092LONG-TERM DEBT
    
    
    405,731ASSET RETIREMENT OBLIGATIONS
    
    
    1,905DEFERRED STATE TAX LIABILITY
    
    
    1,393RISK MANAGEMENT LIABILITIES
    
    
    20,383MINORITY INTEREST
    
    
    267,401COMMITMENTS AND CONTINGENCIES (Note 12)MEMBERS DEFICIT
    
    
    (1,084
    )TOTAL
    
    $
    772,821




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EAGLE ROCK ENERGY GP, L.P.
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
 NOTE 1. ORGANIZATION AND DESCRIPTION OF BUSINESS
 Organization
  Midstream Operations
 Upstream Operations
 Basis of Presentation and Principles of Consolidation
 NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Use of Estimates
 Interim Condensed Disclosures
 2




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Cash and Cash Equivalents
 Concentration and Credit Risk
  Certain Other Concentrations
 Property, Plant, and Equipment
 Pipelines and equipment
    
    20 yearsGas processing and equipment
    
    20 yearsOffice furniture and equipment
    
    5 years
   Impairment of Long-Lived Assets
 
    
    significant adverse change in legal factors or in the business climate;
    
    a current-period operating or cash flow loss combined with a history of operating or
cash flow losses or a projection or forecast which demonstrates continuing losses
associated with the use of a long-lived asset;
    
    an accumulation of costs significantly in excess of the amount originally expected for
the acquisition or construction of a long-lived asset;
    
    significant adverse changes in the extent or manner in which an asset is used or in its physical condition;
    
    a significant change in the market value of an asset; or
    
    a current expectation that, more likely than not, an asset will be sold or otherwise
disposed of before the end of its estimated useful life.
 
 3




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Intangible Assets
 March 31,($ in thousands)
    
    2007Rights-of-way and easements  at cost
    
    $
    68,000Less: accumulated amortization
    
    
    (4,355
    )Contracts
    
    
    80,210Less: accumulated amortization
    
    
    (16,786
    )Net intangible assets
    
    $
    127,069
  Other Assets
 Transportation and Exchange Imbalances
 Environmental Expenditures
 Income Taxes
 Derivatives Accounting for
Derivative Instruments and Hedging Activities,
 4




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NOTE 3. NEW ACCOUNTING PRONOUNCEMENTS
 Accounting for Certain Hybrid Financial Instruments Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities,
 Fair Value Measurements.
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Accounting for Uncertainty in Income
Taxes  an interpretation of FASB Statement No. 109
 NOTE 4. ACQUISITIONS
  ($ in thousands)Property, plant and equipment
    
    $
    89,054Intangibles
    
    
    7,992Other current liabilities
    
    
    (750
    )Asset retirement obligations
    
    
    (291
    )$
    96,005
 5




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NOTE 5. FIXED ASSETS AND ASSET RETIREMENT OBLIGATIONS
  March 31,($ in thousands)
    
    2007Land
    
    $
    853Plant
    
    
    82,082Gathering and pipeline
    
    
    458,577Equipment and machinery
    
    
    38,023Vehicles and transportation equipment
    
    
    2,799Office equipment, furniture, and fixtures
    
    
    511Computer equipment
    
    
    4,618Corporate
    
    
    126Linefill
    
    
    3,970Construction in progress
    
    
    15,924607,483Less: accumulated depreciation and amortization
    
    
    (38,336
    )Net fixed assets
    
    $
    569,147
 Asset Retirement Obligations
  ($ in thousands)Asset retirement obligations  December 31, 2006
    
    $
    1,819Additional liability on newly built assets
    
    
    49Accretion expense
    
    
    37Asset retirement obligations  March 31, 2007
    
    $
    1,905
 NOTE 6. LONG-TERM DEBT
  March 31,($ in thousands)
    
    2007Revolver
    
    $
    106,481Term loan
    
    
    299,250Total debt
    
    
    405,731Less: current portion
    
    
    Total long-term debt.
    
