##### 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 March 31, 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 
incorporation or organization)
    
    (I.R.S. Employer
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 April 28, 2009
    
    
    33,077,610




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##### 



ENCORE ENERGY PARTNERS LP
 INDEX
 PagePART I. FINANCIAL INFORMATIONItems 1. Financial StatementsConsolidated Balance Sheets as of March 31, 2009 and December 31, 2008
    
    1Consolidated Statements of Operations for the three months ended March 31, 2009 and 2008
    
    2Consolidated Statement of Partners Equity and Comprehensive Income for the three
months ended March 31, 2009
    
    3Consolidated Statements of Cash Flows for the three months ended March 31, 2009 and 2008
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    20Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    30Item 4. Controls and Procedures
    
    30PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    31Item 1A. Risk Factors
    
    31Item 6. Exhibits
    
    31EX-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.
    
    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.
    
    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.
    
    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 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.
    
    Net Profits Interest.An interest that entitles the owner to a specified share of net
profits from the production of hydrocarbons.
    
    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 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.
    
    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
 ii




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ENCORE ENERGY PARTNERS LP
 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.
    
    SEC.The United States Securities and Exchange Commission.
    
    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
 
 March 31,
    
    
    December 31,2009
    
    
    2008 *ASSETSCurrent assets:Cash and cash equivalents
    
    $
    242
    
    
    $
    619Accounts receivable:Trade
    
    
    16,765
    
    
    
    15,671Affiliate
    
    
    803
    
    
    
    856Derivatives
    
    
    66,392
    
    
    
    75,131Other
    
    
    508
    
    
    
    1,022Total current assets
    
    
    84,710
    
    
    
    93,299Properties and equipment, at cost  successful efforts method:Proved properties, including wells and related equipment
    
    
    545,307
    
    
    
    542,938Unproved properties
    
    
    56
    
    
    
    67Accumulated depletion, depreciation, and amortization
    
    
    (118,009
    )
    
    
    (107,616
    )427,354
    
    
    
    435,389Other property and equipment
    
    
    802
    
    
    
    802Accumulated depreciation
    
    
    (291
    )
    
    
    (240
    )511
    
    
    
    562Goodwill
    
    
    4,500
    
    
    
    4,500Other intangibles, net
    
    
    3,575
    
    
    
    3,662Derivatives
    
    
    35,436
    
    
    
    38,497Other
    
    
    1,361
    
    
    
    1,457Total assets
    
    $
    557,447
    
    
    $
    577,366LIABILITIES AND PARTNERS EQUITYCurrent liabilities:Accounts payable:Trade
    
    $
    1,496
    
    
    $
    1,036Affiliate
    
    
    2,052
    
    
    
    2,174Accrued liabilities:Lease operations expense
    
    
    3,857
    
    
    
    2,941Development capital
    
    
    1,542
    
    
    
    856Interest
    
    
    224
    
    
    
    126Production, ad valorem, and severance taxes
    
    
    11,078
    
    
    
    10,336Derivatives
    
    
    3,143
    
    
    
    1,297Oil and natural gas revenues payable
    
    
    1,431
    
    
    
    1,287Other
    
    
    1,614
    
    
    
    1,506Total current liabilities
    
    
    26,437
    
    
    
    21,559Derivatives
    
    
    2,270
    
    
    
    3,491Future abandonment cost, net of current portion
    
    
    9,224
    
    
    
    9,076Long-term debt
    
    
    185,000
    
    
    
    150,000Other
    
    
    960
    
    
    
    614Total liabilities
    
    
    223,891
    
    
    
    184,740Commitments and contingencies (see Note 13)Partners equity:Limited partners - 33,077,610 common units issued and outstanding
    
    
    337,607
    
    
    
    394,693General partner - 504,851 general partner units issued and outstanding
    
    
    922
    
    
    
    2,193Accumulated other comprehensive loss
    
    
    (4,973
    )
    
    
    (4,260
    )Total partners equity
    
    
    333,556
    
    
    
    392,626Total liabilities and partners equity
    
    $
    557,447
    
    
    $
    577,366
 
 *
    
    Recast as discussed in Note 2.  1




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ENCORE ENERGY PARTNERS LP
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 
 Three months endedMarch 31,2009
    
    
    2008 *Revenues:Oil
    
    $
    14,702
    
    
    $
    37,599Natural gas
    
    
    3,779
    
    
    
    8,787Marketing
    
    
    170
    
    
    
    2,859Total revenues
    
    
    18,651
    
    
    
    49,245Expenses:Production:Lease operating
    
    
    7,261
    
    
    
    6,089Production, ad valorem, and severance taxes
    
    
    2,228
    
    
    
    4,903Depletion, depreciation, and amortization
    
    
    10,385
    
    
    
    9,510Exploration
    
    
    22
    
    
    
    29General and administrative
    
    
    2,035
    
    
    
    3,052Marketing
    
    
    130
    
    
    
    2,393Derivative fair value loss (gain)
    
    
    (10,907
    )
    
    
    15,587Other operating
    
    
    717
    
    
    
    391Total expenses
    
    
    11,871
    
    
    
    41,954Operating income
    
    
    6,780
    
    
    
    7,291Other income (expenses):Interest
    
    
    (2,216
    )
    
    
    (1,640
    )Other
    
    
    5
    
    
    
    17Total other expenses
    
    
    (2,211
    )
    
    
    (1,623
    )Income before income taxes
    
    
    4,569
    
    
    
    5,668Income tax provision
    
    
    (1
    )
    
    
    (83
    )Net income
    
    $
    4,568
    
    
    $
    5,585Net income (loss) allocation (see Note 10):Limited partners interest in net income (loss)
    
    $
    4,499
    
    
    $
    (247
    )General partners interest in net income (loss)
    
    $
    69
    
    
    $
    (36
    )Net income (loss) per common unit:Basic
    
    $
    0.14
    
    
    $
    (0.01
    )Diluted
    
    $
    0.14
    
    
    $
    (0.01
    )Weighted average common units outstanding:Basic
    
    
    33,078
    
    
    
    28,273Diluted
    
    
    33,081
    
    
    
    28,273Cash distributions declared per common unit
    
    $
    0.5000
    
    
    $
    0.3875
 
 *
    
    Recast as discussed in Note 2.  2




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ENCORE ENERGY PARTNERS LP
 
 CONSOLIDATED STATEMENT OF PARTNERS EQUITY AND COMPREHENSIVE INCOME
 
 AccumulatedOther
    
    
    TotalLimited
    
    
    General
    
    
    Comprehensive
    
    
    PartnersPartners
    
    
    Partner
    
    
    Loss
    
    
    EquityBalance at December 31, 2008 *
    
    $
    394,693
    
    
    $
    2,193
    
    
    $
    (4,260
    )
    
    $
    392,626Net contributions from owner
    
    
    150
    
    
    
    
    
    
    
    
    
    
    
    150Deemed distributions in connection with acquisition of the Arkoma Basin Assets
    
    
    (45,333
    )
    
    
    (1,088
    )
    
    
    
    
    
    
    (46,421
    )Non-cash unit-based compensation
    
    
    136
    
    
    
    1
    
    
    
    
    
    
    
    137Cash distributions to unitholders ($0.50 per unit)
    
    
    (16,539
    )
    
    
    (252
    )
    
    
    
    
    
    
    (16,791
    )Components of comprehensive income:Net income attributable to unitholders
    
    
    4,500
    
    
    
    68
    
    
    
    
    
    
    
    4,568Change in deferred hedge loss
on interest rate swaps, net of tax of $2
    
    
    
    
    
    
    
    
    
    
    (713
    )
    
    
    (713
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,855Balance at March 31, 2009
    
    $
    337,607
    
    
    $
    922
    
    
    $
    (4,973
    )
    
    $
    333,556
 
 *
    
    Recast as discussed in Note 2.  3




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ENCORE ENERGY PARTNERS LP
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 Three months endedMarch 31,2009
    
    
    2008*Cash flows from operating activities:Net income
    
    $
    4,568
    
    
    $
    5,585Adjustments to reconcile net income to net cash provided by operating activities:Depletion, depreciation, and amortization
    
    
    10,385
    
    
    
    9,510Non-cash exploration expense
    
    
    
    
    
    
    20Deferred taxes
    
    
    37
    
    
    
    31Non-cash unit-based compensation expense
    
    
    137
    
    
    
    1,058Non-cash derivative loss
    
    
    12,944
    
    
    
    15,758Other
    
    
    365
    
    
    
    392Changes in operating assets and liabilities:Accounts receivable
    
    
    (1,040
    )
    
    
    (3,329
    )Current derivatives
    
    
    (1,214
    )
    
    
    Other current assets
    
    
    86
    
    
    
    (820
    )Long-term derivatives
    
    
    (21
    )
    
    
    (1,196
    )Other assets
    
    
    
    
    
    
    766Accounts payable
    
    
    259
    
    
    
    (3,225
    )Other current liabilities
    
    
    2,102
    
    
    
    192Net cash provided by operating activities
    
    
    28,608
    
    
    
    24,742Cash flows from investing activities:Purchases of other property and equipment
    
    
    
    
    
    
    (162
    )Development of oil and natural gas properties
    
    
    (1,002
    )
    
    
    (5,180
    )Net cash used in investing activities
    
    
    (1,002
    )
    
    
    (5,342
    )Cash flows from financing activities:Proceeds from long-term debt, net of issuance costs
    
    
    51,000
    
    
    
    142,310Payments on long-term debt
    
    
    (16,000
    )
    
    
    (25,000
    )Deemed distributions to affiliates in connection with the acquisition of assets
    