    $
    405,731
 6




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
    
    Adjusted EBITDA (as defined) to interest expense of not less than 2.5 to 1.0; and
    
    Total consolidated funded debt to Adjusted EBITDA (as defined) of not more than 5.0 to
1.0 and 5.25 to 1.0 for the three quarters following a material acquisition.
    7




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Principal($ in thousands)
    
    Amount2007
    
    $
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    405,731$
    405,731
  NOTE 7. MINORITY INTEREST
  Limited partners of Eagle Rock Energy Partners, L.P.:Non-affiliates of Eagle Rock Energy GP, L.P.
    
    $
    104,402Affiliates of Eagle Rock Energy GP, L.P.
    
    
    162,999$
    267,401
 NOTE 8. MEMBERS DEFICIT
    8




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NOTE 9. RELATED PARTY TRANSACTIONS
     NOTE 10. FAIR VALUE OF FINANCIAL INSTRUMENTS
   NOTE 11. RISK MANAGEMENT ACTIVITIES
  ($ in thousands)Fair ValueRoll Forward
    
    Expiration
    
    Notional
    
    Fixed
    
    March 31,Effective Date
    
    Date
    
    Amount
    
    Rate
    
    200701/03/2006
    
    
    01/03/2011
    
    
    $
    100,000,000
    
    
    
    4.9500
    %
    
    $
    (264
    )01/03/2006
    
    
    01/03/2011
    
    
    
    100,000,000
    
    
    
    4.9625
    
    
    
    (213
    )01/03/2006
    
    
    01/03/2011
    
    
    
    50,000,000
    
    
    
    4.8800
    
    
    
    2101/03/2006
    
    
    01/03/2011
    
    
    
    50,000,000
    
    
    
    4.8800
    
    
    
    21
   9




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
    
    Over-the-counter NGL puts, costless collar and swap transactions for the sale of Mont
Belvieu gas liquids with a combined notional amount of 530,000 Bbls per month for a term
from January 2006 through December 2010;
    
    Condensate puts and costless collar transactions for the sale of West Texas Intermediate
crude oil with a combined notional amount of 250,000 Bbls per month for a term from January
2006 through December 2010;
    
    Natural gas calls for the sale of Henry Hub natural gas with a notional amount of
200,000 MMBtu per month for a term from January 2006 through December 2007;
    
    Costless collar transactions for West Texas Intermediate crude oil with a combined
notional amount of 50,000 Bbls per month for a term of October through December 2006; and,
60,000 Bbls per month for a term of January 2007 through December 2007;
    
    Fixed swap agreements to hedge WTS-WTI basis differential in amount of 20,000 Bbls per
month for a term of October-December 2006; and, 20,000 Bbls per month for a term of January
through December 2007; and
    
    Natural gas fixed swap agreements to hedge short natural gas positions with a combined
notional amount of 100,000 MMBtu per month for the term of August 2006 through September
2006.
   NOTE 12. COMMITMENTS AND CONTINGENT LIABILITIES
 Litigation
 Insurance
  10




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Regulatory Compliance
 Environmental
 Other Commitments and Contingencies
 NOTE 13. SEGMENTS
   ($ in millions)
    
    
    
    
    
    Texas andThree months ended March 31, 2007
    
    Panhandle
    
    
    Louisiana
    
    
    Corporate
    
    
    TotalSegment assets
    
    $
    574.0
    
    
    $
    160.4
    
    
    $
    38.4
    
    
    $
    772.8
 NOTE 14. INCOME TAXES
   11




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NOTE 15. EQUITY-BASED COMPENSATION
   Number of
    
    Weighted AverageRestricted
    
    Grant - Date FairUnits
    
    ValueOutstanding at December 31, 2006
    
    
    122,450
    
    
    $
    18.75Granted
    
    
    Vested
    
    
    Forfeitures
    
    
    (7,300
    )
    
    $
    18.75Outstanding at March 31, 2007
    
    
    115,150
    
    
    $
    18.75
 NOTE 16. SUBSEQUENT EVENTS
     12




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13