    
    (46,421
    )
    
    
    (125,401
    )Cash distributions to unitholders
    
    
    (16,791
    )
    
    
    (9,835
    )Other
    
    
    229
    
    
    
    (1,472
    )Net cash used in financing activities
    
    
    (27,983
    )
    
    
    (19,398
    )Increase (decrease) in cash and cash equivalents
    
    
    (377
    )
    
    
    2Cash and cash equivalents, beginning of period
    
    
    619
    
    
    
    3Cash and cash equivalents, end of period
    
    $
    242
    
    
    $
    5
 
 *
    
    Recast as discussed in Note 2.  4




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Note 1. Description of Business
  
    
    the Big Horn Basin in Wyoming and Montana;
    
    the Permian Basin in West Texas;
    
    the Williston Basin in North Dakota; and
    
    the Arkoma Basin in Arkansas.
 Note 2. Basis of Presentation
       Supplemental Disclosures of Cash Flow Information
  Three months ended March 31,2009
    
    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)
    
    $
    
    
    
    $
    125,027
 
 (a)
    
    Please read Note 3. Acquisitions for additional discussion. 5




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Reclassifications
  New Accounting Pronouncements
 FASB Staff Position (FSP) No. FAS 157-2, Effective Date of FASB Statement No. 157 (FSP FAS
157-2)
  SFAS No. 141 (revised 2007), Business Combinations (SFAS 141R)
 Business
Combinations 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)
 Accounting for Derivative
Instruments and Hedging Activities
 Emerging Issues Task Force (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)
 Earnings per Share
 6




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  FSP No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions
Are Participating Securities (FSP EITF 03-6-1)
  SEC Release No. 33-8995, Modernization of Oil and Gas Reporting (Release 33-8995)
  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)
  Note 3. Acquisitions
 Arkoma Basin Assets
   7




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Permian and Williston Basin Assets
   Note 4. Proved Properties
  March 31,
    
    
    December 31,2009
    
    
    2008(in thousands)Proved leasehold costs
    
    $
    391,191
    
    
    $
    391,191Wells and related equipment  Completed
    
    
    152,019
    
    
    
    149,778Wells and related equipment  In process
    
    
    2,097
    
    
    
    1,969Total proved properties
    
    $
    545,307
    
    
    $
    542,938
 Note 5. Derivative Financial Instruments
 Derivative Policy
     8




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   Commodity Derivative Contracts
    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)Apr.  Dec. 2009 (a)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    50,3253,130
    
    
    $
    110.00
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    
    440
    
    
    
    97.75
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000
    
    
    
    68.702010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,325880
    
    
    
    80.00
    
    
    
    
    440
    
    
    
    93.80
    
    
    
    
    
    
    
    
    2,000
    
    
    
    75.00
    
    
    
    
    1,000
    
    
    
    77.23
    
    
    
    
    
    
    
    
    2011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,5501,880
    
    
    
    80.00
    
    
    
    
    1,440
    
    
    
    95.41
    
    
    
    
    
    
    
    
    1,000
    
    
    
    70.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    83,200
 
 (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. 9




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 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)Apr.  Dec. 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    9,3183,800
    
    
    $
    8.20
    
    
    
    
    3,800
    
    
    $
    9.83
    
    
    
    
    
    
    
    $
    3,800
    
    
    
    7.20
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,800
    
    
    
    6.76
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,7473,800
    
    
    
    8.20
    
    
    
    
    3,800
    
    
    
    9.58
    
    
    
    
    
    
    
    
    4,698
    
    
    
    7.26
    
    
    
    
    
    
    
    
    
    
    
    
    
    902
    
    
    
    6.302011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    761898
    
    
    
    6.76
    
    
    
    
    
    
    
    
    
    
    
    
    
    902
    
    
    
    6.702012
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    575898
    
    
    
    6.76
    
    
    
    
    
    
    
    
    
    
    
    
    
    902
    
    
    
    6.66$
    18,401
  (in thousands)
    
    Asset Derivatives
    
    
    Liability DerivativesCurrent
    
    
    Long-Term
    
    
    Current
    
    
    Long-TermDerivatives not designated ashedging instruments under SFAS
    
    Balance Sheet
    
    
    
    
    
    
    Balance Sheet
    
    
    
    
    
    
    Balance Sheet
    
    
    
    
    
    
    Balance Sheet133
    
    Location
    
    
    Fair Value
    
    
    Location
    
    
    Fair Value
    
    
    Location
    
    
    Fair Value
    
    
    Location
    
    
    Fair ValueCommodity derivative contracts
    
    Derivatives - current assets
    
    $
    66,392
    
    
    Derivatives - long-term assets
    
    $
    35,436
    
    
    Derivatives - current liabilities
    
    $
    
    
    
    Derivatives - long-term liabilities
    
    $
    228
 Counterparty Risk.
 Percentage of
    
    Percentage ofOil Derivative
    
    Natural GasContracts
    
    Derivative ContractsCounterparty
    
    Committed
    
    CommittedBNP Paribas
    
    
    55
    %
    
    
    29
    %Fortis
    
    
    11
    %
    
    
    Calyon
    
    
    27
    %
    
    
    34
    %Wachovia Bank
    
    
    4
    %
    
    
    37
    %
  Interest Rate Swaps
  10




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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)Apr. 2009 - Jan. 2011
    
    $
    50,000
    
    
    
    3.1610
    %
    
    1-month LIBORApr. 2009 - Jan. 2011
    
    
    25,000
    
    
    
    2.9650
    %
    
    1-month LIBORApr. 2009 - Jan. 2011
    
    
    25,000
    
    
    
    2.9613
    %
    
    1-month LIBORApr. 2009 - Mar. 2012
    
    
    50,000
    
    
    
    2.4200
    %
    
    1-month LIBOR
  (in thousands)
    
    Liability DerivativesCurrent
    
    
    Long-TermDerivatives designated as hedging
    
    Balance Sheet
    
    
    
    
    
    Balance Sheetinstruments under SFAS 133
    
    Location
    
    Fair Value
    
    
    Location
    
    Fair ValueInterest rate swaps
    
    Derivatives - current liabilities
    
    $
    3,143
    
    
    Derivatives - long-term liabilities
    
    $
    2,043
  Current Period Impact
  Three months ended March 31,2009
    
    
    2008(in thousands)Ineffectiveness
    
    $
    89
    
    
    $
    (381
    )Mark-to-market loss
    
    
    7,300
    
    
    
    14,002Premium amortization
    
    
    5,555
    
    
    
    2,137Settlements
    
    
    (23,851
    )
    
    
    (171
    )Total derivative fair value loss (gain)
    
    $
    (10,907
    )
    
    $
    15,587
  Amount of Loss (Gain) RecognizedIn IncomeDerivatives Not Designated as
    
    Location of Loss (Gain)
    
    Three Months Ended March 31,Hedges Under SFAS 133
    
    Recognized In Income
    
    2009
    
    2008(in thousands)Commodity derivative contracts
    
    Derivative fair value loss (gain)
    
    $
    (10,996
    )
    
    $
    15,968
 11




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  (in thousands)Amount of Loss (Gain)Amount of Loss (Gain)
    
    
    
    
    
    Reclassified from
    
    
    
    
    
    Amount of Loss (Gain)Recognized in 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
    
    March 31,
    
    OCI into Income
    
    March 31,
    
    Recognized in Income
    
    March 31,Hedges Under SFAS 133
    
    2009
    
    2008
    
    (Effective Portion)
    
    2009
    
    2008
    
    as Ineffective
    
    2009
    
    2008Interest rate swaps
    
    $
    715
    
    
    $
    1,568
    
    
    Interest expense
    
    $
    881
    
    
    $
    (18
    )
    
    Derivative fair value loss (gain)
    
    $
    (89
    )
    
    $
    (381
    )
 Accumulated Other Comprehensive Loss
  Note 6. Fair Value Measurements
  
    
    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 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 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  Fair values of oil and natural gas floors and caps were estimated using
pricing models and discounted cash flow methodologies based on inputs that are not readily
available in public markets.
 12




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Fair Value Measurements at Reporting Date UsingQuoted Prices in
    
    
    
    
    
    
    SignificantActive Markets for
    
    
    Significant Other
    
    
    UnobservableAsset (Liability) at
    
    
    Identical Assets
    
    
    Observable Inputs
    
    
    InputsMarch 31, 2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)(in thousands)Oil derivative contracts  swaps
    
    $
    3,740
    
    
    $
    
    
    
    $
    3,740
    
    
    $
    Oil derivative contracts  floors and caps
    
    
    79,460
    
    
    
    
    
    
    
    
    
    
    
    79,460Natural gas derivative contracts  swaps
    
    
    707
    
    
    
    
    
    
    
    707
    
    
    
    Natural gas derivative contracts  floors and caps
    
    
    17,694
    
    
    
    
    
    
    
    
    
    
    
    17,694Interest rate swaps
    
    
    (5,186
    )
    
    
    
    
    
    
    (5,186
    )
    
    
    Total
    
    $
    96,415
    
    
    $
    
    
    
    $
    (739
    )
    
    $
    97,154
  Fair Value Measurements Using SignificantUnobservable Inputs (Level 3)Oil Derivative
    
    
    Natural GasContracts - Floors
    
    
    Derivative Contractsand Caps
    
    
    - Floors and Caps
    
    
    Total(in thousands)Balance at January 1, 2009
    
    $
    95,430
    
    
    $
    12,741
    
    
    $
    108,171Total gains (losses):Included in earnings
    
    
    (35,780
    )
    
    
    1,971
    
    
    
    (33,809
    )Purchases, issuances, and settlements
    
    
    19,810
    
    
    
    2,982
    
    
    
    22,792Balance at March 31, 2009
    
    $
    79,460
    
    
    $
    17,694
    
    
    $
    97,154The 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
    
    $
    (35,780
    )
    
    $
    1,971
    
    
    $
    (33,809
    )
   
    
    Level 3 Fair value of goodwill is determined using the estimated price ENP would
receive to sell the reportable units. These inputs are not readily available in public
markets. Fair values of other intangibles and asset retirement obligations are determined
using discounted cash flow methodologies based on inputs that are not readily available in
public markets.
 13




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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 Inputs
    
    
    Total GainsDescription
    
    March 31, 2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    (Losses)(in thousands)Goodwill
    
    $
    4,500
    
    
    $
    
    
    
    $
    
    
    
    $
    4,500
    
    
    $
    Other intangibles, net
    
    
    3,575
    
    
    
    
    
    
    
    
    
    
    
    3,575
    
    
    
    Asset retirement obligations
    
    
    (9,612
    )
    
    
    
    
    
    
    
    
    
    
    (9,612
    )
    
    
    Total
    
    $
    (1,537
    )
    
    $
    
    
    
    $
    
    
    
    $
    (1,537
    )
    
    $
    
 Note 7. Asset Retirement Obligations
  Future abandonment liability at January 1, 2009
    
    $
    9,465Wells drilled
    
    
    9Accretion of discount
    
    
    148Revision of previous estimates
    
    
    33Plugging and abandonment costs incurred
    
    
    (43
    )Future abandonment liability at March 31, 2009
    
    $
    9,612
  Note 8. Long-Term Debt
   14




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Applicable Margin for
    
    Applicable Margin forRatio of Total Outstanding Borrowings to Borrowing Base
    
    Eurodollar Loans
    
    Base Rate LoansLess than .50 to 1
    
    
    1.750
    %
    
    
    0.750
    %Greater than or equal to .50 to 1 but less than .75 to 1
    
    
    2.000
    %
    
    
    0.750
    %Greater than or equal to .75 to 1 but less than .90 to 1
    
    
    2.250
    %
    
    
    1.000
    %Greater than or equal to .90 to 1
    
    
    2.500
    %
    
    
    1.250
    %
   CommitmentRatio of Total Outstanding Borrowings to Borrowing Base
    
    Fee PercentageLess than .90 to 1
    
    
    0.375
    %Greater than or equal to .90 to 1
    
    
    0.500
    %
 Note 9. Partners Equity and Distributions
 Distributions
   Cash DistributionDate
    
    Declared per
    
    
    
    
    
    TotalDeclared
    
    Common Unit
    
    Date Paid
    
    Distribution(in thousands)2009Quarter ended March 31
    
    
    4/27/2009
    
    
    $
    0.5000
    
    
    
    5/15/2009
    (a)
    
    $
    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 with respect to the first
quarter of 2009. Shelf Registration Statement on Form S-3
  15




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Note 10. EPU
    Three months endedMarch 31,2009
    
    
    2008(in thousands, except per unit amounts)Net income
    
    $
    4,568
    
    
    $
    5,585Less: Net income for pre-partnership operations of
assets acquired from affiliates
    
    
    
    
    
    
    (4,901
    )Net income attributable to unitholders
    
    $
    4,568
    
    
    $
    684Numerator:Numerator for basic EPU:Net income attributable to unitholders
    
    $
    4,568
    
    
    $
    684Less: distributions earned by participating securities
    
    
    (252
    )
    
    
    (1,257
    )Plus: cash distributions in excess of income allocated to the general partner
    
    
    183
    
    
    
    326Net income (loss) allocated to limited partners
    
    $
    4,499
    
    
    $
    (247
    )Denominator:Denominator for basic EPU:Weighted average common units outstanding
    
    
    33,078
    
    
    
    28,273Effect of dilutive phantom units (a)
    
    
    3
    
    
    
    Denominator for diluted EPU
    
    
    33,081
    
    
    
    28,273Net income (loss) per common unit:Basic
    
    $
    0.14
    
    
    $
    (0.01
    )Diluted
    
    $
    0.14
    
    
    $
    (0.01
    )
 
 (a)
    
    For the three months ended March 31, 2008, 25,000 phantom units were outstanding but
were excluded from the diluted EPU calculations because their effect would have been
antidilutive. Please read Note 11. Unit-Based Compensation Plans for additional
discussion of phantom units. Note 11. Unit-Based Compensation Plans
 Management Incentive Units
   16




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Long-Term Incentive Plan
   Phantom Units.
  WeightedAverageNumber of
    
    Grant DateShares
    
    Fair ValueOutstanding at January 1, 2009
    
    
    43,750
    
    
    $
    18.67Granted
    
    
    
    
    
    
    Vested
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding at March 31, 2009
    
    
    43,750
    
    
    
    18.67
  Note 12. Comprehensive Income
  Three months endedMarch 31,2009
    
    
    2008(in thousands)Net income
    
    $
    4,568
    
    
    $
    5,585Change in deferred hedge loss on interest rate swaps
    
    
    (713
    )
    
    
    (1,568
    )Comprehensive income
    
    $
    3,855
    
    
    $
    4,017
 17




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Note 13. Commitments and Contingencies
   Note 14. 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.
   18




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Acquisitions
   Distributions
  Note 15. Subsequent Events
   19




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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 the 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 Item 8. Financial Statements and Supplementary Data of our 2008 Annual Report on Form
10-K.
 Introduction
  
    
    Overview of Business
    
    Second Quarter 2009 Outlook
    
    Results of Operations  Comparison of Quarter Ended March 31, 2009 to Quarter Ended
March 31, 2008
    
    Capital Commitments, Capital Resources, and Liquidity
    
    Critical Accounting Policies and Estimates
    
    New Accounting Pronouncements
 Overview of Business
    Second Quarter 2009 Outlook
   20




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ENCORE ENERGY PARTNERS LP
 Results of Operations
 Comparison of Quarter Ended March 31, 2009 to Quarter Ended March 31, 2008
 Revenues.
 Three months ended March 31,
    
    
    Decrease2009
    
    
    2008
    
    
    $
    
    
    %Revenues (in thousands):Oil
    
    $
    14,702
    
    
    $
    37,599
    
    
    $
    (22,897
    )
    
    
    -61
    %Natural gas
    
    
    3,779
    
    
    
    8,787
    
    
    
    (5,008
    )
    
    
    -57
    %Total oil and natural gas revenues
    
    
    18,481
    
    
    
    46,386
    
    
    
    (27,905
    )
    
    
    -60
    %Marketing
    
    
    170
    
    
    
    2,859
    
    
    
    (2,689
    )
    
    
    -94
    %Total revenues
    
    $
    18,651
    
    
    $
    49,245
    
    
    $
    (30,594
    )
    
    
    -62
    %Average realized prices:Oil ($/Bbl)
    
    $
    37.23
    
    
    $
    87.38
    
    
    $
    (50.15
    )
    
    
    -57
    %Natural gas ($/Mcf)
    
    $
    3.41
    
    
    $
    7.75
    
    
    $
    (4.34
    )
    
    
    -56
    %Combined ($/BOE)
    
    $
    31.88
    
    
    $
    74.92
    
    
    $
    (43.04
    )
    
    
    -57
    %Total production volumes:Oil (MBbls)
    
    
    395
    
    
    
    430
    
    
    
    (35
    )
    
    
    -8
    %Natural gas (MMcf)
    
    
    1,109
    
    
    
    1,133
    
    
    
    (24
    )
    
    
    -2
    %Combined (MBOE)
    
    
    580
    
    
    
    619
    
    
    
    (39
    )
    
    
    -6
    %Average daily production volumes:Oil (Bbls/D)
    
    
    4,388
    
    
    
    4,728
    
    
    
    (340
    )
    
    
    -7
    %Natural gas (Mcf/D)
    
    
    12,323
    
    
    
    12,455
    
    
    
    (132
    )
    
    
    -1
    %Combined (BOE/D)
    
    
    6,442
    
    
    
    6,804
    
    
    
    (362
    )
    
    
    -5
    %Average NYMEX prices:Oil (per Bbl)
    
    $
    43.31
    
    
    $
    97.74
    
    
    $
    (54.43
    )
    
    
    -56
    %Natural gas (per Mcf)
    
    $
    4.92
    
    
    $
    8.02
    
    
    $
    (3.10
    )
    
    
    -39
    %
   21




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ENCORE ENERGY PARTNERS LP
  Three months ended March 31,2009
    
    2008Average realized oil price ($/Bbl)
    
    $
    37.23
    
    
    $
    87.38Average NYMEX ($/Bbl)
    
    $
    43.31
    
    
    $
    97.74Differential to NYMEX
    
    $
    (6.08
    )
    
    $
    (10.36
    )Average realized oil price to NYMEX percentage
    
    
    86
    %
    
    
    89
    %Average realized natural gas price ($/Mcf)
    
    $
    3.41
    
    
    $
    7.75Average NYMEX ($/Mcf)
    
    $
    4.92
    
    
    $
    8.02Differential to NYMEX
    
    $
    (1.51
    )
    
    $
    (0.27
    )Average realized natural gas price to NYMEX percentage
    
    
    69
    %
    
    
    97
    %
     22




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
 Expenses.
 Three months ended March 31,
    
    
    Increase / (Decrease)2009
    
    
    2008
    
    
    $
    
    
    %Expenses (in thousands):Production:Lease operating
    
    $
    7,261
    
    
    $
    6,089
    
    
    $
    1,172Production, ad valorem, and severance taxes
    
    
    2,228
    
    
    
    4,903
    
    
    
    (2,675
    )Total production expenses
    
    
    9,489
    
    
    
    10,992
    
    
    
    (1,503
    )
    
    
    -14
    %Other:Depletion, depreciation, and amortization
    
    
    10,385
    
    
    
    9,510
    
    
    
    875Exploration
    
    
    22
    
    
    
    29
    
    
    
    (7
    )General and administrative
    
    
    2,035
    
    
    
    3,052
    
    
    
    (1,017
    )Marketing
    
    
    130
    
    
    
    2,393
    
    
    
    (2,263
    )Derivative fair value loss (gain)
    
    
    (10,907
    )
    
    
    15,587
    
    
    
    (26,494
    )Other operating
    
    
    717
    
    
    
    391
    
    
    
    326Total operating
    
    
    11,871
    
    
    
    41,954
    
    
    
    (30,083
    )
    
    
    -72
    %Interest
    
    
    2,216
    
    
    
    1,640
    
    
    
    576Income tax provision
    
    
    1
    
    
    
    83
    
    
    
    (82
    )Total expenses
    
    $
    14,088
    
    
    $
    43,677
    
    
    $
    (29,589
    )
    
    
    -68
    %Expenses (per BOE):Production:Lease operating
    
    $
    12.52
    
    
    $
    9.83
    
    
    $
    2.69Production, ad valorem, and severance taxes
    
    
    3.84
    
    
    
    7.92
    
    
    
    (4.08
    )Total production expenses
    
    
    16.36
    
    
    
    17.75
    
    
    
    (1.39
    )
    
    
    -8
    %Other:Depletion, depreciation, and amortization
    
    
    17.91
    
    
    
    15.36
    
    
    
    2.55Exploration
    
    
    0.04
    
    
    
    0.05
    
    
    
    (0.01
    )General and administrative
    
    
    3.51
    
    
    
    4.93
    
    
    
    (1.42
    )Marketing
    
    
    0.22
    
    
    
    3.86
    
    
    
    (3.64
    )Derivative fair value loss (gain)
    
    
    (18.81
    )
    
    
    25.17
    
    
    
    (43.98
    )Other operating
    
    
    1.24
    
    
    
    0.63
    
    
    
    0.61Total operating
    
    
    20.47
    
    
    
    67.75
    
    
    
    (47.28
    )
    
    
    -70
    %Interest
    
    
    3.82
    
    
    
    2.65
    
    
    
    1.17Income tax provision
    
    
    0.00
    
    
    
    0.13
    
    
    
    (0.13
    )Total expenses
    
    $
    24.29
    
    
    $
    70.53
    
    
    $
    (46.24
    )
    
    
    -66
    %
 Production expenses.
   23




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ENCORE ENERGY PARTNERS LP
 DD&A expense.
 G&A expense.
 Marketing expenses.
 Derivative fair value loss (gain).
 Three months ended March 31,
    
    
    Increase /2009
    
    
    2008
    
    
    (Decrease)(in thousands)Ineffectiveness
    
    $
    89
    
    
    $
    (381
    )
    
    $
    470Mark-to-market loss
    
    
    7,300
    
    
    
    14,002
    
    
    
    (6,702
    )Premium amortization
    
    
    5,555
    
    
    
    2,137
    
    
    
    3,418Settlements
    
    
    (23,851
    )
    
    
    (171
    )
    
    
    (23,680
    )Total derivative fair value loss (gain)
    
    $
    (10,907
    )
    
    $
    15,587
    
    
    $
    (26,494
    )
  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.
  24




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ENCORE ENERGY PARTNERS LP
   Development, exploitation, and exploration of oil and natural gas properties.
 Three months ended March 31,2009
    
    
    2008(in thousands)Development and exploitation
    
    $
    1,852
    
    
    $
    5,979Exploration
    
    
    266
    
    
    
    201Total
    
    $
    2,118
    
    
    $
    6,180
  Acquisitions of oil and natural gas properties.
 Funding of working capital.
   25




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ENCORE ENERGY PARTNERS LP
 Off-balance sheet arrangements.
 Contractual obligations.
 Payments Due by PeriodYears Ending
    
    
    Years EndingContractual Obligations and
    
    
    
    
    
    Nine Months Ending
    
    
    December 31, 2010
    
    
    December 31, 2012Commitments
    
    Total
    
    
    December 31, 2009
    
    
    -2011
    
    
    -2013
    
    
    Thereafter(in thousands)Revolving credit facility (a)
    
    $
    198,487
    
    
    $
    3,372
    
    
    $
    8,991
    
    
    $
    186,124
    
    
    $
    Commodity derivative contracts (b)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest rate swaps
    
    
    5,191
    
    
    
    2,381
    
    
    
    2,810
    
    
    
    
    
    
    
    Development commitments (c)
    
    
    2,477
    
    
    
    2,477
    
    
    
    
    
    
    
    
    
    
    
    Operating leases and commitments (d)
    
    
    2,403
    
    
    
    515
    
    
    
    1,373
    
    
    
    515
    
    
    
    Asset retirement obligations (e)
    
    
    32,769
    
    
    
    388
    
    
    
    775
    
    
    
    775
    
    
    
    30,831Total
    
    $
    241,327
    
    
    $
    9,133
    
    
    $
    13,949
    
    
    $
    187,414
    
    
    $
    30,831
 
 (a)
    
    Includes principal and projected interest payments. Please read Note 8 of Notes to
Consolidated Financial Statements included in Item 1. Financial Statements for additional
information regarding our long-term debt.(b)
    
    At March 31, 2009, our commodity derivative contracts were in a net asset position.
Please read Item 3. Quantitative and Qualitative Disclosures about Market Risk and Notes
5 and 6 of Notes to Consolidated Financial Statements included in Item 1. Financial
Statements for additional information regarding our commodity derivative contracts.(c)
    
    Represents authorized purchases for work in process. Also at March 31, 2009, we had
approximately $8.2 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.(d)
    
    Represents equipment obligations that have non-cancelable initial lease terms in excess
of one year.(e)
    
    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
7 of Notes to Consolidated Financial Statements included in Item 1. Financial Statements
for additional information regarding our asset retirement 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 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.
  26




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ENCORE ENERGY PARTNERS LP
 Capital resources
 Cash flows from operating activities
 Cash flows from investing activities
 Cash flows from financing activities
   Liquidity
    27




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ENCORE ENERGY PARTNERS LP
 Internally generated cash flows.
 Revolving credit facility.
     Applicable Margin for
    
    Applicable Margin forRatio of Total Outstanding Borrowings to Borrowing Base
    
    Eurodollar Loans
    
    Base Rate LoansLess than .50 to 1
    
    
    1.750
    %
    
    
    0.750
    %Greater than or equal to .50 to 1 but less than .75 to 1
    
    
    2.000
    %
    
    
    0.750
    %Greater than or equal to .75 to 1 but less than .90 to 1
    
    
    2.250
    %
    
    
    1.000
    %Greater than or equal to .90 to 1
    
    
    2.500
    %
    
    
    1.250
    %
   28




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##### Table of Contents



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 our 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 (as
defined in the OLLC Credit Agreement) to consolidated current liabilities (as defined in
the OLLC Credit Agreement) of not less than 1.0 to 1.0;
    
    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 1.5 to 1.0;
    
    a requirement that we and OLLC maintain a ratio of consolidated EBITDA (as defined in
the OLLC Credit Agreement) to consolidated senior interest expense of not less than 2.5 to
1.0; and
    
    a requirement that we and OLLC maintain a ratio of consolidated funded debt (excluding
certain related party debt) to consolidated adjusted EBITDA (as defined in the OLLC Credit
Agreement) of not more than 3.5 to 1.0.
   CommitmentRatio of Total Outstanding Borrowings to Borrowing Base
    
    Fee PercentageLess than .90 to 1
    
    
    0.375
    %Greater than or equal to .90 to 1
    
    
    0.500
    %
  Capitalization.
 Critical Accounting Policies and Estimates
  New Accounting Pronouncements
  29




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ENCORE ENERGY PARTNERS LP
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
   Commodity Price Sensitivity
  Interest Rate Sensitivity
   
 Item 4. Controls and Procedures
   30




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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 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 to Exhibit 3.1 of ENPs Current
Report on Form 8-K, filed with the SEC on September 21, 2007).10.1
    
    Purchase and Sale Agreement, dated December 5, 2008, by and among Encore Energy Partners LP,
Encore Energy Partners Operating LLC, and Encore Operating, L.P. (incorporated by reference to
Exhibit 2.1 of ENPs Current Report on Form 8-K, filed with the SEC on December 10, 2008).10.2
    
    Second Amendment to Credit Agreement, dated as of March 10, 2009, by and among Encore Energy
Partners LP, Encore Energy Partners Operating LLC, Bank of America, N.A., as administrative
agent and L/C issuer, and the lenders party thereto (incorporated by reference to Exhibit 10.1
of ENPs Current Report on Form 8-K, filed with the SEC on March 11, 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 ratio of earnings to fixed charges.
 
 *
    
    Filed herewith. 31




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ENCORE ENERGY PARTNERS LP
 
 SIGNATURE
  ENCORE ENERGY PARTNERS LPBy:
    Encore Energy Partners GP LLC, its General PartnerDate:  May 4, 2009
    /s/ Andrea HunterAndrea HunterVice President, Controller,
and Principal Accounting Officer
(Duly Authorized Signatory) 32